Stautz Law

Tag: Mortgage

  • What Happens to the Mortgage when Someone Dies?

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    Good morning, folks. It’s Andy Stautz at Stautz Law. I am back today with another talk about Indiana estate planning and probate law. Today is kind of a big topic, and it’s going to be maybe a disorganized talk, but we need to talk about mortgages, specifically mortgages of people who have died. because it’s probably the single like biggest source of difficulties in probate administration.  

    It’s definitely one of the top reasons potential clients call me needing help: is something goes wrong with a property specifically, usually a mortgage of someone who died, maybe a year ago, maybe two years ago, maybe five years ago. Okay.  

    Key Point: You Have to Do Something

    So I think the first like key point is you’ve got to do something. You’ve got to do something. When someone dies with a house, you know, the personal representative, the heirs, the family, Somebody’s got to step up and deal with the mortgage lender, assuming there is one. You can’t just carry on and hope it all works out, right?  

    The sooner you come up with a plan, the better it’s going to go, okay? So opening a probate estate is great, because we’ve got very formal rules, right? We’ve got this whole probate code that explains how to handle these things. The mortgage companies know how to work with that. Probate attorneys know how to work with that. You know, you’ll have clear direction, you know, as an heir and as a personal representative.  

    I think what gets a lot of people into trouble is usually in practice, you know, you can kind of like keep paying a mortgage in a decedent’s name for at least a while. And there’s actually law dictating that mortgage companies have to like let you, give you a grace period, right, to figure things out. But that grace period isn’t forever. And so the longer you wait, the more problems you’re going to have.  

    So if you’re a potential client, you’re calling me because there’s a mortgage foreclosure proceeding. It’s usually like, okay, well, we wish we could have fixed this sooner.  

    Mortgage as Secured Debt

    So the underlying concept, of course, is that unlike personal debts, like a credit card debt or a medical bill, a mortgage loan is secured on a house, right? And it attaches. So even though the homeowner has died, that mortgage debt doesn’t like go away automatically: because it’s not attached to the person, it’s attached to the house.  

    So usually, no matter the scenario, formal probate administration, informal resolution, whatever, you’re going to have to do something. The mortgage doesn’t just go away.  

    Win-Win Scenarios

    The nice thing is, like most banks don’t want to, don’t want to foreclose and repossess a house and sell it at auction, right? What they want to do is for the heirs, you know, somebody to assume the loan and keep paying it, or, you know, sell the house and pay off the mortgage balance.  

    So usually, usually, this is very general, lots of times, if you’re going to do that, it’s worth it to go, like, tell the lender, because they’ll be like, okay, great. Because that’s a good outcome for everybody, right? If you inherit a house and your intention is to sell it and pay off the mortgage balance, the mortgage lender is going to be happy with that. You’re going to be happy with that, right? So it’s just kind of a matter of communication.  

    There are provisions in the probate code to like pause a foreclosure action . . . Almost like a stay in bankruptcy. . . Like a pause button. Because a lot of people, if you inherit a house that has a mortgage, it could strain your cash flow, your personal finances, to keep paying the decedent’s mortgage while you, prepare to sell the house, sell the house.  

    Anyway, like I said, kind of an unfocused talk, but the point of the story is you got to deal with it. Sooner is better than later, and you’ve got lots of options. Um, on how to go about it and make, make everybody happy.  

    So hopefully if you see this and you’ve got a inherited mortgage on your mind or an inherited house on your mind, you’ll, you’ll say, oh, right. I need, I need to do something like talk, talk to a probate attorney, talk to someone and get specific legal advice for your situation. Cause, um, like a lot of my clients, I could, you know, The longer you wait, you get deeper in, it’s harder to fix. So kind of sooner the better there.  

    But that was all very general. Specific legal advice requires you to talk to a specific attorney for specific advice about your specific situation. You’re on my website. Give me a call. I’d love to talk. I hope you enjoyed that one. And bye for now. 

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  • What Happens to a Mortgage in Probate?

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    Transcript

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    Hi folks, it’s Andy Stautz at Stautz Law. We are back for another talk about probate and estate planning topics. Today is a very practical one. And that is: what happens to a mortgage?  

    Common Situation: Decedent Still Owes on Home Mortgage

    So in a situation where someone has a house with a mortgage on it. They’re paying off their mortgage, but they die before the mortgage is paid off. What happens?  

    There could be a will. There might not be a will. Either way the house is expected to go to the heirs, or the beneficiaries: you know, family members, usually. 

    But the person who was on the loan, right, the homeowner, the mortgage payer, is now deceased, so does the mortgage just go away? You know, what? What happens?  

    Handling Mortgages after Death

    Basic Rule: Mortgage Not Extinguished

    Well, the basic answer is no, the mortgage doesn’t go away. It’s still a debt that has to be repaid. And so it is potentially a creditor claim against the estate, just like any other debt that the decedent had still owing.  

    Before you can distribute the property to the heirs and the beneficiaries, you have to pay the debts and expenses of the person who passed.  

    Keeping the House: Avoiding the Due on Sale Clause

    Now in the mortgage case, sometimes you don’t want to… You know, you might not be able to pay off the mortgage all at once, right? And let’s say you don’t want to sell the house. It’s like, OK well, Do you have to?  

    And the answer is no, you don’t have to.  

    There’s a federal law from way back in 1982, I think (although I should probably look that up) called Garn Saint Germain. [EDIT: Yes, I was correct: 1982. You can read the wiki here and the text of the statute here.] And what that law says is that the mortgage lender can’t force you to sell the house basically to pay off the mortgage. So Garn St. Germain lets heirs, family members, so a surviving spouse or children, move into the house and keep paying on the mortgage.  

    You know it’s an inherited mortgage at that point, so it doesn’t become immediately due and payable. So that’s really nice if you’re trying to just keep everything like it was. 

    Selling the House

    Alternately, if you’re willing to sell the house, obviously you can sell the house, pay off the mortgage, just like you do any time you sell a house normally, and then distribute the net proceeds in the estate. So that’s the other option.  

    But the key point is the debt doesn’t go away. The bank can’t accelerate it as long as it’s a family member, you know, staying current on the payments and moving in, and if you do sell and make a distribution, obviously any estate proceeds are net of the mortgage balance.  

    Conclusion

    So if you need specific advice on how to handle an inherited mortgage, or you know a decedent who has a mortgage that you need to deal with… it depends on what you and the other heirs and beneficiaries want to do, so you can call me because I handle probate cases like this all the time, and I’d be happy to help you with it.  

    But this was just a quick talk to let you know basically how it works. I hope you’ve enjoyed it and hope to talk to you soon. Bye now. 

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