What happens when the mortgage holder dies and you inherit?

By
Real Estate Agent with Keller Williams Capital Properties DC AB15253

I recently had a call from a past client whose father had died unexpectedly a few weeks ago.  His mother had died nearly ten years ago and my past client is an only child.  He now finds himself as the only heir and the executor to his father's estate.  He wanted some ideas about the value of his dad's condo and what his next steps should be - besides talking to his lawyer! 

His dad had expected to live in the condo for many years to come and to pay off his mortgage  during his retirement. Unfortunately, his life didn't go according to his plan. Even though the homeowner died before paying off the mortgage, the mortgage didn't disappear.  Now my past client had a condo and mortgage to deal with.

Who Is Responsible for Mortgage Payments After the Borrower’s Death?
My past client wasn't sure what to do about the mortgage on the property.  I encouraged him to talk to his lawyer about all this but also encouraged him to make sure the mortgage payments were paid promptly going forward. After a homeowner dies, the loan still needs to be repaid. Heirs who were not party to the mortgage are not financially responsible for making payments, but those payments will still need to be made in one way or another to avoid having the house go into foreclosure.

If the homeowner has a surviving spouse who co-signed the mortgage, he or she becomes responsible for payments. Another individual who co-signed the loan will be responsible for making payments, regardless of whether that person has an ownership stake in the house.

If there is no co-signer, other family members like my client can choose to take responsibility for the mortgage. If they’re unable or unwilling to take on the mortgage, the executor can use funds from the estate to pay off the loan, or the house can be sold.  Of course, everyone needs to be mindful that the mortgage has to be paid while the house or condo is on the market.  If the bank is not receiving the mortgage payments from someone the lender will start foreclosure proceedings. 

If the house sells for more than the amount owed on the mortgage, the balance can be used to pay off debts or can be passed on to heirs. If the house is worth less than the amount owed, the executor may negotiate a short sale or allow the house to go into foreclosure. If the owner had a reverse mortgage, the loan will need to be paid off after all borrowers have died or moved out of the house. If family members pay off the loan, they can keep the house.

Estate Planning Options
My client was lucky that he was in a position to pay for the mortgage while figuring out what to do going forward.  We talked about what other people do as part of their estate planning.  He wanted to make sure his friends were better prepared than he had been! 

If possible, the homeowner can set aside money in a savings account or another financial instrument that family members can access after his or her death. That will help them continue to make mortgage and tax payments until they decide whether to keep or sell the house.

Life insurance can provide funds that can be used to pay off a mortgage in the event of the homeowner’s death. That can allow heirs to stay in the house debt-free or to move out and start over.  While there are lots of life insurance policies out there, I told him that I never hear good things about those policies that are just for the purpose of paying off a mortgage.  A general life insurance policy can do the same thing and is typically less expensive. 

In his case, his dad had put the condo in a trust to avoid the time and expense of going through probate. It’s important to discuss the legal and tax implications with an attorney and an accountant.

Talk to Your Family
Death is inevitable. The better family members plan for it, the smoother the transition will be for surviving relatives. Whether you own a home or a loved one does, have an honest discussion and seek advice from professionals so you can make the best decisions as a family.

Happy Ending

My past client and I talked about the value of the condo and its rental potential.  He has decided to keep the condo and rent it. The rental income will more than cover the mortgage and fees and hopefully will continue to appreciate in value.  WIth luck, his dad's condo will pay for my client's children to go to college in another ten years!  What a wonderful gift. 

close

Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Barbara Todaro 03/21/2019 07:44 AM
  2. June Piper-Brandon 03/21/2019 10:06 PM
  3. Frank Rubi 03/22/2019 05:19 AM
Topic:
Real Estate General Information
Tags:
the lise howe group
death of a mortgagor
estate planning with mortgage

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Rainer
506,909
Sham Reddy CRS
H E R Realty, Dayton, OH - Dayton, OH
CRS

I am going through the same situation with one of my listings where the seller died leving no will.  She had no assets and kids are dragging their feet getting an executor appointed by the courts

Mar 22, 2019 03:38 AM #22
Rainmaker
159,048
Elaine VonCannon
Coldwell Banker Traditions - Williamsburg, VA

Very informative Lise, thank you for sharing this great article!

Mar 22, 2019 04:33 AM #23
Ambassador
908,785
Frank Rubi
Frank Rubi Real Estate, LLC - Metairie, LA
FrankRubiRealEstate.com

Lise Howe Great post, some much to consider in this type of situation. I encourage all involved to keep all documents that pertain to personal funds spent on the estate. 

Mar 22, 2019 05:26 AM #24
Rainer
52,370
Mark Davis-Cote
The HomesFinder Realty Group - Beaufort, SC
Broker-in-Charge, The HomesFinder Realty Group

Great article, Lise!  I had one of my agents call me a few weeks ago, very flustered and unclear of what to do.  She was representing the buyer, and was under contract on a house, and the seller died before closing.  Most agents don't have this experience ever, certainly not very often, and it is always best to talk to the attorneys involved.  Property just closed this week, since heirs were eager to have the property moved out of the estate and not have to worry about mortgage payments.  Buyer happy, agents happy, heirs happpy!

Mar 22, 2019 06:53 AM #25
Rainer
137,072
Anne Corbin
Long and Foster - Lake Anna - Spotsylvania, VA
Serving Lake Anna & Central Virginia

Nice article. A lot has changed since I left the legal field in 1999, but I still know how important those items are. My mom recently passed and I'll be taking my father to the law office soon. I'm making his appointment today while I'm there at a closing!

Mar 22, 2019 07:14 AM #26
Rainmaker
488,261
Terry McCarley
REMAX Realty Team - Cape Coral FL - Cape Coral, FL
REALTOR, SRES, CDPE - Cape Coral, FL

Excellent post!  I have handled numerous transactions and the ones where the home was in a trust have always been the quickest here in Florida

Mar 22, 2019 07:17 AM #27
Rainmaker
2,434,288
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Anytime there is a death and it involves Real Estate, the potential for property to become a "lien" magnet increases. Why its your word against the deceased. Taking charge and possession is the first thing to do. Sort it out from there...

Mar 22, 2019 07:39 AM #28
Rainmaker
295,581
Dave Rosenmarkle
Highland Realty - Arlington, VA
32 years of providing fully satisfying service!

Great reminder no one hopes to need, but certainly, be aware of. Thanks!

Mar 22, 2019 08:15 AM #29
Rainmaker
370,986
M.C. Dwyer
Century 21 Showcase REALTORs - Felton, CA
Santa Cruz Mountains Property Specialist

Most of us shouldn't give legal advice, but you're in a unique position to help as both broker and attorney.    Thanks for putting this helpful information together and sharing it to the public!.

Mar 22, 2019 09:17 AM #30
Rainmaker
627,376
Mike McCann - Nebraska Farm Land Broker
Mike McCann - Broker, Mach1 Realty Farmland Broker-Auctioneer Serving Rural Nebraska - Kearney, NE
Farm Land For Sale 308-627-3700 or 800-241-3940

Fantastic information Lise Howe Thank you for sharing!! I will show this to my wife as we need to get this taken care off with a solution for all of us in our family.

Mar 22, 2019 01:35 PM #31
Rainmaker
16,664
Krista Jenkins, REALTOR®
klm Real Estate - Lubbock, TX
Residential sales and retail & office leasing

It is important that we as professionals know how to guide our clients in times like these. I recently completed a transaction in which one of the sellers died right before we listed the house. It did not dawn on them to call their family attorney until I reminded them. Burying their loved one was their main focus at the time, as it should be.

Mar 22, 2019 01:36 PM #32
Rainmaker
162,775
Rhonda Burgess
Southern Living Realty Partners - Smyrna, TN
Moving to Nashville TN Real Estate Specialist

I've recently been going through a similar situation myself. My dad died a year ago and fortunately my mother is still living. The problem has been that when my parents refinanced years ago, my mom - who was the primary borrower at the time - was never on the deed. I have no idea how this happened because I know she was listed on the deed when they bought the house about 20 years ago. Going through probate and making sure my mother is financially set has been quite an ordeal.  And I'm an only child too.  Prayers for your client. 

Mar 22, 2019 01:59 PM #33
Rainmaker
480,497
Bruce Kunz
C21 Solid Gold Realty, Brick, NJ, 732-920-2100 - Howell, NJ
REALTOR®, Brick & Howell NJ Homes for Sale

I'm glad this is working out for your client. You are certainly on point with your information and the real importance of planning.

Thank you for sharing, Lise Howe
Bruce

 

Mar 22, 2019 06:59 PM #35
Rainmaker
310,845
Wayne L. Brown
Franklin Advantage Inc. - Alpine, CA

Lise

Your post was well done and informative.

Great reminder as at some point this may cross one's path in business.

Congratulations on the feature.

Mar 23, 2019 12:30 PM #36
Rainer
135,382
Robin Wells
RAW Chimney Sweep and Inspections - Penetanguishene, ON
Giving Peace Of Mind One Chimney At A Time

Thanks for post. Good information and things we don't often think about.

Mar 24, 2019 05:06 AM #37
Rainmaker
178,772
Melissa Spittel
Coldwell Banker Residential Brokerage - Westminster, MD
"Achieving Results Together "

I had this happen to me when my mom passed unexpectedly. Fortunately, she was so organized that as the personal representative, I was able to access her accounts and keep the mortgage up-to-date. I wasn't in real estate at the time, so ended up having a friend list her condo. Got lucky, in that a man who was going through a divorce offered to rent-to-own for a year until his divorce was final, and committed to purchasing. He paid down the mortgage for that year, which ended up being a huge blessing.

Mar 25, 2019 01:17 PM #38
Rainmaker
203,143
Ben DeHaven
Haven Realty & Investments - Winter Haven, FL
Proudly serving Winter Haven & Lakeland, Florida

Thats an excellent ending to a terrible thing. I have been told by my parents that they have everything in place should something unexpected happen. 

Mar 26, 2019 06:00 AM #39
Rainer
472,764
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

Everybody should have an exit plan especially when you buy or start a business or buy a home or make an investment. Additionally, an exit plan should be reviewed from time to time and especially when you reach a certain age. 

Death is inevitable but with a prudent and pragmatic exit plan, all of the deceased assets will be distributed according to his or her exit plan.

Mar 26, 2019 05:38 PM #40
Rainmaker
806,139
Lanre-"THE REAL ESTATE FARMER" Folayan
Keller Williams Select Realtors-Buy a home in Washington DC. Sell a home in Washington DC - Bowie, MD
I don't make promises.I deliver results.SOLD HOMES

You don't always have to sell a house. Sometimes you can rent it out. Death is unexpected. This is why it is always good to plan ahead.  Glad to see that there was a happy ending to this story.

Apr 25, 2019 12:31 PM #41
Rainer
2,200
Christian Robert
elijahcapitals@gmail.com - Alameda, CA

When my partner and I separated last year I was struggling to cope on my own with 2 kids emotionally and financially. With the help of a small loan from elijahcapitals@gmail.com Now I was able to get back on my own two feet again with less stress and in a steady time manner, you can whatsApp them at +1 4313007649. Thank you once again for your kind service and helping hand.

May 26, 2019 02:28 AM #42
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Lise Howe

Assoc. Broker and Attorney Licensed in DC, MD, VA,
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