Estate planning lawyers in Orange County hear quite regularly from heirs who are shocked to learn that the property they inherited from a loved one comes with a mortgage. Now what?
It’s important to know that a mortgage does not die when the owner does. How that mortgage is dealt with depends on a variety of factors, including language in the original owner’s estate plan and the rules of the lender.
Heirs of Property Have Federal Rights
Those who stand to inherit a property with a mortgage have federal rights as “Successors in Interest.” A Successor in Interest is generally defined as the spouse, child, or heir of a deceased borrower or other party with an interest in the property.
In the past, banks would refuse to communicate or work with heirs who had an interest in a property because they were not the legal owners. Instead, interested parties had to wait until the probate or estate administration process was complete to communicate about the loan or work out modifications. However, probate can take several months to several years to complete, and during that time significant unpaid balances can accumulate, or the bank may even move to start foreclosure proceedings.
Fortunately, federal laws were recently enacted to help those who can prove that they are “Successors in Interest.” This is generally done by producing a copy of the will, trust, the death certificate of the property owner, and possibly a birth certificate to prove a blood relationship if there was no estate plan at the time of death.
Once a bank establishes a person as a Successor in Interest, he or she receives the same protections under federal servicing laws as the original buyer, including the ability to get information on the loan, ask for accounting, and enter into modification agreements. Such modification agreements may even include arraignments that allow heirs to take over the existing mortgage.
Before You Call the Bank… Call an Estate Planning Lawyer
How a mortgage is dealt with after the death of the property owner may also depend on the language in an estate plan. For example, if a senior wills his home to his oldest daughter free and clear because she took care of him, the mortgage may need to be paid off with other assets from the estate so the daughter inherits the property without an encumbrance. Again, each plan is different, and it can be helpful to work with an attorney who can guide you through your options when dealing with the property.
If you find yourself in this situation today and you have further questions about assuming a loved one’s mortgage, or you’d like guidance in working through the estate administration process in Orange County, please contact our office at (949) 260-1400 to set up an appointment.