3 Things to Know About Mortgages and Probate

Most people plan to pass down their homes to their children, but long mortgage terms and adverse life events can mean that many people are still paying on their loans well into their golden years. Unfortunately, this situation can complicate the inheritance process when one or both parents pass away. You may face additional complications if the estate enters probate.

1. Lenders May Attempt a Foreclosure

If you're the executor or administrator of an estate, you are responsible for dealing with any debts the decedent left behind. This process usually involves creating a separate bank account to manage estate assets and pay bills. Although you will need to manage these debts, you aren't personally responsible for paying them — you are simply acting as an administrator for the estate.

Likewise, you are not personally responsible for taking on your loved one's mortgage if you don't want it. However, the mortgage company will expect payments to continue as usual. If you do not make payments on time, the lender can begin foreclosing on the property. They can start this process even if you haven't yet set up an estate account or begun acting as an executor or administrator.

As a result, act quickly and decide what you want to do with an inherited home. If you want to keep the home or avoid immediate foreclosure, contact the lender quickly and begin making mortgagepayments. Lenders will sometimes begin foreclosure proceedings relatively quickly, so get in touch with them as soon as you can.

2. Mortgage Debt Works Differently

When managing an estate, you often use estate assets to settle debts if the estate does not have enough cash to cover those liabilities. However, mortgage debt can work a little bit differently. When you manage an estate that includes a mortgage, you don’t need to sell the home to pay back the mortgage servicer.

Likewise, the mortgage alienation clause will not trigger when the property changes hands as part of a probate or inheritance process. Instead, you can take on the existing mortgage, usually with the same terms as the decedent. The mortgage servicer may also offer you the opportunity to refinance to better terms.

A few other unique situations may come into play when dealing with mortgages. For example, the decedent may have a will that specifies that the estate should pay as much of the mortgage as possible. In these cases, the estate executor or administrator will need to sell state assets to pay down the loan. Any amount remaining on the mortgage will still transfer to you.

3. Multiple Inheritors Can Create Issues

Dealing with property with more than one heir is almost always more challenging. For instance, multiple siblings may inherit equal portions of a home. In these cases, taking over existing mortgage payments may cause issues if one or more inheritors do not want to keep the home. Options to resolve these disputes include buyouts, private arrangements, or court action.

If multiple inheritors cannot agree on what to do with a property, you may need to involve the court in a partition action. This legal action effectively forces the sale of the property, allowing the estate to distribute the proceeds among inheritors. For homes with mortgages, these proceeds include profits after repaying the full amount to the lender.

Hoffman & Hoffman specializes in probate law and can help you deal with complex matters involving valuable property, mortgages, and multiple inheritors. Schedule a consultation today if you need help navigating the often confusing and complicated probate process.