When a Loan Customer Dies: Issues to Consider

Your customer passed away yesterday and the family is grieving.  Yet, in the midst of remembering and honoring a life, the legal and compliance clock is ticking. Join us for 15 issues you should consider before handling a deceased loan customer’s accounts.

As lenders, we work hard to make good underwriting decisions.  In addition to analyzing a consumer’s income or business cash flow, it’s common to take a security interest in collateral. Collateral runs the gamut of cars, personal residence, stocks, commercial real estate, equipment, accounts receivable, and inventory. One risk factor that’s difficult to predict is death. If the death involves a sole proprietor, partner or key officer, high balance loans could be outstanding, and you wonder if the payments will continue. We’d like to be sensitive to the family or help the remaining business owner, but the compliance clock doesn’t stop ticking. Many issues and questions arise. Join us for 15 issues you should consider before handling a deceased customer’s loan accounts, and learn additional tips to protect your bank when making a loan.


  • Is the “death” of a customer a triggering event for default?
  • How should lenders handle questions about the estate?
  • What information can be shared? Who is entitled to the information?
  • What documents or information does a financial institution need before releasing the information?
  • Is there standard language that your loan agreements should have regarding the death of a borrower?
  • If the borrower was a service member on active duty, what protections must be extended to the surviving family members?
  • How should notices to co-borrowers, guarantors and co-signers be given?
  • What is the effect on the foreclosure process?
  • Are Home Equity Lines of Credit impacted?
  • How can a financial institution protect its collateral?
  • How does the financial institution handle issues of guarantors, setoff and insurance when the borrower has died?
  • What do the banking regulations and exam guidelines say?
  • How does the death of a key person affect the extensions of credit to Corporations, Partnerships, LLCs, Trusts and other legal entities?
  • When should “Key Man” insurance be required? What are the pros and cons of credit life insurance?


CSRs, branch managers, lenders, loan operations, credit administration, compliance, legal staff and anyone who handles loan accounts.


Susan Costonis is a compliance consultant and trainer who is affiliated with gettechnical inc.  She specializes in compliance management along with deposit and lending regulatory training.  Most of her 34-year career was spent as a banker in several areas including lending, marketing, electronic banking, compliance, and senior management.

Credit Information

Institute of Certified Bankers: Visit http://www.icbmembers.org/login.aspx for instructions regarding self-reporting. Estimated credits: 2.5 hrs.CRCM/CPB/CCSR/CLBB.


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