What happens if you’re inheriting a house in Texas, but there’s a home mortgage? Who pays the mortgage?
A recent article in the New York Times (“Inheriting a Home, and a Loan” – hat tip to Wills, Trusts & Estates Prof Blog for alerting me to the article) discusses a common scenario in estate administration: a client goes through the Texas probate court process, finds out he will inherit a house, and then wonders how to pay the mortgage on the house.
Before I address the issue of how to pay for the mortgage, let me get on my soapbox for a moment. This would be a non-issue if the decedent’s Last Will had specified how to pay for the mortgage. Again, it’s a good idea to hire an estate planning attorney, not for your sake, but for the sake of the people you love who have to deal with all your property when you die. In your Texas Last Will, you can specify whether you want someone to inherit your home subject to a mortgage or if you want the mortgage to be paid by money from the residuary estate.
Okay–back to the topic at hand. As the NY Times article points out, most people sell the house after they inherit a home with a mortgage. Then, they use the proceeds from the sale to pay off the mortgage and then keep the change. Most are very happy with this outcome. The only caution is that you want to make sure that the payments are up-to-date, or else the mortgage company will start foreclosure proceedings. If multiple people inherit a house, the house should be sold with the proceeds being split evenly. If one of the parties (usually, it’s one of the siblings) wants to keep the house, that person can “buy out” the other parties’ interest in the inherited property.
However, if you want to keep the house, the first thing to do is to make sure the will (if there was a will) doesn’t say that you are supposed to get the house free and clear of the mortgage. If the will says you are supposed to inherit the house free and clear of the mortgage, then the executor will be directed to sell off other estate property to come up with enough money to pay the mortgage off completely (if that’s possible).
If the will doesn’t say that you are supposed to inherit the house free and clear of the mortgage, then get in touch with the lender. You can take over payments, perhaps do a short sale, or let them foreclose. However, consult with your probate lawyer before walking away from the property. A Texas probate attorney will issue required notices with the lender, and the lender will either elect “Preferred Debt and Lien” status or “Matured Secured” status. What all that means is really beyond the scope of this article; however, suffice it to say, there is a legal process for handling mortgages in Texas estate administrations. Depending on the status elected, if you “walk away” from the property, the mortgage company may come looking for other property of the estate if the foreclosure sale didn’t cover the balance of the mortgage.
Shutt Law Firm provides Texas probate law, probate alternatives, and estate administration legal advice. If your Mom died or Dad died in Dallas (or Richardson, Plano, McKinney, Addison, Frisco or surrounding vicinity) consider contacting Texas probate lawyer Isaac Shutt for a Free consultation. Probate is the first step in Texas estate administration. There may be easier or cheaper alternatives to probate, so it’s best to take advantage of the free legal consultation.
Visit www.ShuttLawFirm.com for more information on Wills, avoiding probate, Texas trusts, estate planning, probate, alternatives to probate, and guardianship–or email email@example.com. You can also call Mr. Shutt at (214) 302-8197 for more information on the topic discussed in this blog or to discuss a different legal matter. Phone-calls and quick e-mails are always free at Shutt Law Firm PLLC. Please consider the Shutt Law Firm if you’re looking for a Richardson lawyer for probate, Richardson wills lawyer, estate planning attorney in Richardson, power of attorney in Richarson, or guardianship attorney in Richardson, TX, area.