During the height of the housing market, many background checks on potential buyers were missed due to a high amount of closings being conducted. Now, lenders may be facing backlash for approving mortgages before checking the marital status of most applicants. Florida has a homestead law that protects homeowners and their homes from threat of foreclosure in case the only spouse that signed the loan dies.
Due to the Florida homestead law, it is more difficult for lenders to pursue foreclosure if the spouse that signed the mortgage dies, and several lenders closed mortgages before conducting a thorough background check on the buyer. As a result, banks now require that both spouses sign for the loan in case of a spousal death. The remaining spouse will be held legally obligated to pay the monthly mortgage payments.
However, if banks fail to check on the marital status and only one spouse signs for the loan, this may prevent a bank from filing a foreclosure. Under the homestead law, if one of the spouses signs for the loan and then later passes away, the remaining spouse is entitled to a life estate of the home. The obligation for payment is no longer required when the spouse, who was the only signer of the loan, dies.
The Florida homestead law is usually considered a loophole for homeowners in case of a threat of foreclosure. Not every homeowner falls under the protection of the homestead law and it only applies if the signing spouse dies. When a homeowner is facing losing their home, there may be foreclosure alternatives, including loan modification, that can help keep families and struggling homeowners in their homes.
Source: hernandotoday.com, Foreclosure loophole irks lenders, Matt Reinig, Sept. 7, 2013