You’ve Inherited a Mortgage: Now What?
The right of inheritance applies to all property, including properties with mortgages attached to them. If you inherit a mortgaged property, a number of questions and concerns may pop up, including whether the mortgage can be assumed. You’ll probably wonder how to record the deed and take title to the property.
Here are a few tips to consider when managing an inherited mortgage:
- Since the home is left to you via a will, you’ll now have to work with the lender to get details and information about the mortgage.
- You’ll have to gather all the mortgage documents, especially the one that says who services the mortgage. You or your family attorney will need to call the servicer to notify the company of the death. Chances are, the firm will want a copy of the death certificate before you can move forward. The servicer will update the documents and tell you how much is left on the mortgage and how much the mortgage payment is. With this information, you can decide how to deal with the remainder of the mortgage.
- Start making loan payments; otherwise, the house may go into foreclosure.
- You can pay the mortgage off completely and keep the property — maybe lease out the house.
You can’t be forced to take possession of anything bequeathed to you. You may already have a home loan payment and simply not be able to afford to take on another. You can sell the properties or instruct the properties’ mortgage lenders to foreclose.
Here’s something else to consider: Mortgaged properties can come with property taxes owed, liens attached and even estate taxes due. You can hope that the estate’s executor already has addressed back property taxes and other liens before passing it on. Mortgage liens, property taxes and other liens attached to properties survive the death of their owners — unfortunately.
Most mortgages contain a due-on-sale clause — a clause in a loan or promissory note that stipulates that the full balance of the loan may be called due (to be repaid in full) upon sale or transfer of ownership of the property used to secure the note. The lender has the right, but not the obligation, to call the note due in such a circumstance. However, under federal law, if the property you inherit is a home and you are a relative of the deceased former owner, the lender may not call the note due.
It’s best to contact professionals, who will be there to “rescue” you when the whole process makes you feel completely lost. It’s difficult to read legalese, so don’t sign or agree to anything you don’t understand. And don’t hesitate to ask if you have any specific questions.
If there was a co-signer on the mortgage, that person is now responsible for making the mortgage payments. If there’s no co-signer and no one else in line to inherit the home, and you’ve been named in the will, you can keep the bank or lender from seizing the assets to cover the remainder of the loan. If you keep lines of communication open, you can prevent the bank from selling the house to try to recoup the debt. By taking the property’s title and recording the deed, you’ll establish actual ownership.
If your loved one purchased mortgage life insurance, then the insurance company will cut a check to pay the remainder of the mortgage to pay off the home. It’s worth a shot to see if this is the case.
The regulations surrounding estates and mortgages can be complex, so consulting a professional is a good idea to make sure you are aware of your options and obligations.