What Happens If I Inherit Property With a Mortgage?

by Tim Plaehn

An inheritance is usually a nice addition to your financial situation. However, inheriting property with a mortgage attached may not be such a positive event. If you are inheriting a home with a loan, you first need to check on the status of the inheritance and what the will says. Then you must decide what you want to do with your inherited property.

The Will

The person who left you the property in her will may have stipulated the disposition of the mortgage as well. If the will states you are to receive the property free and clear, the executor of the estate is responsible for paying off the mortgage using other assets in the estate. If the will does not specifically mention what to do with the loan, the mortgage will come along with your inherited property and you will be making the payments on the loan.

Contact the Lender

If the executor of the will did not do so, you need to contact the lender to notify them of the owner's death and send a copy of the death certificate. Death of the owner does not mean you will need to refinance the mortgage. If you are a close relative of the deceased, the loan can stay in force if you want to keep the property and eventually pay off the loan. If you plan on keeping the loan, give the lender your contact information so the payment notices start showing up in your mailbox. If you are a non-relative heir, the lender has the right to enforce the loan's due-on sale-clause, requiring a pay-off of the balance. Even if the due-on-sale clause applies, the lender has the option to let you take over the mortgage.

Sell or Keep

Before you get too far into making mortgage payments on the property, you should make a decision whether you want to keep the property or sell. Owning property comes with its own set of headaches, so make sure you know the consequences of keeping the property. If you want to sell, get the property listed for sale as soon as possible, especially if making the mortgage payments will be a strain on your personal finances. You may want to consult with an attorney as well as a real estate agent to make sure the process goes smoothly when a buyer is found.

Your Financial Obligation

Although you have inherited the property, you do not have a legal obligation to continue making the mortgage payments. If there is no equity in the home or your finances do not have flexibility to cover the payments, you should contact the lender immediately. You can work with the lender to have them take the house or just not make the mortgage payments and let the property go to foreclosure. If you plan to let the property go to the lender, a consultation with a lawyer might give you piece of mind concerning any pitfalls.

Disclaim the Property

Another option if you have no use for or will gain no financial benefit from the property and the attached mortgage is to disclaim the inheritance. A disclaimer is a refusal to accept the inheritance. To do so you must put your disclaimer in writing and deliver it to the executor of the estate within a time frame established by probate laws in your state. When you disclaim an inheritance, the estate then acts as if you predeceased the decedent and the property goes to whoever would be next in line for the inheritance.

About the Author

Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.

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