Ask the Expert: Spouse should repay loan

I have an outstanding home equity loan that won't be paid off for some time. The loan is in my name only. Will my wife be responsible for the outstanding balance if I should die?

Technically, no; but in reality, yes. If your wife didn't co-sign for the loan, she won't be legally responsible for repaying it. But if she doesn't repay it, she risks losing the house, which is collateral for the loan. The bank can foreclose to get its money back.

Like mortgages, home equity loans are backed by the house as well as by a loan agreement. (Your loan agreement gives the bank the option of suing you to get its money back instead of foreclosing on the house.) Since you alone signed the loan agreement, you're probably the only person on the deed to the house. When spouses are both on the deed, the bank wants them both to sign the loan document. The reason: As a married couple, they own their house "jointly by the entirety," which protects them against each other's creditors. When a house is owned jointly by the entirety, neither spouse's creditors can force a sale of the property to collect a debt owed by only one of them. The bank wants both signatures so that it can still sue the survivor for its money.

Since your wife isn't on the loan, it's likely that any outstanding balance will become due when you die. You should anticipate that she'll have to pay it. She could do that from the proceeds of your life insurance policy, for example, or by taking a new loan from your current lender or another lender.

The bottom line: To avoid foreclosure, your surviving spouse will probably have to repay a loan secured by your house.

Websites with more information: 1.usa.gov/wmqJrR and bit.ly/

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