Martha
I’ll respond because I feel there is interest and I have something to say on the subject. You already seem defensive and entrenched in your opinion and I have no interest in changing your mind but to offer a different take on the OP’s question. If you are not comfortable with what I write feel free to request the moderators to delete my post. I won’t get mad, unless perhaps if you go out of your way to make a personal attack on me.
Remember Hono, the question was about what may happen if an owner dies and there is no equity in the property. I stand by my answer that most likely the lender will end up foreclosing.
Because?.........of nonpayment or due on sale clause? My contention was that as long as payments were being made it was very unlikely that the lender could or would initiate foreclosure. I provided some backup for that contention.
Both of you anecdotal examples resulted in foreclosure because the heirs “walked away”/”did not make payments”. I agree with that!
Now of course, there can be close questions about whether or not there is equity. But if no one makes the payments, the mortgage is going to be foreclosed at some point.
No brainer!
How is your claim that a PR should make payments on the debt because the property might double in value going to relieve anyone's apprehension? I think that is just speculation.
I took the view that the OP/heir was concerned about the disposition of the property and would be relieved that there would be liability issues if the PR did not act properly in their capacity. If they petitioned the court for permission to default on the mortgage then fine but the heirs also would then have an opportunity to protect their interest in the property. As an officer of the court I’m surprised you’d be so quick to encourage a self help course that could result in disaster for all, whether that be loss of 10% or 100% increase in equity or just the property itself.
As far as the side issue of due on sale clauses, you may very well be right that federal law has validly preempted state law on the issue. I don't know. But it is not really relevant if the mortgage is upside down.
Totally disagree! How did you come to this conclusion? I've got to believe that a lot of VA mortgages are underwater at one time or another in their first couple of years. And what about all those 125% financings. Underwater to start. Did that make the property worthless and subject to foreclosure?
Then we got to the questionable assumption of the value of the property to the heirs. Talk about speculation!.
“he has negative equity; the property might still have value to the lender, unless it's environmentally toxic.”
But we don’t have the facts on this specific property but we can present both sides. As an heir the value might very well be emotional. It was the old homestead, it’s where I always dreamed of retiring. It may very well be financial. Maybe the property is only underwater because of a comparable that was a distress sale and nobody else is selling because they would not be willing sellers for what a willing buyer is offering or can get financing for at this time. It takes both for a TRUE market value. Or it may be a $500,000 property say mortgaged for $525,000 with 20 years left of a 4.5% mortgage. As an heir with lousy credit but a good paycheck I can “buy” this property by “taking over payments” with NO MONEY DOWN! And it possibly rents more than the Piti!! I’m thinking a new chapter in my book, Know When to Walk, and When to Talk, Taking Advantage of Inherited Underwater Property. Here in CA it could also have a ridiculous low tax base where the State is subsidizing taxes to the tune of $10,000 per year. If you plan to hold long term then even if you’re $100,000 upside down this property is starting to look like a gold mine. OR the property could be in Minnesota where NBHDScout reports mean appreciation in Pillager of 25.04% a year since 1990 and Littleton 17.78%,Dexter 17.75%, Pineriver 17.64% and Sacred Heart 17.42% each and ever year, on average. Since 1990! 4% my *ss.
As far as the side issue of due on sale clauses, you may very well be right that federal law has validly preempted state law on the issue. I don't know. But it is not really relevant if the mortgage is upside down. I suppose you could be an heir and really want to keep the property even though it is worth less than what is owned. In that case, maybe the better bet is to try to negotiate to buy the property from the lender for its true value and not make payment of the entire debt
Nothing wrong with trying to get a better deal but I do not believe in encouraging cavalier attitudes towards commitments to debt.
Or the lender could try to foreclose. It's happened to me three times. Of course, I had tons of equity and the last one cost Wells Fargo Bank $15,000 to me plus their expenses. Maybe that's why I'm a little nuts about BOTH sides keeping their commitments to a mortgage.