What To Do If Your Deceased Parents' Home Is In Foreclosure
By Larry Li
October 3, 2022
When we lose a parent we are responsible for executing their will and making sure their property is appropriately managed.
It’s important to note that your parents’ death does not eliminate the mortgage agreement, so your parents’ estate must make the mortgage payments. If your parents’ estate cannot pay the mortgage fees, the bank can foreclose the home.
So what can I do if my deceased parents’ home is in foreclosure?
In most cases, you can either assume the mortgage on the property or sell the home and use the proceeds to cover the outstanding mortgage. However, if the remaining mortgage payments are more than the value of the home being inherited, you can refuse to inherit the home and leave the property to be sold in foreclosure.
A deceased person’s estate can default on a mortgage for several reasons, ranging from executor mismanagement and lack of mortgage payments. So, understanding what to do if your deceased parents’ home is in foreclosure is vital.
Here’s what we will cover in today’s in-depth guide:
What happens if you inherit a property in foreclosure
How is mortgaged property inherited after the owner dies
How to handle foreclosure during probate
What Happens if You Inherit a Property in Foreclosure?
First, it’s important to note that an inheritor is not obligated to pay the mortgage of a property in foreclosure if you are not a co-signer or share the title of the property. If you inherit a property in foreclosure, you have a few options.
In the best-case scenario, your parents’ estate has sufficient funds to cover the remaining mortgage left on the property. However, inheritors typically must assume the mortgage left on the property or sell the property to pay for the outstanding mortgage.
Furthermore, if the value of the property you inherited is less than the amount remaining on the mortgage, you may want to leave the property to be sold in foreclosure.
On the other hand, if the property's value is more than the amount left on the mortgage, it may be seen as a valuable investment.
How Is Mortgaged Property Inherited After the Owner Dies?
You must know how the property title is held to understand how to inherit the property from your parents. There are multiple forms in which a property title may be shared, including sole ownership, joint tenancy, a tenancy of the entirety, tenancy in common, or ownership in the trust.
Transferring the title from your parents to yourself takes place in the probate court with a judge’s approval. A probate court is a court process that deals with the estates of deceased persons. However, a transfer title from a property owner to a beneficiary depends on your parents’ estate plan.
If your parents had a will, the title is transferred to the named inheritor or beneficiary. Furthermore, if the title is held in trust, the trust instrument determines who gets the property upon the death of the settler.
If you do not address the property title, the mortgage company can foreclose on the property to satisfy the mortgage.
How to Handle Foreclosure During Probate
Now, let’s discuss how to handle the foreclosure of your deceased parents’ home during probate.
Banks usually initiate a non-judicial foreclosure process when they foreclose on a home. This is a standard foreclosure sale, where they hold an auction and sell the property to the highest bidder.
Nevertheless, the executor or personal representative of your parent's estate will receive notice that your parents own property subject to default on the mortgage.
Here’s what you can do if your deceased parents’ home is in foreclosure:
1. Contact the Lender
Your first task is to contact the lender to discuss stopping or delaying the foreclosure process.
When you contact the lender, you should request a copy of the loan documents if they are not readily available. This way, you can determine how much is actually owed on the outstanding mortgage payments.
Since it may be difficult to actually speak with someone at the mortgage company who can make a decision, it’s important to start the communication process as soon as possible. The mortgage lender may not be flexible, especially if the mortgaged property is in probate and there is a chance the lender doesn’t get paid back.
2. Pay Balance With the Estate's Liquid Assets
After you determine how much money is owed on the mortgage, you can decide if you want to pay off the mortgage or let the property go in a foreclosure sale.
So, if the amount owed is less than the value of the property, you can save the house by paying off the outstanding mortgage payments with the estate’s liquid assets.
3. Request Injunction to Provide Reasonable Time to Sell Property
If the mortgage lender is unwilling to halt the foreclosure process, you can seek a temporary restraining order to enjoin the foreclosure. You should speak to or hire an attorney for the best odds of obtaining the injunction.
Enjoining the foreclosure process might provide you time to sell the property and pay off the outstanding debt.
Furthermore, you should check if the lender gave proper notice of the pending foreclosure. If not, an improper notice can be a reason to force the lender to restart the foreclosure process.
4. Sell Estate Assets or Borrow Funds
Your parents’ estate may have other assets you can sell off to pay off the debt or bring the mortgage current.
However, you can also borrow funds on behalf of the estate to pay off the mortgage to avoid foreclosure.
5. Speak With an Attorney
In any case, it’s incredibly helpful to speak with an attorney with knowledge of your local foreclosure laws and regulations.
The foreclosure process is complex and must be executed according to pertinent contractual terms in the mortgage contract and your state’s laws.
As such, there may be an opportunity to discover a misstep by the mortgage lender that will allow you to eliminate the foreclosure process or come to an agreement with the bank on how to settle the issue.
Plan Ahead With Trustworthy
The best way to ensure the transfer of a house when someone passes away is with a Transfer on Death Instrument (TODI). A TODI notifies the Recorder of Deeds that you want to transfer your property’s title to specifically named beneficiaries.
However, you should also have a will drafted as soon as possible. To prevent the need for probate court, you must have beneficiaries listed on everything.
To make sure your family is prepared for the future, it’s important to use Trustworthy.
Trustworthy is dedicated to storing and securing confidential files, such as estate planning documents, bank account information, and passwords. With Trustworthy, we’ll help you plan, organize, and securely share wills, a power of attorney, and advanced care directives.
This way, your family is prepared to handle property title transfers and mortgage payments when worst comes to worst, and someone passes away. You can try a 2-week free trial of Trustworthy here.