What To Do When Your Loved One Dies And Leaves Behind A Mortgage


It's generally easier to inherit real estate property that's been paid off. All you need to worry about in this situation is paying the property taxes and maintaining homeowner's insurance. Unfortunately, with today's economy, you're just as likely to inherit a home with a mortgage attached, which can complicate the inheritance process. Here are three options for handling this particular situation.

Pay Off the Loan Using Available Assets

Possibly the easiest option is to pay off the loan using other assets that may be available. For instance, you can use the proceeds from a life insurance payout or liquidate other assets (e.g., sell vehicles, use cash from a retirement fund) and repay the bank. Once the bank removes the mortgage lien, you can then transfer the property into your name and move on with your life.

Of course, this option is only available to you if the decedent's estate has enough money for you to make this kind of move. Paying off the home will be much more challenging if the person died intestate. However, one thing you can do in this situation is to take a close look at any insurance the individual may have had on the home. Sometimes there may be a supplemental mortgage protection policy (or similar financial instrument) that will pay off the entire loan upon the policyholder's death. If you do find this type of insurance, be sure to notify the insurance company as soon as possible to avoid running afoul of any filing deadlines.

Take Over the Loan

If you can afford to pay the monthly mortgage, your other option is to take over paying on the home loan. Normally a person would have to jump through several hoops before they can assume another person's loan (e.g., meet credit and income requirements). However, federal law has put a number of protections in place that let heirs cut through the red tape and take up the mortgage payments.

The only thing you need to do in this situation is notify the bank that your loved one has died and that you'll be making payments on the loan from that point forward. You don't need to refinance the loan or even put your name on the contract, though you should add your name to the deed. Be aware, though, that you must be related to the decedent or be a designated heir to take advantage of this option.

The primary benefit to this is that there is very little risk to you. You'll enjoy the same interest rate and mortgage terms as your deceased loved one. If the mortgage becomes too burdensome, you can walk away without taking a hit to your credit, though the bank will still repossess the home and may try to come after you for the amount due.

However, this option only makes sense if there's some value in keeping the home. If the home is underwater or in such severe disrepair that it will take every penny of available equity in the home to fix it, it may be better to sell the home or let the bank take it.

Sell the Home

The third option is to go ahead and sell the home and use the proceeds to pay the bank. This is probably the best way to go if you have no intention of living in the house and don't want the burden of having to maintain it or deal with trying to find renters so you can generate income from the property.

It's important to note that proceeds of the home sale may be first applied to any outstanding debts the decedent owed before you will receive your portion of any funds left over from paying off the mortgage. Additionally, if the person died without a will, the home will have to be sold through probate court, which can take several months or even a few years, depending on the market and the state of the decedent's estate.

For more information about this issue or help dealing with your deceased loved one's property, contact a probate attorney.


16 August 2017

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