The home of a loved one who passes away is frequently the most valuable item in their estate. Their heirs or Will beneficiaries may inherit this property, but there may be conditions attached in the form of a mortgage or home equity loan. Learn what happens when you inherit a home with a mortgage and what steps you need to take to pay off the debt.
Who Pays the Debt When Inheriting a House with a Mortgage?
A beneficiary or heir who inherits a house with a mortgage attached may occasionally find themselves in a precarious financial situation. This is so that a home mortgage won’t be treated the same way as other debts that your deceased loved one might have had.
The personal representative of a decedent’s estate typically sells estate assets to pay off the decedent’s debts. However, the law of Florida makes an exception with regard to mortgages. Unless the Will specifically directs otherwise (which it typically does not), the personal representative is not required to pay the mortgage from the estate’s assets.
However, the debt owed on the property is still owed even after the borrower’s death. Mortgages are secured debts, which means that in the event of a borrower default, the mortgage company may seize and sell the property to recoup their losses. Even after the borrower’s demise, the property is still subject to that security interest. You are not personally liable for the mortgage payments as an heir. However, the bank or lender will foreclose on the property if those payments are not made. As a result, the choice facing the heirs is often challenging:
What to Do After You Inherit a House with a Mortgage
Understanding the financial and physical state of the real estate as well as the remaining balance of the estate’s assets is a prerequisite for making that choice. Following these steps will help you decide what to do with an inherited home that has a mortgage.
Step 1: Determine the Equity in the Home and the Mortgage Balance
Knowing the value of an inherited property is necessary before deciding what to do with it. A list of the estate’s assets and their fair market value must be created by the personal representative. This should include the house. However, you can also consult a real estate agent regarding the property’s potential list price or have a formal appraisal performed on it. You might also want to speak with a contractor about the repairs if you think they need to be made before the house can be put on the market to get an idea of the additional costs.
Once you have the property’s value, you must subtract each secured debt that is associated with it. This could include:
The balance represents the fair market value of the home. It is also the amount you would receive if you decided to sell the property, less closing costs and realtor fees.
Step 2: Investigate Upkeep and Maintenance Costs
Next, think about the long-term effects of maintaining the family farm. The cost of utilities and maintenance will increase with the size of the property, both financially and in terms of time commitments. Other than the mortgage, there are numerous expenses to take into account:
Many heirs lack the income or resources necessary to cover the home’s expenses. If your inheritance is insufficient to maintain the property, you might need to think about renting it out or selling it rather than keeping it for yourself and your family.
Step 3: Discuss Whether to Keep or Sell the Inherited House with Co-Heirs
In some cases, siblings or other beneficiaries are designated as joint tenants in a person’s will, sharing ownership and responsibility for the property. If this applies to you, you must discuss your goals for the property with your co-heirs as well as theirs. When selling an inherited home, whether it has a mortgage or not, you must have the signature of each co-owner in order to transfer the title to the buyer at closing.
Assuming the Mortgage vs Refinancing the Inherited Home
You must review the mortgage contract if you decide to keep the home to determine your options for making mortgage payments. The details are determined by the type of loan your loved one had on the property, as well as by your own credit and capacity for borrowing money:
To make this modification, you might have to consult with the personal representative of the estate. Many banks will only work with or send documents to someone who has letters of administration from the Florida probate courts due to security concerns.
Selling an Inherited House with a Mortgage
You can always sell the inherited property if you are unable to make the payments or do not want to keep it. However, there are a few unique factors to take into account when selling an inherited home with a mortgage.
Prior to selling it as part of the estate administration procedure, you might need to wait until the estate is completely distributed and closed. Alternatively, you could work with the personal representative and the court. It might be preferable to keep the property if you can afford to do so because this can slow down the sales process and scare off potential buyers.
Due on Sales Clauses
Many loans have a “due on sale” clause that states that the mortgage is due right away when the property is sold. This cannot prevent you from inheriting a home with a mortgage, according to federal law. But before giving the buyer the title, you must be prepared to pay off your loved one’s debt.
To obtain “clear title” on the property for the buyer, any liens on it must also be satisfied at the time of closing. Most buyers require title insurance to ensure there are no hidden liens that will prevent the sale from closing.
Get Help Deciding What to Do with an Inherited House
When inheriting a home with a mortgage, it’s crucial to work with a knowledgeable estate administration lawyer to help you decide whether to keep, refinance, or sell the house. At Harrison Estate Law, P. A. before selling, our estate and probate team can assist you in weighing your options and completing all necessary paperwork for the probate court. Contact us here or call 352-559-9828 to get help today.
Can I assume my deceased parents mortgage?
Mortgage: Under federal law, lenders must allow heirs to a property to assume a mortgage. But an heir is not required to continue paying the mortgage. They have three options: settle the debt, refinance, or sell the house.
Who pays mortgage on inherited house?
Decide Who Takes Over The House If a co-signer was used for the mortgage, they are now in charge of making the mortgage payments. If a house is bequeathed to an heir via a will, that heir (or heirs, if there are more than one) is now accountable for the mortgage.
How do I take over my deceased parent’s mortgage?
Normally, you can handle the loan directly with the servicer. Remember that in order to assume the mortgage, you do not need to go through the underwriting procedure or requalify, but you will most likely need to provide a certified copy of the borrower’s death certificate (and possibly the borrower’s will).
Can a family member take over a mortgage?
A mortgage can’t typically be transferred from one borrower to another. Because of this, very few lenders and loan types permit one borrower to assume another’s obligation to pay off an existing mortgage.