Tragedy strikes, and the pain of losing a loved one sets in. As if that weren’t enough, dealing with a will (or lack of one) means going to court to settle the estate. If your family member passed away having prepared a will, the will needs to be approved by the probate court before anything is distributed. If they died without a will, it can be even more challenging and the process for that is known as estate administration, which is a form of probate. If you are fortunate, the person who passed put their assets in a trust, where court intervention is not required, and assets transfer in an easier way to the intended recipients.
So, you become aware of a house that will pass to you as an inheritance, but you find out that you may not get the house free and clear – it has a mortgage. What do you do now? Some people are not aware that the mortgage lives on, past the owner’s life, until it is paid off – it does not go away at death.
One of the first things you need to understand is how you are inheriting the house. If it is through a will, you need to know the will’s provisions as they relate to the house. There just might be instructions directing the Executor of the estate to use estate assets to pay off the mortgage before you take possession, or the deceased person could have set up a mechanism to pay the mortgage over time. If you work with a qualified attorney, they can help you navigate the terms of an estate plan and how they affect you.
Next, you have to make sure, if you are going to inherit the property, that from the time of death, through the probate process, and until the property is distributed to you, mortgage payments and taxes continue to be paid, to prevent foreclosure on the property. Unfortunately, the process of probate or estate administration could take several months or even years. During that time, historically, banks have been known to not work with heirs, withhold relevant and valuable information, and just completely fail to communicate.
However, you should be aware, as of April 19, 2019, you have the right to get information and the lenders have a legal obligation to give you that information, under the Real Estate Settlement Procedures Act (“RESPA”) and Truth In Lending Act (“TILA”), as a “Successor in Interest.” Basically, a successor in interest is anyone who has an interest in the deceased borrower’s property.
Once you prove you are a successor in interest, with certain documentation, such as a copy of the will or trust, a death certificate of the borrower, and proof of your identity as it relates to your relationship with the person who passed away, the bank has a legal obligation to treat you just like the borrower. You should be able to get all the information available on the loan, ask for an accounting, and may even work with the lender to modify the terms of the loan agreement, so it’s more beneficial for you.
If you are not inheriting a house with a mortgage – in fact, you may be the one with the house and the mortgage, what does all this mean to you? It means you have to think about your own estate planning and how your loved ones may be affected by you improperly planning, or worse, not planning at all. Your planning makes the difference as to whether the ones you care about most, will have to go through courts and banks to be able to enjoy the fruits of your lifetime of labor. Only an experienced and knowledgeable estate planning attorney can help you make sure your planning has your loved ones in mind and that they are protected as they go through life without you.