This reader wants to know how they can get out of inheriting a property that has a mortgage. Here’s what I suggest:
Q: I have inherited a 25 percent interest in a home along with three other siblings. I do not want my 25 percent and want to execute a quitclaim deed to my other three siblings. If the property has a mortgage at the time of my inheritance, am I absolved from paying my portion of the mortgage if I quit claim my interest to them?
A: If you don’t want to inherit your 25 percent interest in the property, you might only need to decline the inheritance. What you don’t want to do is take title to the property. In other words, you would decline or disclaim your inheritance.
You can’t be forced to inherit property and you have the right to decline a gift of inheritance. For you to take title to real estate, you have to have a “transfer” of that title to you and there must be an acceptance of that transfer by you.
In a traditional purchase of real estate, you attend a closing or settlement where you hand over money (typically by wire transfer and not in a suitcase full of cash) and in exchange you receive the title to the property. That transfer happens when you sign the closing documents: you are accepting the title that the seller is transferring to you.
If you use a quit claim deed, the deed transfers whatever interest you may have in the property to the recipient. In your case, it might be inferred that you took title to your share of the property and then transferred it to your siblings. The better way would be to officially decline and disclaim your inheritance.
We need to tell you that your inheriting the property does not make you personally liable to the lender holding the mortgage on the property. When the owner of the property obtained the loan on the home, that owner was personally liable to the lender under the promissory note. When you and your siblings inherit the home, you and your siblings would become owners of the home subject to the mortgage but without having personal responsibility for the payment of the loan.
There’s a distinction there. If you were to buy the home and the lender allowed you to assume the mortgage, you would become the owner of the home and with the assumption of the mortgage then have the personal obligation to repay the debt. If you don’t assume the debt, the debt doesn’t go away. The lender still has the home as collateral and if the loan goes into default, the lender can foreclose on the home and sell the home to satisfy the debt.
We don’t know if this information will change anything from your perspective, but we thought we should clarify the issue that you would not be personally liable on the mortgage should you take title to the home. If, down the line, you and your siblings decided to refinance the home, the new lender would require all four of you to be on the loan personally. But until that happens, the four of you could own the property without having the personal obligation to pay the loan.
For more details, please talk to an estate attorney or the executor of the estate.