4 specific tips.
by barry j. friedman, cpa
industrynewsletters
the right of inheritance applies to all property, including properties with mortgages attached to them.
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if your client inherits a mortgaged property, a number of questions and concerns may pop up, including whether the mortgage can be assumed. your client may 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 via a will, the recipient will now have to work with the lender to get details and information about the mortgage.
- your client will have to gather all the mortgage documents, especially the one that says who services the mortgage. she or her 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 she can move forward. the servicer will update the documents and tell her how much is left on the mortgage and how much the mortgage payment is. with this information, she can decide how to deal with the remainder of the mortgage.
- your client must start making loan payments; otherwise, the house may go into foreclosure.
- he can pay the mortgage off completely and keep the property – maybe lease out the house.
your client can’t be forced to take possession of anything bequeathed to him. he may already have a home loan payment and simply not be able to afford to take on another. he 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. your client 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.
the reason you can’t just assume inherited mortgages relates to the mortgages’ 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. your client may decide to keep the mortgages in her deceased relative’s name.
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 your client has been named in the will, she can keep the bank or lender from seizing the assets to cover the remainder of the loan. if she keeps lines of communication open, she can prevent the bank from selling the house to try to recoup the debt. by taking the property’s title and recording the deed, she’ll establish actual ownership.
if the 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.