Question What happens when parents pass away and house still mortgaged?

[chicagoannie]

I am thinking a bit into the future. My parents still have a small mortgage on their house and have indicated to me the house will be mine when they pass away (hopefully MANY years from now!)

What happens if the mortgage is still not paid off when the second parent passes on? I am the only child and only beneficiary in their will.

If I wanted to keep the house, would I need to obtain a mortgage for the balance owed? How do things like this work?

[chicagoannie]

And, what if, heaven forbid, they both passed away before I could get a mortgage (due to my Ch 7)?

[DYLAN150]

Federal law - called the Garn-St. Germain Depository Institutions Act of 1982 - protects a son or daughter from the lender exercising its "due on sale" clause upon inheritance. This law, among many other matters, specifically addresses your issue.

[chicagoannie]

Thanks Dylan - I looked up the law:

An important consumer change 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. It may also protect the property of wealthy or risky owners against the possibility of future lawsuits or creditors, because the trust owns the property, not the individuals at risk. 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).

I guess my question is that if I am willed a say, $250,000 property with say $30,000 still due on the mortgage, I would need to go out and get a $30K mortgage to keep the property, correct? My parents do not have any kind of trust set up (they are "old school" and just have a simple will leaving me everything.)

[LadyInTheRed]

What you quote discusses only one provision of the law.

(d) Exemption of specified transfers or dispositions
With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon—
(1) the creation of a lien or other encumbrance subordinate to the lender’s security instrument which does not relate to a transfer of rights of occupancy in the property;
(2) the creation of a purchase money security interest for household appliances;
(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
(4) the granting of a leasehold interest of three years or less not containing an option to purchase;
(5) a transfer to a relative resulting from the death of a borrower;
(6) a transfer where the spouse or children of the borrower become an owner of the property;
(7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;
(8) 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; or
(9) any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board

http://www.law.cornell.edu/uscode/ht...1---j003-.html

All you'll need to do is keep paying the mortgage. You could refinance, but you won't be required to.

[DYLAN150]

I was told that when my parent dies, I should send the lender a copy of the death certificate, and merely advise that I will be taking over the mortgage payments. This is what my lawyer told me about a year ago. He told me that the bank could not raise the interest rate accordingly to the law mention above.

[chicagoannie]

Thank you both SO much for the information. I am printing it out and putting it in my "important stuff" binder. I hope I do not have to even face this issue - the folks only have 4 years left on their mortgage. But it is good to know how these things work. Aside from telling me "you get it all, honey" my parents are not ones for indepth discussions about dying, finances, etc. and I was scared to think that my situation might result in the loss of their life's work - their home - if I could not obtain a mortgage for that very small amount.

[SunshineGal]

Hi Chicagoannie,

I agree with the other posters, there isn't any reason to refinance the house later. In fact, a $30K loan would be difficult to get due to lending laws - there just isn't any money in it.

Do some research on estate planning, you may be better off having your parents ad to to the title now as a "Joint tenant with full rights of survivorship" as the house would avoid probate all together. Another tool is a "Lady Bird Deed" or, Transfer on death title, but its only legal in some states.

Dylan - thanks - I learned something new today.

SG