Who Pays an Inherited Real Estate Mortgage
As real property such as personal homes or other buildings is commonly the center of many people’s estate, understanding who pays an inherited real estate mortgage is important. For example, just because you are set to inherit a piece of property from a relative or friend does not mean that you will be the owner of the property or even economically much better off.
To illustrate this point, say your father recently passes away and executed her Last Will and Testament before he died. The Will provides that you are to be one of the beneficiaries of her home that is worth $450,000. However, there is still $250,000 on the mortgage of the house. Additionally, the Will provides that the remainder of the estate is to be equally divided between your siblings. Finally, the Will does not specifically comment on whether you will receive the property subject to the debtor if the Estate has an obligation to pay the remaining mortgage balance.
What Happens if You Inherit a Real Estate Mortgage
The distribution of the home is a “specific devise”. Unfortunately, a specific devise must pass through probate and is subject to any mortgage or lien existing on the property. This means that the person inheriting a property is responsible for the mortgage and not the estate.
Inheriting a loved one’s property can be a great gift. However, people can be wary about taking on a new or second mortgage. In certain situations, a transfer of a property that has an attached mortgage from the owner to another triggers the “due on sale clause”. A due on sale clause means that the debt left on a property would all become due. However, in 1982 the Garn-St. Germain Act was created and places certain limits on the application of due-on-sale clauses. These limits occur when real property transfers to another because of the death of a borrower.
The Act states that a lender cannot invoke a due on sale provision if the transfer is to a relative resulting from a death. As such, if the aforementioned situation were to occur, the new owner would simply inherit the old mortgage. This includes the same interest rate and other terms.
Contact Our DC Law Office for More Information
For more than 20 years, Antonoplos & Associates has practiced commercial real estate, residential real estate, and real estate disputes and litigation matters. We represent clients throughout DC, Maryland, and Virginia
For more information on who pays an inherited real estate mortgage, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys.