I know someone that's lives in a house that belong to her mother that just has passed. The amount owed is more then the home is worth. The How does she handle this with the bank, the daughters name is not in the title. Mortgage $50k, home is worth $21k. Will the bank refinance the amounts owed on home.
No, they won't refinance, not for 20k anyway.. It's like any other situation, if the mortgage payments aren't made, the bank will foreclose. She could try to do a short sale instead, if she wishes.
Does the daughter have the money to keep paying the mortgage, taxes, etc.? Does she want to stay there?
If she can afford it, she can just keep paying the mortgage and live there. Eventually she may not be underwater anymore.
Trying to sell it will get her nowhere. Is the estate liquid except for the house? There are many factors to consider.
The mortgage on mother's house is mother's obligation. Now that she has passed away, the mother's estate is obligated to pay off the loan. Daughter should notify mortgage company about mother's death and see what they want to do about the house.
Additionally, unless the daughter was on title as joint tenant with right of survivorship, the property has to go through probate. Title to the house will pass to heirs in accordance with terms of mother's will. If mother did not have a will, then the state intestate laws govern. Daughter can't refinance the house or short sale it until she has ownership, and that won't happen until probate is closed.
A key question is does the mother's estate have assets? If it does, the bank will expect to be paid off for their mortgage, even though the house is underwater. The daughter cannot take the assets from the estate and then leave the mortgage unpaid. The lender will foreclose, but may be able to come after the daughter if they discover the estate had assets that could have been used to pay off the mortgage, but that these assets were taken by someone else.
All probate laws are state by state. There are even local rules of court (which affect procedure, not statutes).
In CA, a non-recourse state, we petition to abandon the over-encumbered asset if there are other assets worth salvaging.
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