What Happens When The Sole Owner Of A House With An Upside Down Mortgage Dies?

[haha]

What Happens When The Sole Owner Of A House With An Upside Down Mortgage Dies?

Ha

 

[W2R]

I am not a lawyer, but I would assume that before any distributions could be made, the estate would pay off the mortgage along with other debts of the estate, wouldn't they?

 

[youbet]

What Happens When The Sole Owner Of A House With An Upside Down Mortgage Dies?

Ha

He/She spends eternity in the dark silence of death.

Why do you ask? I thought you were renting.......

 

[haha]

He/She spends eternity in the dark silence of death.

Why do you ask? I thought you were renting.......

God, everything I say isn't necessarily my personal situation.

 

[freebird5825]

I am not a lawyer, but I would assume that before any distributions could be made, the estate would pay off the mortgage along with other debts of the estate, wouldn't they?

I agree. Also not a lawyer, but served as an Alternate and primary Executrix for 2 estates, with legal counsel all throughout to keep me straight and fully legal.
The Executor has a duty to satisfy all outstanding debts prior to doing any distributions from the estate. There could be other factors involved, like mortgage insurance on the sole owner's life to pay off the outstanding principal.
My guess (out on a slender limb here) is the lender will take possession of the house by default unless the estate continues the mortgage payments until the probate process is completed.
What I don't know is if other estate assets, like house contents and tangible property and bank accounts and investments, can be appropriated to satisfy the balance.

 

[Martha]

The lender will likely foreclose and depending on state law may or may not be able to file a claim for a deficiency against the estate.

 

[youbet]

God, everything I say isn't necessarily my personal situation.

Just wanted to see if you were reading the responses..........

BTW, good question.

 

[honobob]

The lender will likely foreclose and depending on state law may or may not be able to file a claim for a deficiency against the estate.

I do not believe there is any jurisdiction in the United States that would allow a foreclosure because of the death the owner.

 

[bubba]

I do not believe there is any jurisdiction in the United States that would allow a foreclosure because of the death the owner.

I'm confused; why wouldn't there be a foreclosure? I'm pretty sure the mortgage holder wouldn't write off the debt and release the deed. I think the bank would foreclose unless the estate was making the mortgage payments.

 

[cashflo2u2]

The lender could institute any legal remedy available to it inluding foreclosure if the mortgage went into default. For what constitutes a default what are remedies you would have to read the note and mortgage. The most common default of course is non payment of amounts when due. I suppose even death or insolvancy of the debtor could be and event of default. I sure that death itself does not wipe out any deficiency. Of course as another poster stated the deficiency obligation could be different depending on the State- Ca. being a notable one. I'm not a lawyer either.

 

[ChrisC]

I figured it wouldn't take long for confusion to occur over a simple question, where the simple answer is to consult a lawyer, in the jurisdiction where the property is located or where the individual's estate might be probated, and not troll for legal advice over the internet.
Bring all relevant papers to the lawyer such as the deed, promissory note, mortgage/lien instruments, mortgage balance statements from the servicer, tax bills, divorce decrees, outstanding judgments, and a will, if one exists.

In the space of a few posts, we've covered a lot more than 1st year law students would cover in a real property class during the first week of law school: decedent estate distribution, mortgage foreclosures, deficiency judgments, abatements for actions caused by death of a debtor, events of defaults under promissory notes or mortgage/lien/trust deed instruments, and someone was on the verge of bringing in civil procedure concepts of in rem actions against the property staddled with a lien or in personam actions against the estate of the decedent.

 

[Martha]

I do not believe there is any jurisdiction in the United States that would allow a foreclosure because of the death the owner.

I said "likely" foreclose. The lender is upside down, why would the estate try to sell the house when there isn't anything in it for the heirs?

Chris has a good point, it all is a matter of state law which varies. Nevertheless, if the property is worth less than the debt it is most likely that the lender will end up foreclosing at some point. Maybe a deed in lieu is possible from the personal representative, but what I have seen most often is the heirs walk away and the lender forecloses. At least this was true in the two states where I was licensed.


Don't forget my signature.

 

[Martha]

In the space of a few posts, we've covered a lot more than 1st year law students would cover in a real property class during the first week of law school: decedent estate distribution, mortgage foreclosures, deficiency judgments, abatements for actions caused by death of a debtor, events of defaults under promissory notes or mortgage/lien/trust deed instruments, and someone was on the verge of bringing in civil procedure concepts of in rem actions against the property staddled with a lien or in personam actions against the estate of the decedent.

Not that there is anything wrong with that. People here are curious about how things work, whether it is taxes, treatments for prostrate cancer, financial planning, to whatever someone can dream up next. I don't think the curiosity is trolling for advice and specifically I don't think Ha is trolling for legal advice, he is just curious as to what may happen.

 

[haha]

Not that there is anything wrong with that. People here are curious about how things work, whether it is taxes, treatments for prostrate cancer, financial planning, to whatever someone can dream up next. I don't think the curiosity is trolling for advice and specifically I don't think Ha is trolling for legal advice, he is just curious as to what may happen.

This is correct, Martha. While I do own property, there is no debt on it, and I live in an apartment.

I figured it wouldn't take long for confusion to occur over a simple question, where the simple answer is to consult a lawyer, in the jurisdiction where the property is located or where the individual's estate might be probated, and not troll for legal advice over the internet.

By this logic, 90% of the threads on the board would disappear.

Ha

 

[Sarah in SC]

But I like to troll for advice, if not legal, then at least travel, leisure, investment, or other activities. Ha's right--why else would we be here? For the biscuits and gravy?

I kinda liked youbet's answer, though. That pretty much sums it up.

 

[Westernskies]

Ha's right--why else would we be here? For the biscuits and gravy?

My advice is a side of bacon with that.

 

[Bestwifeever]

Biscuits and gravy on the one hand, Wednesday weigh-ins on the other. Where else can you get that kind of debate?

 

[ChrisC]

But I like to troll for advice, if not legal, then at least travel, leisure, investment, or other activities. Ha's right--why else would we be here? For the biscuits and gravy?

I kinda liked youbet's answer, though. That pretty much sums it up.

Sorry if my post might have implied that there was something wrong with trolling for advice. I'm pretty sure people aren't here just for biscuits, gravy, ham or bacon or for seeking advice. And I'm pretty sure some of us are here because they also like to occasionally hear themselves post (including me sometimes) -- not that there's anything wrong with that either.

 

[huskerblue]

$E

 

[clifp]

I for one was curious as to the answer. Personallly, I am inclined to believe the lawyers on the forum, despite (or maybe because of) their disclaimer.

 

[honobob]

I said "likely" foreclose. The lender is upside down, why would the estate try to sell the house when there isn't anything in it for the heirs? .

If someone who held their selves out as a practicing attorney told me I’d "likely" go to jail, I’d be making a "dating" plan! I’m afraid I’d "likely" be popular. You remember I was a model.

The lender is upside down, why would the LENDER try to sell the house when there isn’t anything in it for the LENDER? I can think of "way more" (not a legal term) reasons for an heir to want to continue to make prompt payments on an inherited property than for a lender to allow a short sale or force a foreclosure.

BTW hono, I am aware of a number of standard mortgage forms which provide that if the borrower or mortgagor dies it is a default on the mortgage and the lender can foreclose. I am not aware of state laws barring this provision, though some states might have such a law and maybe some state's probate laws could slow it down.

I did go to law school but never practiced but I would have to ask you if you think everything in a contract is enforceable? I would also NOT advise a personal representative to default on the mortgage payments. What if the property doubles in value before the probate is complete. Imagine the liability to the heirs.

Marty, when you think about this stuff I suggest reading up on the concept of enforceability.

[FONT=Tms Rmn,Times New Roman]Most states have passed laws that say that a death does NOT trigger the "due-on-sale" clause of the mortgage. You just keep paying. You are not really assuming the mortgage since you didn't fill out any paperwork. You are taking the property "subject to" the mortgage.[/FONT]


There are situations where due-on-sale provisions are legally not enforceable (legal loopholes):
This can be found in the US Code, Title 12 (Banks and Banking), Chapter 13 (National Housing Act), Section § 1701j–3. Preemption of due-on-sale prohibitions. Mainly subsection D.
Some examples are transfers to relatives upon death, transfer to spouse/children in general, or certain family trusts
　

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[FONT=Helv,Arial][FONT=Helv,Arial]http://www.real-estate-online.com/articles/art-071.html[/FONT][/FONT]
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FDIC Law, Regulations, Related Acts - Miscellaneous Statutes and Regulations

 

[ChrisC]

The lender is upside down, why would the LENDER try to sell the house when there isn’t anything in it for the LENDER? I can think of "way more" (not a legal term) reasons for an heir to want to continue to make prompt payments on an inherited property than for a lender to allow a short sale or force a foreclosure.

Hmmmm, because the lender wishes to mitigate additional losses in the property, because it wishes to recover something on its loan against the property (as opposed to having this loan-asset on the balance sheet of the lender completely extinguished by the local taxing authorities who will tax sale the property and wipe out the lender's interest in some cases under state law), or because the lender might be severely criticized by its outside auditors or regulators if it didn't pursue foreclosure or loss mitigation. The property isn't completely worthless; it's just that the borrower is upside down on the property: his debt exceeds his equity or, in other words, he has negative equity; the property might still have value to the lender, unless it's environmentally toxic.

I did go to law school but never practiced but I would have to ask you if you think everything in a contract is enforceable? I would also NOT advise a personal representative to default on the mortgage payments. What if the property doubles in value before the probate is complete. Imagine the liability to the heirs.

Marty, when you think about this stuff I suggest reading up on the concept of enforceability.

[FONT=Tms Rmn,Times New Roman]Most states have passed laws that say that a death does NOT trigger the "due-on-sale" clause of the mortgage. You just keep paying. You are not really assuming the mortgage since you didn't fill out any paperwork. You are taking the property "subject to" the mortgage.[/FONT]


There are situations where due-on-sale provisions are legally not enforceable (legal loopholes):
This can be found in the US Code, Title 12 (Banks and Banking), Chapter 13 (National Housing Act), Section § 1701j–3. Preemption of due-on-sale prohibitions. Mainly subsection D.
Some examples are transfers to relatives upon death, transfer to spouse/children in general, or certain family trusts
　

[FONT=Tms Rmn,Times New Roman]　[/FONT]
[FONT=Helv,Arial][FONT=Helv,Arial]http://www.real-estate-online.com/articles/art-071.html[/FONT][/FONT]
[FONT=Tms Rmn,Times New Roman]　[/FONT]

FDIC Law, Regulations, Related Acts - Miscellaneous Statutes and Regulations

Hmmmmm, I guess we need competent counsel to figure out which contractual provisions are enforceable in general and which contractual provisions might be specifically preempted by federal banking laws or regulations especially in light of this case as well: CUOMO v. CLEARING HOUSE ASSN., L. L. C..

 

[Martha]

If someone who held their selves out as a practicing attorney told me I’d "likely" go to jail, I’d be making a "dating" plan! I’m afraid I’d "likely" be popular. You remember I was a model.

The lender is upside down, why would the LENDER try to sell the house when there isn’t anything in it for the LENDER? I can think of "way more" (not a legal term) reasons for an heir to want to continue to make prompt payments on an inherited property than for a lender to allow a short sale or force a foreclosure.








I did go to law school but never practiced but I would have to ask you if you think everything in a contract is enforceable? I would also NOT advise a personal representative to default on the mortgage payments. What if the property doubles in value before the probate is complete. Imagine the liability to the heirs.

Marty, when you think about this stuff I suggest reading up on the concept of enforceability.

[FONT=Tms Rmn,Times New Roman]Most states have passed laws that say that a death does NOT trigger the "due-on-sale" clause of the mortgage. You just keep paying. You are not really assuming the mortgage since you didn't fill out any paperwork. You are taking the property "subject to" the mortgage.[/FONT]


There are situations where due-on-sale provisions are legally not enforceable (legal loopholes):
This can be found in the US Code, Title 12 (Banks and Banking), Chapter 13 (National Housing Act), Section § 1701j–3. Preemption of due-on-sale prohibitions. Mainly subsection D.
Some examples are transfers to relatives upon death, transfer to spouse/children in general, or certain family trusts
　

[FONT=Tms Rmn,Times New Roman]　[/FONT]
[FONT=Helv,Arial][FONT=Helv,Arial]http://www.real-estate-online.com/articles/art-071.html[/FONT][/FONT]
[FONT=Tms Rmn,Times New Roman]　[/FONT]

FDIC Law, Regulations, Related Acts - Miscellaneous Statutes and Regulations

Are you mad at me or something?

 

[honobob]

Are you mad at me or something?

No, not at all. I did think your answer was very flip and could see where the OP would be startled to think it was likely that the property would be forced into foreclosure. Then there was talk of a tax sale, I figure a IRS lien and the threat of eminent domain would come up shortly. I just pointed out some facts that I hoped would relieve their apprehension. Can't we just git back to the comfort of biscuits n gravy before Grandpa's farm is taken away. Plus, you know it makes me crazy when people only see real estate in the most negative light.
Peace.

 

[Martha]

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. I gave no advice as to whether someone might want to make the loan payments. You aren't in any position to give such advice either. Personally, if I was an heir I likely would not like to see a PR making payments on an upside down mortgage, especially if the lender was not entitled to a deficicieny claim on floreclosure (which is a state law issue).

FWIW I know personally of some situations where a person died owing more than their home was worth. In one case Dad died owing more than his house was worth. The only other assets were junk in the house, a car with a big loan on it, and a retirement plan with his daughter as beneficiary. Daughter took the retirement plan money, cleaned out the house (more to be nice than anything else) and walked away from the house and the car. Seems reasonable to me. No probate so no personal representative.

I also knew a person who died leaving his home subject to a mortgage and federal tax lien. His son, who was his only heir, tried to sell the house and get the IRS to settle. No luck and he walked away too.

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.

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.

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.

Again, see my signature.