What Happens When You Inherit A Home With A Mortgage

What Happens When You Inherit A Home With A Mortgage

Inheriting property might seem like it can be a sudden windfall for many Utah residents at first. You might choose to sell it. You might choose to use it as a rental property. Or a second home. Or even pass it on to your own children.

But you’re not just inheriting property. You’re also inheriting obligations. Property taxes. Liens. Debt. And in many cases, mortgage payments.

You don’t automatically have to assume debt and mortgage as a result of inheriting a home. In some cases, there may potentially be ways around doing so. If you’re wondering what happens when you inherit a home with a mortgage, here’s what you should know.

Mortgage And Inheriting Real Property

Creditors are never the most understanding of people when you inherit a home. And even if you haven’t necessarily inherited a relative or spouse’s debt and liens, there’s a good chance you will have inherited their mortgage. In fact, late fees and even foreclosures are two of the most common problems facing many beneficiaries.

If you inherited a home with a mortgage as part of a probated will, there’s a chance that the mortgage will have to be paid off in full before the deed can be transferred to you. Or, often times an investor can purchase the home and the mortgage. The good news, if you have to pay the mortgage off,  is that payment can come from liquid assets such as stocks, bonds, cash and life insurance—and this is actually fairly common. The bad news is that it’s not unheard of for homes to be the only significant asset of a deceased party. It’s also not unheard of for mortgage debt to occasionally exceed the actual value of the home.

Due On Sale Clauses

A due on sale clause essentially indicates that before property can be conveyed to a new owner, the remaining balance of a mortgage loan must be paid in full. These are quite common in older mortgages, and still frequently occur these days. However, there are luckily certain exceptions.

Thanks to the federal Garn-St Germain Act of 1982,  a lender cannot enforce a due on sale clause if the transference of property results from the death of a joint tenant or to a relative resulting from the death of a borrower. However, the law only applies to residential property that has four or fewer units, including residential manufactured homes.

Typically, foreclosure can be a lengthy and expensive process for many lenders. It can cost up to $50,000 before a foreclosure can be finalized, according to a 2007 report from the Joint Economic Committee. So they’re not always willing to go through foreclosure proceedings if the loan can be extended or secured through a sale. Nor are you likely to find that foreclosure will necessarily affect your personal credit score.

What If I Can’t Afford The Mortgage?

If you’ve inherited a home with a mortgage you can’t afford, you have a few options. You can choose to opt out of the mortgage altogether, which an executor can grant in a few particular instances. You can also secure a better interest rate through refinancing if you wish to keep the property, or sell it altogether to pay off any outstanding mortgage debts. And the latter is much more likely to be forced by many lenders, either through your own means or through a foreclosure auction.

At Gary Buys Houses, we’ve developed a unique solution for homeowners who inherit mortgage debt along with property. It’s called our “Sell Now, Move Later” program. We’ll purchase your home as is, in as little as 3-5 business days. And should you actually decide to purchase it in the future, we can even arrange to sell it back to you.

If you’re the beneficiary of an estate, you don’t always have to inherit the faults of the deceased. Particularly when they weren’t yours to make in the first place. Circumstances may not always be as final as they might seem⁠—just so long as you know what your options are.

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