Death of Buyer in Seller Finance?

[Tripp Warren]

Hi all,

My MIL is planning on retiring in the next year or so and will be moving to the Phoenix area. She owns her current home and I would love to purchase it seller financed for an investment when she gets ready to retire. We've started discussions back and forth about how it would work. She had a question that I have no idea how to answer and that I haven't heard on any Podcast or seen in the forums. That question is this:

"What happens to the loan if you (me; the buyer) should die?"

Not sure if she's plotting my death (just kidding). I'm in great health and don't immediately foresee anything happening but you never know. She's worried that the payments that I would make on the loan would stop, and she would then be financially burdened on the home that she would be buying/renting in Phoenix after retirement. She won't be getting a great deal of income from her 401K and I would predict that the mortgage amount that I would be paying her would only be about 50% of what she would need to live off of.

Is there some sort of insurance that she could get for that? Or does a transfer of deed on death seem the better option?

Looking for answers as I plan on seeking more Seller Finance deals.

Thanks in Advance!

[Matt Devincenzo]

The same as any other loan you have when you die...your estate owes the money and the executor should pay the bills from available assets. Now in practice that may take a week, a month, or 3 months to get things sorted out but the amount due is still due even if it was a bit late. Ultimately the final dispensation of this would be either your wife who inherits the property keeps it and continues to pay the loan. Or she pays off the loan (sells or uses life insurance payment etc) and keeps whatever proceeds remain.