What Happens if You Inherit A House with A Mortgage (in Texas)?
What happens if you’re inheriting a house in Texas, but there’s a home mortgage? Who pays the mortgage?
As Texas probate attorneys, we deal with LOTS of real estate. Oftentimes, we’re dealing with a house being inherited through a last will and testament or inherited through a trust. The scenario goes something like this: The client goes through the probate process and then meets with us to get step-by-step for dealing with the estate assets and also the estate debts. That begs the question, if you inherit an asset, do you inherit the debt, too?
Before I address the issue of how to pay for the mortgage, let me get on my soapbox for a moment. This question 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. The executor or trustee has the legal authority to deal with the assets and the debts. Importantly, debts must be resolved before assets are transferred to the estate beneficiaries.
Most executors/trustees sell the house after they inherit a home with a mortgage. Then, as part of the sales process, they use part of the proceeds from the sale to pay off the mortgage and then keep the change. Most are very happy with this outcome.
Before you get to the sale closing, you want to make sure that the payments are up-to-date, or else the mortgage company can 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 the beneficiary is 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 the beneficiary is supposed to inherit the house free and clear of the mortgage, then get in touch with the lender. The beneficiary may be allowed to take over payments, perhaps do a short sale, or even let the lender foreclose. However, consult with your probate lawyer before walking away from the property.
A Texas probate attorney can slow down a potential foreclosure by issuing the lender notices, 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.
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Visit www.ShuttLawFirm.com for more information on Texas probate, inheriting property in Texas, probating a will to get a house, and mortgages on probate houses, contact the Richardson, TX Estate Planning Attorneys at firstname.lastname@example.org.
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DISCLAIMER: Nothing in this brief article constitutes legal advice. The information provided herein is merely provided in the spirit of education and is believed to be accurate as of the time it was originally prepared, and laws change. If you have a legal question, you should consult a lawyer for your specific legal situation. Further, nothing in this article shall be construed to have started an attorney-client relationship. No such relationship exists until both you and an attorney at Shutt Law Firm sign an engagement letter.