A mortgage borrower is dies, the heirs have not attempted to settle the estate, but they have continued to make payments on the loan because one of the heirs is living in the home (child). The loan has never been late. The bank has contacted the heir that is living in the home, and asked him to come in, and refinance, or assume the loan into the child's name. They have refused to do this, but continue to make payments. The property has been well maintained, and there is sufficient equity to protect against any loss.

The bank has filed a claim against the estate. The bank doesn't foresee any loss, and as long as the heir continues to make payments, the bank does not want to foreclose on the property. The loan is currently classified substandard, and on non-accrual, because the bank technically doesn't have a borrower. Is there any way to put this loan back on accrual?

Only accept payments from the estate via the executor. You are under no obligation to accept payments from any other source.

Understood, and noted, however the Bank's legal counsel and management would rather accept payments versus forcing the issue with the estate. This is a very small loan, and the heir has been making the payments for over 2 years since the borrower's death. Is there an accounting rule or regulation that would prevent the bank from placing the loan back into accrual status?

Not sure how - you have no actual legally obligated borrower - but you could check with your accountants for their opinion.

Thank you for your response.