A loved one dies and leaves behind a home and a mortgage.
A common question I get from clients in this situation is: Will I have to qualify to assume the loan and keep the house?
The Garn-St. Germain Depository Institutions Act of 1982 allows relatives inheriting mortgaged homes to take over or assume their mortgage if you choose. Under this Act, you will not need to refinance mortgage or even assume it. Normally you or the representative of the estate would notify the mortgage lender that you are inheriting your relative’s home, will be living in it, and will be making the mortgage payments. When the estate or trust closes and is distributed the property would then be put into your name by way of a deed or if through probate, by a court order recorded with the County Recorder.
Keep in mind that you must continue to make the mortgage payments; otherwise, the lender can pursue foreclosure. Also property taxes and insurance must be paid and that the home may come with property liens attached to it.
Further, prior to assuming the loan, if the house is “upside down” and it has conventional purchase money, non-recourse mortgage, then you or the estate representative could decide that it would be best to let the house go back to the bank. In this situation you and the estate would not be personally liable for the debt nor would you be responsible for the deficiency amount that the bank did not receive in a foreclosure.
However, keep in mind that if there is an equity line of credit or some type of other debt lien against the house, that those debts might survive the foreclosure and the estate might be responsible for paying them. Consult an attorney.
Also, on another note regarding the Garn-St. Germain Depository Institutions Act, an important consumer change that came along with the Act was to allow anyone to place real estate in their own trust without triggering the due-on-sale clause that allows lenders to foreclose on a current loan upon transfer to another.
This greatly facilitates the use of trusts to pass property to heirs and minors. The bill states "... a lender may not exercise its option pursuant to a due-on-sale clause upon ... a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property[.]” (The Garn St. Germain Depository Institutions Act of 1982, (U.S.C.) 1701j-3(d)(8)
For more information contact the Law Offices of Daniel H. Alexander, PLC, (800) 530-4529www.dalexander.com