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Removing Deceased Joint Owner From HELOC

Question: 
I had a call from a customer that is joint on a HELOC and one of the joint owners passed away. She would like to remove him from the HELOC. Can this happen?
Answer: 

John Burnett

Your bank always has the option to release an obligor. However, in this case you might want to consider the ongoing creditworthiness of the surviving co-owner, while the deceased borrower's estate is still currently liable on the loan agreement.

Answer: 

Andy Zavoina

A complete file review should be done before you would entertain such a request. This may be hypothetically speaking but you never know, you need to ensure the borrower you would be left with has an ownership interest in the collateral. Will that person qualify for the loan? Are there estate funds that will pay the loan off otherwise or are you simply putting money in the heirs pockets and straining the surviving borrower? Perhaps it was the deceased intent to have the debt paid. And if you release the estate from liability you weaken your credit quality. All these factors must be considered. If you later went after the surviving borrower, how would you combat a defense stating "Ted wanted that loan paid off from his assets, but the bank released the estate of that and instead made me liable for the entire debt. I don't have that money."

First published on 08/18/2014

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