What happens to the mortgage on your parent's home when they pass away?
Attorney Chris Merrill: Tom, what happens to the mortgage on my parent's home when they pass away?
Attorney Tom Olsen: Chris, that's a common question and usually, it's the parents who are asking us that question when we're doing their estate planning. Tell our listener what's happening.
Chris: What's happening is, any time somebody passes away with a mortgage on their home-- Of course, oftentimes, this home is going to the adult children. If the children are deciding that they are going to sell the home at that point, then when they do so, the mortgage is paid first. It's a pretty simple and straightforward situation, that will be, again, paid. They are allowed to continue, meaning the adult children, and pay the mortgage until the house is sold. I think oftentimes, people get concerned that they will not be able to continue making those payments, as in the lender won't let them. The lender must continue to let the adult children pay it.
Then, of course, if it's sold, that's very simple, because at the closing, the mortgage will be completely paid off before the home transfers to the buyers. The other piece of this, which is really important that we help with is, yes, the mortgage can be paid and paid by the children and paid off. However, you want to make sure that the home goes directly to the children without probate because if there's probate, now it means the children must continue paying that mortgage as long as the probate is going on, which could be-- Even now, we're dealing with ones where that could be a year.
Tom: Yes, exactly.
Chris: The whole idea is, how do you avoid probate? That's what will minimize the amount of time with regards to even paying on this potential mortgage that is left on the parent's home.
Tom: When Mom and Dad pass away, the kids just step into their shoes and keep on making the mortgage payments until they either sell the house and pay off the mortgage as part of that sale or otherwise pay off the mortgage. What you're really saying is that if the kids want to-- Our experience is, most of the time, when Mom and Dad had passed away, the kids want to sell their home.
Chris: Correct. Exactly.
Tom: We're all about helping people to avoid probate. Why, because probate is expensive and it takes a long time. If we have to go through probate, that probate could take four to six months and you can't sell the home until the end of that probate. If we take all the steps necessary to avoid probate on a home using a lady bird deed, also known as an Enhanced Life Estate Deed, the kids own that piece of property. They're free to sell the day after Mom and Dad have passed away, so less time that they're going to have to make the mortgage payments pending the sale of the property.
Chris: Correct. You're right, most of the time they want to sell, and therefore, it would be, how do you minimize? The kids do step into the shoes and can immediately start paying that mortgage.
Tom: I do want to clarify something and that is this, as far as the children wanting to keep the home and wanting to officially assume the loan with the lender so that the lender actually recognizes the child is the new borrower, to literally assume that mortgage, the only way the lender is required to let the child assume the mortgage is if the child is going to live there. That's the federal law. Mom and Dad pass away, child Joe is going to live in Mom and Dad's home. The lender, by law, must allow them to assume that mortgage. If the mom and dad pass away and Joe inherits the home and Joe lives somewhere else, the lender doesn't have to let them assume the mortgage.
Realistically, son Joe can just keep on making the mortgage payments and the lender is not going to care. That's been our experience.
Chris: Exactly. You're right, Tom, that's been our experience. This is where, though, each lender, what we find, the requirements are a little bit different and you always have to check with that lender.
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