Dealing with the death of a family member is hard enough, but the administration of their estate can bring financial difficulties with it as well, including foreclosure.
People often don't talk about money with their family, so when a family member dies, heirs can have no clue how much debt they owe and to whom. It becomes their responsibility to figure all of that out.
The biggest asset many people have is their home. When they die it can also be the biggest headache for their heirs.
If there is still a mortgage, monthly payments for the property still have to be made or it will end up in foreclosure.
But the mortgage often goes unpaid. Some of the common reasons that happens are that the heirs of the deceased:
- Don't want the property.
- Aren't aware that a person's debt isn't wiped out when they die.
- Don't even know that there's a mortgage on the property.
- Don't know whose responsibility it is to make the payments.
Whatever the reason, when house payments are missed there's a risk of foreclosure. That's a problem when the family wants to keep or sell the home. If someone in your family passes away, and they were the only one on the note for their mortgage, and you think you have an interest in their property, you have to go through probate. So what is it?
The Probate Process
Probate is a legal process heirs have to go through to settle the decedent's debt and determine who gets their property. It's relevant when a widow dies, for example. If your father dies, but your mother is still living, and her name is on the note, then probate isn't necessary.
Probate will establish the executor/s of an estate whether the decedent had a will when they died or not. Probate is easier when there's a will, but even with a will that names an executor, probate is still necessary to determine if there are challenges to it.
You can hire an attorney to help you with probate or do it on your own. The process involves filing a petition with the probate court in the county and state where the deceased lived or owned property. The purpose of the petition is to “admit the will to probate and appoint an executor” or appoint an estate administrator and give notice to heirs and beneficiaries.
Notice of probate hearings may be published in the local newspapers to make sure any potential heirs and beneficiaries have a chance to object to the petition in court.
Probate can sometimes be quick, but sometimes can take six months or more. Determining who has a right to a deceased person's property, which can be very valuable, is a big deal, so the courts wants to make every effort to do it right. At the end of the process the "executors of the estate" will be established by the courts.
The heirs who want to keep the home will need to record a quitclaim deed, which transfers interest in the property to them.
After probate, if the mortgage hasn't been paid since the decedent's death, the heir/s who now own the property can look into a way to remedy the default.
Reinstating a Mortgage in Default
Fixing a mortgage that's in default for a house you inherited is the same as if you had purchased the home yourself. If you want to keep the home, you can try to apply for a loan modification which will reinstate the loan with one or more of its terms permanently altered. It's possible to have a lower monthly payment and reduced principal with a loan modification, but not guaranteed.
You can also write a big check for the past due amount plus fees if the estate has enough cash to do so. But if it did, the loan probably wouldn't have gone into foreclosure in the first place.
Another option is to apply for a mortgage as the new owner of the home. You would talk to a mortgage lender and apply for a loan. The loan would pay off your loved one's loan, and you would move forward with the new mortgage. The mortgage process will take into account your assets, debts, credit and income.
If you don't want to keep the property, and it's worth less than the mortgage, you can list it for sale, and attempt to negotiate a short sale or deed-in-lieu of foreclosure, which are often preferable to foreclosure.
It's best to hire an attorney to help defend you from foreclosure when you encounter mortgage problems. Applications for a loan modification are frequently denied, and if you are offered a modification, you'll never know if you're getting a good one without the opinion of someone who's seen a lot of them.
Short sales and deeds-in-lieu of foreclosure, too, have to be approved by the investor who owns your loan, and that can take some negotiating -- and a painful application process. While you're trying to get a solution approved, the bank is trying to foreclose on you. So a sound foreclosure defense strategy is important to give you time to pursue your goals.
Major problems with property can be avoided by making a will and keeping it up to date when there are major life changes. There are also ways to avoid probate entirely through a living trust and an enhanced life estate deed, also called a "Lady Bird deed." Our attorneys recommend meeting with a financial planner or an estate attorney to help prepare for major life events.
Image courtesy of Sira Anamwong at FreeDigitalPhotos.net