Sub2 - What if the mortgage holder dies?

Hi all, I’ve been lurking and reading all I can on investing for less than a week and after looking over the different investing types the Sub2 really seems like what I would like to do first. I’m going to school full time (18 hrs) and money is tighter than tight, but I’ll be buying John’s system asap.

I’m not looking to over analyze anything, but doing my due diligence is only smart. My question I copied from a post that was posted about a year ago and there wasn’t really an answer. I thought someone might have more to say on this now. Here was the question.

“If a property is owned subject to, and the mortgage is in the name of a deceased person, who would be foreclosed upon in the event of a default on the mortgage? The property owner? The estate of the deceased? What if the estate has been settled? Whose credit report would get the hit?”

So what does happen if the mortgage holder(s) die in a Sub2 deal?

Thanks so much. I’ve learned sooo much very fast from reading these forums on the net.

Elkhart, IN

Howdy Jitgos:

Some good questions. I did have a lienholder die and the wife just took over as sole heir and I just made payments to her. Your question is a bit different but not much really. The heirs of the estate could decide to just leave it as is and let you continue making the debt payments. If the bank was not told of the death they would just keep sending out statements. If the heirs decided to tell the bank and wanted to close out the account the property owner would have to refinance the note or give it up in foreclosure or possibly just deed it back to the bank. If there were enough equity refinancing would be the best option of course. You may also be able to assume the note if you have better credit at that time than when the deal was first done.

I remember reading somewhere that the lender can not foreclose against a deceased person. It can not be against you sinse you are just the title holder and not the borrower. It may be the spouse if it was a joint loan or the spouse and the deceased estate. I am really not exactually sure of the steps and procedures. I have seen stuff like this just in limbo until someone does figure it all out.

Also once the etate is in probate I am sure the court would notify the banks if in fact there is even a will to probate and if the heirs decide to do this and when. It is not automatic. More lawyers possibly will need to argue and tie up the case. Since you have the deed it should not affect ownership. It could be a can of worms that you may just walk away from if there is no equity.

Hope my lack of knowledge has not confused you even more.

Thank for you for your lack of knowledge tedjr … lol … no really all makes pretty good sense… about how I figured… might get dicey if you have a t/b when the family wants to close everything out and no one is able to refinance at that point.

My understanding is that most of the time the investor in a Sub2 does a L/O once they have the property. Would there be any language that could be put in the L/O agreement to protect the investor in case the mortgage holder dies?

I realize this is probably a small issue, but just wondering. I’ve not done any investing at all YET.


I found a great property in Philadelphia where the owner is deceased. I am being told by the neighbors/friends that the deceased family has pretty much walked away from the property. I have checked and the propety has an outstanding mortgage. It does not appear that the lender is aware that the owner is deceased. What would you suggest is the best way to aquire this property? Should I start by tracking down the family or should I approach the lender? Thx.

Howdy Rico25:

The lender can not sell you the property. They can sell you the mortgage and you can foreclose on the owner. I am not sure about how to foreclose on the estate.

I too have had problems getting families to sell. Some members do not want to sell because it was their old home place and are content with letting it rot down. Sometimes they get sold for back taxes if there is no mortgage. I know of 1 now that owes 14 years back taxes. I have tried to contact the owners myself but no luck. You almost need to be a private eye.

If the deceased had no will and the estate has not been probated you can get the relatives to sell using an affidavit of heirship. This is basically sworn statements of two folks who knew the deceased over a long period of time who are not direct decedents ( son, daughter, sister, brother, husband, wife. etc) and state that they know the only living relatives to be the folks that have signed the deed. I had a contract on one like this once and there were over 100 heirs. I gave up on it and do not know how it got resolved but someone bought it finally. In this case too some of the heirs did not want to sign, either not enough money to bother, or again did not want the old home place sold, too many fond memories. There are many reasons why these things do not want to be dealt with. If you can find the reason and cure it you may have a super deal.


Howdy Jeremy:

There is language in the deed and other documents that addresses death of the parties.

Grantor, for the consideration and subject to the reservations from and exceptions to conveyance and warranty, grants, sells, and conveys to Grantee the property, together with all and singular the rights and appurtenances thereto in any wise belonging, to have and hold it to Grantee, Grantee’s heirs, executors, administrators, successors, or assigns forever. Grantor binds Grantor and Grantor’s heirs, executors, administrators, and successors to warrant and forever defend all and singular the property to Grantee and Grantee’s heirs, executors, administrators, successors, and assigns against every person whomsoever lawfully claiming or to claim the same or any part thereof, except as to the reservations from and exceptions to conveyance and warranty.

The above is a deed. There is similar language in mortgages too.

There was a lot of turmoil too back when savings and loans and banks were taken over by the RTC. If effect the mortgage holder died and a new holder in due course too over collections and knew nothing, sometimes not even knowing they owned the mortgage. It was really confusing.