Inheriting a home is often a blessing, but it can also be confusing or feel like a burden. If you’ve received property that carries a mortgage, you may be unsure of your obligations. They depend on the mortgage of the person who left you the property as well as your relationship to the deceased. Whatever your situation, the property might have back taxes and/or liens. It’s possible that the deceased person’s estate made provisions for these issues, but if not, talk with an attorney or financial planner about your best move.
If You’re Not Related to the Deceased
If you’re not related to the person who left you the property, chances are the lender has the right to ask for the balance due. Therefore, you might need to pay off the mortgage or sell the house. See if the mortgage has a due-on-sale clause governing what is to happen if the borrower transfers the property or dies. Many newer mortgages have them, and while you can become legal owner of the property, the remainder of the balance comes due.
If you want to keep the property but can’t afford to pay it off right away, many lenders allow you to refinance the mortgage so you can keep the property and have it in your name.
If You Are Related to the Deceased
The Garn-St. Germain Depository Institutions Act of 1982 carves out an exception to the due-on-sale clause for close relatives who inherit property. If this is your situation, you are entitled to assume the mortgage and continue making payments on the property. You can keep the mortgage in the deceased person’s name as long as you live on the property, but it’s a good idea to eventually have it in your name. Do watch out for a mortgage assumption fee, which can sometimes be as much as two percent of the balance. Some lenders say they have the right to impose such as fee, but in fact, many don’t.
If the property in question has at least five dwelling units — an apartment building, for example — it does not matter if you are a relative: Lenders can enforce a due-on-sale clause.
If You’re a Joint Tenant
If you jointly held the title to a property with no more than four dwelling units, you have the right to completely take over the mortgage as long as you are a spouse or close relative of the deceased person. If you weren’t related to the person, the lender might enforce the due-on-sale clause if there is one. Usually, though, you can keep the property as long as you show ability to make the payments.
When Due-on-Sale Is Enforced
When a lender decides to enforce a due-on-sale clause, that lender must provide you with notice of the accelerated loan and give you at least 30 days to meet the terms. If you can’t pay off the balance or can’t sell the property, you face foreclosure.
If You Don’t Want the Property
You will never be forced to take legal possession of property you inherited. If you don’t want the property, let the lender know, and the foreclosure will be attributed to the deceased person’s estate.
If There’s a Reverse Mortgage
If you inherit a property that is under a reverse mortgage and want to keep the home, you’ll need to repay the amount that the deceased owner advanced. If you can’t afford the repayment, try getting a new mortgage.
As you can see, what to do when you inherit a mortgage isn’t black and white. Furthermore, in the chaos that sometimes accompanies a death, it’s easy to forget about monthly payments. If you want to keep the property, bring the payments up to date if they’re behind. As soon as possible, communicate with the mortgage lender about your intentions.