A recent court case in Massachusetts, Wells Fargo v. Comeau, covered the topic of a surviving spouse’s liability for mortgage debt in Massachusetts. The decedent’s estate, in this case, went through probate court. However, the court c action initiated by the lender was brought not against the probate estate, but against the surviving spouse, outside of probate. The ruling is important from both a mortgage lending and an estate planning perspective. Below, we provide some general information on the topic and take a closer look at the impact of this particular case.
Spouses Listed on Deeds but Not Mortgages
It’s somewhat common to see both spouses listed on a deed for a home but not on the promissory note. Why does this occur? Sometimes it’s more beneficial, from a mortgage qualification perspective, to have only one person listed as the borrower (i.e. income, credit scores, etc). However, both spouses wish to retain ownership of the home and therefore get listed on the deed. What this ultimately means is that both spouses legally own the home, but only one is responsible for paying the loan back. As you can imagine, this is a bit of a tricky situation!
The Ruling in Wells Fargo v. Comeau
In Wells Fargo v. Comeau, only the husband was listed on the promissory note. Both husband and wife were listed on the deed. When the husband passed away, the lender attempted to collect the debt from the wife.
The husband’s estate originally went through probate court (since there was no trust in place). As part of those probate proceedings, creditors were given one year to file a claim against the decedent’s estate. Wells Fargo did not do that. Instead, they filed a court case after the one-year statute of limitations had passed and against the wife individually, not the decedent’s estate.
The courts ruled that, in this case, there is no surviving spouse liability for mortgage debt in Massachusetts. Since this case took place outside of the probate process, we do not know for certain if the outcome would have been different if the case took place in probate court and the lender filed a proper claim within the one year statute of limitations. However, we suspect that it would likely have lead to a different result.
Implications of this Ruling on Surviving Spouse Liability for Mortgage Debt
This was a huge loss for the mortgage lending industry. As a result, we can expect to see some changes in what mortgage companies allow when it comes to spouses listed on promissory notes versus deeds. The surviving spouse in this case was very lucky, but planning for your untimely death should never rely on luck.
If you own properties and other assets, it is important to protect and preserve them for your beneficiaries. Having instruments, such as trusts, can avoid probate, taxes, and other costly issues. This court case regarding surviving spouse liability for mortgage debt also highlights the fact that laws and procedures continually change. Many things can impact estate planning approaches. If you have an existing plan from years ago, it’s a good idea re-evaluate and update it yearly. Schedule a consultation with our team to create a new estate plan or review your existing one.