Inherting a Property with a Mortgage

5 Replies

In the scenario where a home is unequally left to several decedents and there is a mortgage. Is the
mortgage satisfied FIRST from the net proceeds before the proceeds are distributed accordingly to the will (%)
(Scenario One) or is the mortgage satisfied by the decedents based on the % of ownership of the property each has been left in the will (Scenario Two)
Property is in Louisiana
Scenario One
235000 Sales Price
-350 Transfer Deed (Seller Closing)
234650 Total Proceeds
-87000 Mortgage Payoff
147650 Distributable Proceeds
18456.25 1/8 - Child 1
18456.25 1/8 - Child 2
92281.25 5/8 - Child 3
18456.25 1/8 - Child 4
Scenario Two
235000 Sales Price
-350 Transfer Deed (Seller Closing)
234650 Distributable Proceeds
90000 Mortgage
Proceeds Share of Debt
29331.25 11250 1/8 - Child 1
29331.25 11250 1/8 - Child 2
146656.25 56250 5/8 - Child 3
29331.25 11250 1/8 - Child 4

The mortgage will have to be paid off at the closing of the sale to the new buyer, so that the buyer gets clear title. Then any net proceeds would be divided as per probate, state law, etc.

You may also want to check with a Probate Attorney in Louisiana, because I know in Nevada that if the Bank that holds the Mortgage fails to file a timely claim for the mortgage with the Probate Court that the Estate is being administered in, then their lien can possibly be cut out.

Dawn - your question asks about inheriting a property with a mortgage on it, not the resale to a third party.

To answer the original question, a property can typically be inherited with an existing mortgage without fear of the loan being called as long as the heir, beneficiary or distributee qualifies under Federal Garn St. Germaine Act guidelines, which actually allows assumption of the loan, inherited "subject to" the existing terms. Of course, some States require payoff of the debt prior to distribution, however I believe this could be challenged without much difficulty, (however who would want to take over a high interest rate mortgage?).

Of course, selling a property from an estate or from heirs 'post-distribution', is an entirely different matter. Unless an admitted Will says differently, the asset (I.e., the house) is liquidated (sold to third party buyer) and the proceeds are used to satisfy the liens (mortgages, etc.) of record.

Unless other arrangements ar made, the norm is that the heirs get paid their share at the end of probate when all the other bills have been paid and the order for probate or similar final court documentation has been ganted or satisfied.

Dawn,

Decedents are dead people. I am guessing you are asking about heirs who inherit in unequal shares. This is a issue for the executor of the decedent's will to resolve. With several heirs, unless one wants to buy the others out, the simplest solution is to sell the property, then distribute the net proceeds of the sale (mortgage will be paid off at settlement) in accordance with the terms of the decedents's will and with the approval of the probate court. Normally, all creditor claims have to be satisfied before the executor distributes the estate to heirs.

@Dawn Hall , you need to check with an attorney where the will is being probated for your answer. Each state has different laws on probate, in some states all debts are paid off before distribution, in some states that is not the case. Also I have never heard of a SECURED debt being discharged in a probate, unsecured yes but never a recoded secured debt, Also the will itself often has parts that say what debts will be paid off before property is disbursed. Some states allow property to be put in the name of all of the heirs rather than selling property and then disbursing the proceeds.

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