So you inherited a house that you are not interested in keeping, but it does have a mortgage attached to it – what can you do?
- Mortgages do not automatically pass into the name of the heir(s) – but they do require that payments continue to be made to keep the lender from foreclosing. You need to advise the lender of the following information to help be sure the loan doesn’t go into default, although this will not put the mortgage in your name.
- The death of the owner along with a death certificate
- The new ownership with a copy of whatever documentation the lender requires
- Advise the lender that you are taking responsibility for the payments and give them your contact information so that all notices come directly to you
- Ask the status of the loan and payments – if there have been shortfalls, what does the lender require to put the loan into good status?
- Ask if you can put the loan directly into your name, or if you will you have to re-finance. A surviving spouse is more likely to be allowed to have the existing mortgage transferred into their own name. Otherwise it is common for lenders to require an heir to re-finance.
- “Due on sale” clauses are to be expected on the mortgage – if the property is sold, the mortgage must be paid immediately, regardless of whose name it is in at the time.
- The estate process may do two beneficial things for the mortgage – but be sure you know where you stand with each.
- The will may direct the estate to pay off the mortgage! Other estate assets will be used if they are of sufficient value.
- The mortgage may reduce the inheritance taxes, as it may be calculated against the value of the property.
- Two more considerations affected by the mortgage are:
- Make sure the title is clear so that you can sell. Not only must you confirm where you stand with the first-mortgage lender, you should do a title search (or have the estate do it) and find out if there are any other encumbrances on the property and what it will take to clear them. Surprises could emerge – second mortgages with another lender; HOA liens; etc.
- A mortgage lender has almost always kept property taxes up to date, with only a partial year due at sale. But know that inherited property is re-assessed at current market value for future property taxes.
There are many steps to fulfill to proceed to a sale of inherited property carrying a mortgage. You need knowledgeable assistance and to be sure you cover all bases to make sure the sale is legal and proper, and leaves no further issues to hamper your final proceeds.
Question or Prompt for Response – open ended, relevant
Could you afford an inherited house with a mortgage? What would you do if you inherit one?
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