Scenario
When her parents died, Anne received all the property as the sole heir. Since she was busy, she failed to notice that the mortgage was accruing, only for the house to be repossessed by the company after a few years.
It happens, especially when estate planning isn’t in your mind.
This part of the series looks at what to do when you inherit a house with a mortgage attached to it, or when you have creditors that are after the house as well.
Your parents take on a mortgage to settle it during their lifetime. However, when the person dies, the pending mortgage on the house doesn’t just go like that – the house has to go through probate, and it is up to the beneficiary to handle the mortgage payments.
When you take up the mortgage, you need to decide whether you will take up the loan, refinance it, or to sell off the property and use part of the proceeds to clear the mortgage.
Let us look at the various options that you have, but first issues first.
When Do You Inform the Mortgage Company that Someone is Deceased?
Before you even think about paying off a mortgage, you first need to inform the mortgage company that the person that was responsible for the payments is gone, and you are now in charge.
The good thing is that the requirement for informing the mortgage company that the owner of the house is deceased isn’t uniform across states. This means that you need to consult with an estate planning attorney to know when to tell them.
However, the earlier, the better, because if you delay the process, the interest on the loan will grow, and you won’t be able to handle it.How the Law Works
The law stipulates that when you inherit any property that was used as collateral to get a loan or any other financial assistance, you take up the loan. While you won’t be accountable for the debts that your parents accrued, anything that comes into your hands, which has a debt, means you take up the debt, and after this, you get to decide what to do next.
Determining the Mortgage on the House
When you inherit a home with a mortgage, you need to understand how much it is before you decide what to do. Remember that a mortgage isn’t something you can joke around with; failure to repay means the house can be repossessed.
Talk to the mortgage company to know how much mortgage is pending. Once you determine the mortgage, it is time to understand how to repay it.Paying off the Mortgage
For you to be at peace with yourself, you need to try and repay the mortgage. Here are a few ways you can do this on the inherited house:
- Sell off the property, and then use the proceeds from this sale to clear the remaining loans.
- If you don’t want to sell the property and instead want to move in, then you will need to refinance the debt to take up full ownership. Before you can start paying off the debt, the bank will most likely assess your finances to make sure you can repay the loan.
- If you have debts of your won, or the bank realizes that you cannot refinance this mortgage, then you have to sell it off.
- If the debt is too much that even the sale of the house won’t pay off the mortgage? In such a scenario, you won’t be held responsible for the excess debt that the property has accrued. Usually, this scenario happens when the litigation process has taken too long, and the payments have accrued.
What Happens When You Don't Pay the Mortgage?
The law requires that the mortgage on the house needs to be paid according to what you agreed upon. This includes the ability to repay the full amount by the agreed-upon date, regardless of what happens.
Mortgages, just like any other payments, are subject to payment of penalties when you are late, or when you fail to make the payment on time. So, if you don’t make early payments, you will find a debt that has accrued to massive amounts.
If you fail to submit the payments on the due date, then you might be given an extension. If again you fail to pay by the date given as the grace period, the lender files a notice of default in your name.
If you fail to pay for some time, then the lender will initiate a process to foreclose the house. This can happen anytime from 3 months after the first missed payment.In Closing
You need to understand the financial obligations of a house when you inherit it. Work with a financial planner and an estate planning lawyer to know what is required of you and what to do in case of any default on payments.
