Assumption of a mortgage by an heir after a death?

[moriah]

My mother was an only child, and so she inherited her family home free and clear.

She had wanted to do a remodel and address foundation issues, plus her then-husband convinced her to instead of just pulling out what was needed, to pull out all 80% she could and pay off all the stupid credit cards he ran up. The remodel was done, and she remodeled her life as well by ditching the husband. To help pay bills, she asked me to move in.

And around that time, because of the divorce and knowing she had great credit from having paid off everything, she re-refinanced, with an excellent rate. She expected to be around another 15 years, so did a 15 year mortgage.

She passed away in June of 2020, suddenly, and we were very overwhelmed and didn't know what to do. The mortgage servicer said that as long as the mortgage was paid they didn't care, and while my sister filed the probate case and got a lawyer to at least get the filing done, he hasn't been helpful to either of us -- or at least, I believe he's misinformed.

Right now I am living in the home, and have a roommate/renter in a part of the home that is good for that, and the money from both of us goes into an account to pay all the bills and have enough for the taxes and other yearly expenses. However, we're 9 years away from it being paid off, and I don't think they do shorter mortgages.

Knowing roommates can be unreliable, I really do not want to lengthen the time having one is necessary instead of a way to build an emergency fund for, say, the roof someday. (Edit to add: I am on SSDI. I can pay all the bills, insurance, taxes, yearly maintenance of various things, etc, by myself -- the rental income is necessary hover to pay the mortgage.)

The attorney said that the only way to clear anything from probate -- even his fee -- is to refinance the house in one of our names (which to get the best rate would be my sister, which I want to avoid)

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But I was almost certain that there was a law that allowed heirs of deceased individuals to assume a current loan regardless of perceived ability to pay. No changes to how long we have a mortgage on the house, no credit checks or all the hassle of actually doing a mortgage, just you sign that you are responsible for paying this loan off. I mean, it doesn't hurt them -- they can always take the house if the person doesn't pay.

That's what I would prefer to do, and when I asked the attorney he was saying they "usually didn't allow that" -- which went against everything my Google-based brain had seen on this.

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Has anyone had this experience? Am I wrong? I know people would love to refinance for various reasons -- they may NEED to fix their roof. They might prefer a lower payment over a longer term. I'm not judging.

I just want to get my mother's estate through probate, and not take any equity out of the house or lengthen the time until it will be owned free and clear.

Also, yes a better lawyer would be nice, but doesn't the one who has been doing this end up getting a fee too even if I try to consult with a better one?

[padfun]

1. Another lawyer isnt going to do you any good.

You know your options. You can suffer and keep this current mortgage, or you can refi and pay things off.

I know you want to keep it the way it is and pay off when it is due, but you need to possibly make changes to address the changes that were made.

the worst mistake is to get yourself into financial trouble while you have this cash cow that can actually make things right.

[moriah]

5. See, I'm confused...

... yes, I could take equity out of the home that is in probate and kill all my revolving debt (and to be fair, let my sister take the same out to take care of anything she needed) .

But her estate far from a "cash cow". Mom really had nothing except this house and her car -- a small savings account, but after the attorney fee, my half would be $1500 tops.

Plus, my end goal is to have housing I can pay for by myself. I am eligible for public housing -- but I'd much rather be able to live in a real house instead of an apartment.

My question is: must the child of a deceased person go through the full refinance/credit checks to assume legal responsibility for the loan? Is it at the lender's discretion like the attorney said, or are there consumer protection laws in place for people who lose relatives and are happy with the current payments?

Until probate is done, I can't even get that possible $1500. And the lawyer says there needs to be progress on getting probate done because judges sometimes dismiss cases that haven't had filed activity in awhile.

[forthemiddle]

11. Your sister is entitled to 1/2 the equity in the house

Are you able to pay her that amount? Or do you think she is just willing to wait for an eventual payout?

[moriah]

13. She's said she's in no hurry to sell, particularly because I am living here.

If it came down to me having to pay her that much money, I'd be going into public housing.

[padfun]

2. Back in the early 90's.. I took real estate classes

and got my real estate license later.

But one thing that was taught was that if you had a house that was paid off, you were losing money. This was before Trump screwed up the mortgage deduction write-off in 2017.

the reasoning was that you had all this cash sitting there doing nothing for you. They said to take out a loan and use that loan to buy another house to rent. Now you had income, and you had a tax write off. And your net worth would increase. And you could sell this other house anytime you felt pressure and have the home value increase that usually came with it.

Now the things that make this backfire is a housing market going downhill, like in 2008, or TFG getting rid of the homeowners' tax write off. So, this strategy isn't as good as it once was but still works with the current housing market.

[bucolic_frolic]

4. Miss, Mr., or Mrs. real estate

What can you tell me about borrowing against a house with condition issues. Does that simply reduce the amount you can borrow, or does it prevent borrowing in some cases?

[padfun]

6. Any mortgage loan is dependent on the appraisal.

So if the conditions are going to drop the value, that will be addressed in the appraisal. And if you are selling it and willing to sell to someone who will use an FHA loan, they might not back that loan for some conditions.

Some examples:
Termites. If there is evidence of termites, FHA will require an inspection and treatment. And the owner pays for it.
Water, woodrot; Again, this needs to be addressed before an FHA approval.
Safety features. I know it is minor, but smoke alarms will need to be in every bedroom and a CO2 alarm somewhere in the hallway.

If you are going to refi, the bank will require an appraisal in most cases and you might want to check with a local real estate agent about your conditions and if you can still get a refi. In many cases, the appraisal will be enough since it took the drop in value as part of the worth already.

[bucolic_frolic]

9. Thank you

I thought I saw a few lenders who didn't bother with an appraisal, they just limited the amount. No matter.

When a house is appraised, and the number comes in significantly low, can that be used to appeal tax assessment? Or does it depend on the state? This is an actual issue that I've put off for years, despite a real estate agent putting condition issues in writing for estate purposes.

Thanks again.

[padfun]

15. That varies state to state

And sometimes a lender might not require an appraisal. Last year, since we were borrowing only 60% of the previous years appraised value, they went ahead without an appraisal.

[FBaggins]

7. Both are possible depending on what "condition issues" means

It might just reduce the value of the home (and thus the amount that can be borrowed against it)... but it might also be serious enough to keep the home from getting a Certificate of Occupancy - which absolutely can harm your chances of getting financing. Not absolutely prevent... but significantly impair.

[bucolic_frolic]

3. Don't know much about that

From what you stated it isn't clear - "the money from both of us" - is that you and the tenant, or you and your sister? If you are paying the mortgage make sure you get the equity you intend - that isn't clear either.

If you want a referral to a mortgage at a top rated institution that has historically had among the lowest rates in the country, message me. I think both you and your sister would get the same rate from them, but do your own due diligence.

[moriah]

8. I meant myself and the renter.

As far as equity/my sister goes, as my sister is the Administratrix she is the one who set up the account -- and it was from her social network that we found someone with a job who was about to move into a far worse situation and pay more. As far as I'm concerned, she's earning any difference in equity by her taking responsibility for the estate.

And my sister and I are very amicable. I would even be fine with the idea of us still splitting any sale of the house 50/50 once it's fully paid off -- of course, she and her husband did inherit land from his parents, so she might just say "Take it all, you lived with people in your house for over a decade, you earned it". We are not adversarial and do not anticipate any such thing.

I just REALLY don't want to extend the time we pay for a mortgage. It is more than all of the rest of the expenses (insurance, utilities, then dividing taxes, HVAC maintenance, etc). I can pay all those expenses myself -- but not a mortgage as well without a roommate/renter.

If my sister decides on refi I will message you, and thank you for the offer.

[FBaggins]

10. Really two issues

Yes - the mortgage company almost certainly has to allow you and/or your sister to "assume" the mortgage. But the real issue sounds like it lies in a different direction. It sounds like the home is the bulk of your mother's estate. The question is "how does the estate pay its bills?" and "how do you and your sister get your inheritance".

Let's take a fictitious (and oversimplified) example. Let's say the home is worth $150,000 and $50,000 remains on the mortgage (leaving $100,000 in equity in the home)... but that's essentially all of what she had left when she passed away. Then we'll assume that there's ~$5,000 in probate and legal cost and that your mother left her estate equally to the two of you.

If that was $100,000 in cash it would be pretty easy. The attorney would take his $5,000 and you and your sister would each get a check for $47,500. If the two of you sold the home, it would still be straightforward (though no longer "easy&quot . You would pay about $9,000 in real estate commissions and the $5,000 to the attorney/court... and you would each be left with $43,000. But you would have to find somewhere to live.

But it sounds like you want to stay in the house. So the real question is how your sister gets her inheritance and how the attorney gets paid while the home stays in the family. If you don't have other assets to pay those expenses... you may be forced to borrow against the home, which probably involved refinancing (but might work with a smaller/cheaper home equity loan/line).

[moriah]

17. Thanks for confiirming.

Mom had enough left over in her bank account to cover the attorney fees and *maybe* $1500 cash for each of us.

The rest is locked in the house, and no, my sister isn't interesting in selling right now -- as long as I live in it and keep a guest bedroom made up for her along with the room that is rented, it means her and her husband don't have to pay for hotels if they need to stay near hospitals. Neither of us have kids (or are likely to), either, who might be growing up and need college tuition or loans or houses to start their own families off in.

We'd hoped to get the inheritance issues "settled" by having the title be jointly between us -- Mom's only two heirs. Means that if either of us passed the house would go to the other without all the hassle of probate.

When her husband's parents passed there was luckily enough in the estate cash-wise (and no debt) to simply "buy" her out of the land portion by giving his sister the cold hard cash that was left (which she was also able to use to buy a home). It'd be nice if everyone was so lucky.

We're just happy we get along.

[dixiechiken1]

12. I am not an attorney but it sounds like you *can* assume a mortgage...

However, I have NO IDEA how - or even if - this affects probate and vice versa. When my mother passed, IL state law required her estate go to probate in order for us to sell her house. But you are not selling and are actually living there. And most importantly, state laws vary.

My suggestion would be to please talk to your attorney again. Maybe ask specifically about The Garn-St. Germain Depository Institutions Act of 1982, as mentioned in the article below. (Note, too, that this is a federal law.) Ask if a quit claim deed is a possibility.

I would make some calls to other attorneys. They will usually provide a consultation for free, so you can ask about your specific situation and see what they think. You may get the same answer(s) your current attorney is giving you, in which case you can be more confident in your current attorney's advice. If you get very different answers, then you and your sister will have a decision to make regarding whose legal advice to trust.

Can You Assume a House Loan After a Parent Dies?

Inheriting Mortgaged Homes
When you die, your property is held by your estate until it's passed to others. Normally, a deceased person's estate executor distributes that person's property according to a will or applicable state laws when there's no will. Inheriting a home from your parent by will or by state law is no different than inheriting your parent's favorite comforter. Complications to inheriting a home from a parent include what to do about an existing mortgage.

Relatives and Mortgages
A 1982 federal law makes it easy for relatives inheriting a mortgaged home to assume its mortgage as well. For example, your deceased parent may have left you a mortgaged home. When a mortgaged home is inherited, the mortgage's due-on-sale clause prevents the loan from being assumed. However, relatives inheriting mortgaged homes, such as the adult children of deceased parents, can also assume their mortgages if they intend to live in those homes.

Garn-St. Germain
The Garn-St. Germain Depository Institutions Act of 1982 allows relatives inheriting mortgaged homes to take over their mortgages. Under Garn-St. Germain, you won't need to refinance your deceased parent's mortgage or even assume it. Just notify your deceased parent's mortgage lender that you're inheriting your parent's home, will be living in it, and will be making the mortgage payments. After inheriting your parent's home, you might need to obtain a new deed in your own name.

https://homeguides.sfgate.com/can-assume-house-loan-after-parent-dies-55090.html

I'm sorry I'm not of more help, moriah. I'm sorry for the loss of your mother. 💔 This is such a stressful time and the fact that your housing situation is directly affected makes it more so. You absolutely need a lawyer well-versed in probate and real estate. Good luck and best wishes to you and your sister.

[moriah]

14. Thanks... very much. This was what I thought was the case.

The lawyer my sister retained who filed the probate case says all that needs to be done to get it moving is getting the loan either in my name, her name, or both.

I get that refi is the more common thing to do, especially if sibs aren't amicable -- she stayed here in the guest room while her husband was having back surgery, and it was nice for her rather than drive all the way back to their house when she needed a quiet nap.

But I was almost positive we could avoid a refi entirely by assuming the loan, and thanks for affirming I wasn't crazy (at least with how I thought the law could work in inheritance cases.

[elleng]

16. Excellent analysis and info.