The vast majority of home buyers in Canada will need mortgage financing – especially given the rise in prices across the country.

To qualify for a mortgage, applicants must prove that they can afford to make the payments every month.  Typically, lenders look for good credit scores and steady, reliable employment income. No problem, right?

But what if the unthinkable happens, and a buyer passes away before taking possession of a home?

What does the contract say?

In the standard OREA (Ontario Real Estate Association) Agreement of Purchase and Sale, clause 28 succinctly states:

28. SUCCESSORS AND ASSIGNS: The heirs, executors, administrators, successors and assigns of the undersigned are
bound by the terms herein.

This means that, once a deal is accepted, and all conditions removed, the death of any party does not dissolve the agreement.

As a home buyer, this protects you.  Even if the Seller dies, the Estate must proceed with the sale, ensuring that you are not left in the lurch.

However, this also means that if one of the home buyers on the Agreement dies before taking possession, the buyer’s estate must complete the transaction.

A buyer’s estate may be unable to complete the purchase, since mortgage funding usually depends on the applicant having income.  This, at the very least, puts the estate at risk of losing the deposit amount.  It could also mean liability if the Seller has to sell again for a lower price.

How to protect the buyer’s estate

There are a couple of common, simple options to protect yourself from additional stress in the case of an unexpected death.

• Mortgage insurance.  Your lender or mortgage broker can offer you this type of policy.  The lender is the beneficiary, and the amount of coverage declines as the mortgage amount declines.  If you apply for this type of protection at the point of a mortgage approval, be sure to ask if your policy includes a guarantee of mortgage funding in the case of death before closing.  Applying for a mortgage insurance policy often involves three or four basic health questions.  If your answers are satisfactory, coverage is pretty much automatic.  (If you have had serious health issues, it may require a bit more information from you, or some further testing.)
• Term insurance. A term insurance policy in the amount of the mortgage is another option.  Depending on the applicant and the amount, the application process could be fairly quick and straightforward here, too.  For many term policies, you will need to have a nurse come to your home to take a blood sample and do a few tests.  You’ll be asked for a fairly thorough medical history to assess your actual risk level.  You can choose to match the term to your amortization term – 25 or 30 years.  Once your mortgage is paid off, the insurance coverage will expire unless you choose to extend it.

Of course, you will want to speak to a qualified insurance broker to discuss the option that best suits your needs.  There are other types of insurance on the market that may be better for your situation, and they can give you the best advice for your own circumstances.

Prepare ahead!

We always try to help our clients prepare for any scenario. This is one that can be unpleasant to think about.  Our philosophy, though, has always been that the more prepared you are for the unexpected, the less likely you are to have unexpected problems!

If you would like more information about the type of insurance coverage available to you, we would be happy to provide referrals to trusted partners.