What happens if you inherit a house with a mortgage? These readers want to know what to do if the mortgage exceeds the value of the property.
Q: My husband’s stepmother added him to the title to her home prior to death. She added him as a joint tenant with rights of survivorship. We understand the property transferred automatically to him at her death.
We have a big issue, however, we didn’t know she had a mortgage on the home and the mortgage exceeds the value of the property. The value of the home is basically just land value due to the dilapidated state of the home. Is there anything we can do with the mortgage company to pay what the property is actually valued at or is this a walk away situation?
What Happens If You Inherit a House with a Mortgage?
A: Before we discuss how you should or could approach the lender, we’d like to see you investigate the value of the property a little bit further. While you may be correct that the value for the property is basically the value of the land, we think you should double-check that. You can do a bit of sleuthing online to see what lots sell for in your area and you can talk to real estate brokers or agents and get their input on the value of the property.
Sam has seen similar situations where his clients’ estimation of the value of a piece of property has been way off, sometimes for the better and sometimes for the worse. Once you have a better understanding of the property’s value, you can make a decision on what to do and how to approach the lender.
If you do discover that the value of the property exceeds the mortgage, you might prefer to sell the property, pay off the loan and any closing costs and fees at the closing and benefit from any residual cash from the sale.
If you do confirm that the property’s value is lower than the amount owing on the mortgage, you can approach the lender and offer to give them the property in lieu of foreclosure.
You should know a couple of other things. If your husband’s stepmother added your husband to title without his knowledge, your husband might have the ability to claim that he is not the owner of the property as he never accepted ownership of the home. If he didn’t accept it, he might be able to claim that he isn’t the owner.
What Happens if the Lender Forecloses on the Property?
In either case, if the lender does not receive payments on the mortgage, the lender will foreclose on the property. Once the lender forecloses, the property will be the lender’s problem and it should be out of your husband’s hands. In some situations, you might be able to sell the property to a buyer and hope that buyer pays enough to cover the loan and closing costs. If the buyer is unable to offer enough, you might get the lender to approve the sale anyway as a short sale — where the proceeds of the sale are insufficient to pay off the debt and the lender allows the sale anyway.
We doubt that your husband has any responsibility for the repayment of the debt, as the lender’s security is with the property. This means that if the property is lost in foreclosure, your husband’s credit should not be hurt. Unfortunately, if the credit reporting bureaus tie the property to your husband’s name, it could be an issue even if the debt is not in your husband’s name.
Why? Because the property itself could show up on your husband’s credit history and show a default or foreclosure. That default or foreclosure should only affect his stepmother, but his name on title could still cause him a headache.
To avoid this headache, we suggest that your husband talk to an attorney to find out whether he has any responsibility regarding the property under the laws of the state in which the property is located. If he finds out that he does, then he should figure out how to navigate the process to minimize any issues or find out what he can do to avoid these issues altogether. Good luck.
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I’ve been doing a lot of research and it making me crazy .Terminnly I’ll deceased mother that I took care of for almost 20 years took out a 2nd mortgage home equity loan And she made out her last will in testament she had given and devised and bequeathed the estate to me her daughter and made my brother the executor of the will..My brother also cosigned for the Fannie mea Freddie Mac uniformed instrument 3033 1-19 pages and e sighed the promissory note and the Ryder .But I didn’t know any of this until I paid on the mortgage for 9 years of a 15 yr loan And I paid for a lien that I guess was on the house and wrote the check out to the law firm my brother hired .And the attorney said he got the lien down to a dollar .but I have a paper with a break down of the money .i gave them a 2000 dollar check and paid for attorney fees and transfer of the deed .and said it came from the escrow account witch is a lie it came from my friends check book .and then he attorney told me that the house was not taxable .i don’t know what that means and the attorney or anyone from the firm would not answer any of my questions . That not write and my brother got out of all liability for the loan he didn’t do anything except get the face value of my mothers life insurance policy and paid for the funeral .i don’t know what happened to her death benefits .and the hose was hit by a carp And that’s when I found out that I was not responsible for paying off my mothers dept and he social security number was on my credit repot along with the bankrupsey because I couldn’t pay the ban in full my mother I’d was stolen buy someone and put on my credit report it had to be the creditors .They harassed me to pay off this motgage .so I didn’t get a dime from her inheritance . I lost everything I work for and I was waiting on disability when the creditors put the house in default and I had the house repaired , My mother had a trust fund to repair the property that never happened and I paid 1200 a month for 9 years .i know something is wrong I know my mother would never want me to be homeless and disabled from the abuse and trauma I’ve been through .and it didn’t stop there . But if you have any suggestions let me know .Im so debilitated I had hard time writing what I just wrote.