Surviving a parent’s death is a lot to handle. Now, you may be facing the probate process and discovering that your parent was facing foreclosure. This can be more than you want to take on.
First, it’s important to understand that even though the property owner has passed away, the decedent’s death does not remove the obligation to make the monthly payments to their lender per their mortgage agreement.
It would become the responsibility of your decedent’s estate to make payments out of their assets. The bank could start foreclosure proceedings if those payments cannot be made.
So, what should you do to stop foreclosure on inherited property? Keep reading to determine the best action for you and your deceased person’s estate.
Do You Need a Real Estate Attorney to Stop Foreclosure On Inherited Property?
There are multiple ways to halt the foreclosure process. The first course of action that executors, typically a family member, consider is utilizing their probate attorney. While probate attorneys are experts in the probate process, they may not be the best choice to halt foreclosure. If you need legal assistance in real estate, you should seek a real estate attorney.
Before doing anything else, you must decide if you want to keep or sell the property. If you decide to keep the property, you can then determine if you want to use an attorney to help stop the foreclosure of inherited property.
The foreclosure process will follow state and local foreclosure laws and the mortgage contract. If proper notice that you have just received the first foreclosure notice, also known as a notice of default, you are likely in the early stages of the process. This can happen from missing just a few mortgage payments while you get a handle on the deceased’s outstanding debt, and it can be relatively easy to correct.
What Happens to a Mortgage After the Death of a Homeowner?
A mortgage is a lien on a property still in place until the remaining mortgage is paid in full to the mortgage lender. Bluntly, the mortgage is still in place after the homeowner dies.
If there is a co-borrower to the property title, they will step in to continue to pay the mortgage lender. The mortgage lender will not do anything as long as payments can be made.
If there is no co-borrower, then the estate executor will step in to make payments from the estate assets. When there are not enough estate assets to make the mortgage payments, it could cause problems for the heirs and wonder can the bank foreclose.
How does a bank foreclose on a house in probate?
Knowing that a bank doesn’t know the death has occurred, the bank will automatically start the foreclosure process after 120 days of non-payment of the outstanding mortgage. They don’t know it is a deceased person’s property they are attempting to foreclose on.
A foreclosure process on a house in probate will follow the same legal process and state law as any other foreclosure. The big difference is that they must file for foreclosure on the deceased person’s estate.
More importantly, the mortgage company may only be willing to deal with the estate executor. If the person passed without a will or trust, they may be willing to work with family members of the deceased to stop foreclosure. The lender also has the option to not work with anyone not legally allowed to act on the deceased’s behalf and continue the foreclosure process.
How Is Mortgaged Property Inherited After the Owner Dies?
Property doesn’t just transfer to someone after someone has passed unless they are already a co-signer as an owner or share property title. Laws will be state-dependent on the process they follow.
In some states, real property passes to beneficiaries through a Transfer on Death Instrument as stated in the instrument. It does need to be filed and recorded for this to occur. Otherwise, it will have to go through the probate process.
Having no will means you’re intestate, and the probate court will determine who will be the administrator or executor of the estate, usually a family member. These are sometimes referred to as a personal representative.
Deciding to keep the property, they may be able to transfer the property to the beneficiaries. However, they are not required to execute a deed transferring the property from the decedent’s estate to the beneficiaries.
The property remains subject to the debts already existing, so the transfer does not eliminate any outstanding mortgage. In addition, the property remains subject to any claims against the estate. This means that any debts, such as any taxes owed, may require the sale of real estate property to generate funds to pay the estate’s debts.
The first thing the personal representative will do is look at the estate’s assets and debts the deceased’s estate are responsible for. They will likely take an inventory of all their assets other than real property to determine the asset value that can be sold to cover the debts. They will then sell any assets to cover debts.
There will be several options for the real estate. You can keep it and sell it and divide it. If there is already a foreclosure notice when the probate process begins, the personal representative will have to decide the best course of action, but it starts with contacting the mortgage lender.
What Happens if You Inherit a Property During the Foreclosure Process?
Sometimes, the deceased person was already facing foreclosure. This could mean you are inheriting the property during the foreclosure process. The first thing the executor will want to do is stop the foreclosure sale. Let’s see what to do when you’re facing foreclosure while in probate.
Contact the Mortgage Lender
Contacting the lender about the outstanding mortgage balance would be a good place to start. It will help factor into the assets vs debts you need to figure out.
Once you have talked to the mortgage holder, you’ll have discovered the amount behind on the mortgage and the amount it would take to catch it up. Now, you have three options: catch the mortgage up to keep it, catch the mortgage up to sell it with more time, or sell the property before allowing the foreclosure to continue.
Sometimes, a cash buyer may be your best option. They may have a house contents buyer or an estate sales company to help sell property and other assets, and they can buy your house for cash to avoid foreclosure. It will help stop the pending foreclosure and put money in the pockets of the beneficiaries right away.
Ensure the Estate (or the Family) Continues the Mortgage Payments
If you decide to catch the payments up to keep the property, you’ll want to make sure that the mortgage payments are made as scheduled or until there is no more remaining mortgage. The executor should be able to help continue payments from the estate’s assets after speaking to the lender.
If the estate can not continue payments or doesn’t have enough assets to catch up a probate home in foreclosure, it may be best to sell the property.
Request an Injunction to Provide Reasonable Time to Sell the Property
First, you should ensure that the lender provides proper notice. If it wasn’t, an improper notice can be reason enough to delay the foreclosure sale, giving you more time to sort through your options.
Also, it may be best to bring up needing more time with the lender when you talk to them about the decedent’s passing. They may allow more time and delay any more notices by just talking to them.
However, if they will not allow you more time to decide what to do, or to act on it, it will be best to file an injunction with your attorney. An injunction will allow one of two things:
- Provide time allowing you to liquidate other assets, such as cars, investments, and other valuables, to bring the mortgage current and allow for future payments of the loan.
- Provide you with reasonable time to sell the property.
The Probate Process
The probate court has set local and state laws that they will need to follow. As you start to determine the course for the decedent’s estate, you will need to consider other things. The first would be using liquid assets, like stocks and mutual funds, to continue to pay debts.
Pay Balance With the Estate’s Liquid Assets
Liquid assets are the easiest to access and take no time to sell. These can be used to pay any behind balance the estate is responsible for and any monthly payments that will need to be made. You should verify that there are enough liquid assets to continue with payments and the estate’s debts.
Sell estate assets or borrow funds to pay off the debt
Because probate can take time, it is best to start to initiate selling off estate property to make payments if the liquid assets will not cover them. This can include selling any property owned as an investment property and valuable assets like vehicles.
Your other options would be to borrow funds to continue to to pay the mortgage and outstanding debt. This can be a great source to create funds to pay the mortgage and other outstanding debts.
The executor will need to sign for the loan, which will eat into the inheritance for the beneficiaries. It does stop any further foreclosure process, however.
Is a Lender Allowed to Foreclose After the Death of Borrower?
A mortgage is placed on the property when the deceased purchased it and used a loan to complete the purchase. Therefore, when the borrower dies, a mortgage holder still has an outstanding lien on the property.
The mortgage holder is allowed to foreclose on the property when all mortgage payments are not being made according to the loan documents.
Selling a Home to Settle a Mortgage During Probate
If there is no want to keep the property, which is the only asset, it may be best to sell it. It will cover the mortgage left on the property and avoid foreclosure. A property sale is one of many ways of dealing with a home in probate.
If given enough time, you can choose to sell with a real estate agent. You may still wait 60 to 90 days for the house to close. It may provide the highest amount and the most to pay the beneficiaries.
If you need a fast sale, using a cash home buyer like SILT Real Estate and Investments, LLC may be your best option. We can close in as little as 7 days with a fair cash offer. We can stop foreclosure, and if there are still valuable items, we can work with our estate sales teams to help sell the extra property.
Can a Bank Foreclose During Probate
Ultimately, a bank can foreclose on mortgaged property. If a bank forecloses on a property, they will sell it at a sheriff sale. Even though it will end up with the highest bidder, it usually sells for less than it’s worth.
If the bank is foreclosing and the value is less than the loan, you can also seek short sales or a deed in lieu of foreclosure. While this will not stop the foreclosure sale immediately, it will tell the mortgage holder that you are willing to work with them and don’t want the property to become in disrepair.
Seek Loan Modification
If you wish to keep the property and the value is under the loan amount, you may want to seek a loan modification. The lender provides loan modifications to reduce your monthly mortgage payments to fit your budget.
Contact the lender to see what other loan modification possibilities they offer. They will usually extend the term, reduce the interest rate, or modify the original mortgage with a new mortgage and a large secondary mortgage attached to the property.
Frequently Asked Questions for Inherited Foreclosure Property
Do banks want to avoid foreclosure?
Yeah, banks want to avoid foreclosure because it doesn’t allow them to lend as much when they have money tied up during a foreclosure. There is also the unneeded expenses of foreclosure. Banks don’t make money when they own property and sell it. So, for them, being unable to do what they do best to make money hurts their long-term finances. It’s why many banks failed during the Great Recession from 2008 to 2010.
What happens if your spouse dies and you are not on the mortgage?
If your spouse dies, your state law may allow you to keep the house. There are many parts to this answer, but the most important first step is knowing that there are Federal laws that allow you to have the ability to receive information on the house and keep you out of foreclosure. You should contact the mortgage servicer for help with this. Depending on your will or trust, if there is life insurance, or even if you have Mortgage Protection Insurance, you could be facing many steps and it would be best to have your attorney involved.
Can you use equity to stop foreclosure?
Yes, you can use the equity to stop the foreclosure, but only after the property has been transferred to you after the probate process. You then have two options: refinance to change the loan terms or pursue an equity lawsuit against the loan servicer. The equity lawsuit isn’t often used and is very difficult, so it may be best for most to apply for a new mortgage on the property and allow that equity to improve the terms of the loan.