When someone dies, their loved ones must handle their home and any mortgages that they had. Here’s what you need to know if you’ve suffered a recent loss.
When a homeowner dies, someone will have to deal with the home and any outstanding mortgage loans. The deceased homeowner may have left multiple heirs behind, each of whom have their own ideas about what to do with the home. Depending on the circumstances, you may need to speak to an attorney who specializes in real estate or probate law.
An experienced home mortgage professional can help you sort out the current financing of the home and, if needed, find a new mortgage so you can pay off your relative’s loan. Here are some common situations that occur along with options that may be available to you.
Question #1: Did your relative have any estate planning documents?
One of the first questions you should ask when an elderly relative dies is if they had an estate plan. If so, they might have left instructions on what to do with the home. Hopefully they let someone know where to find their estate planning documents. If not, you may have to search through the home.
Estate planning is a complex field that can involve lawyers, financial professionals, and others. But any of the following documents will outline what happens with the home in a clearer way than without them.
Last Will and Testament
A will is a set of instructions from a person, known as the “testator,” about what will happen to their belongings after their death. The will should name someone who will serve as the administrator of the estate. The administrator is responsible for identifying all of the testator’s assets and debts, paying their debts, and distributing their assets according to the terms of the will.
A legal proceeding known as “probate” must occur, in which a judge confirms that the will is valid and that the administrator is fulfilling their duties.
A person known as a “settlor,” can set up a trust that holds certain assets while they are alive, and then distributes those assets to designated people (“beneficiaries”) upon their death. The trust document should designate someone to manage the trust, known as a “trustee,” once the settlor dies. The trustee is in charge of distributing assets to the beneficiaries.
Assets that are part of the trust do not have to go through the probate process, since they belong to the trust, not the deceased person. One way to determine whether your relative had a living trust is to check public records. They may have signed a deed conveying the home to the trust.
Transfer on Death Deed
A homeowner in Texas can also keep their home out of probate by signing and filing a transfer on death deed (TODD). This is a type of deed that conveys the title to property when the owner dies. It must be filed in the county where the property is located. When the homeowner dies, title to the home automatically transfers to the person(s) named as “grantees” in the TODD.
A complication may arise if the home has a mortgage. Many mortgages have “due on sale” clauses that require payment of the full balance of the loan if the borrower transfers the title. A lender could call the loan due once the TODD takes effect, in which case the new owner(s) would probably need to refinance or sell the home.
What happens to a home if the owner dies without a will?
If a person dies without a legally valid will, living trust, or TODD, a process known as “intestate succession” determines what happens to the house. Someone must file a petition with the local probate court seeking appointment as the administrator of the estate.
Texas law provides a list of heirs, with the spouse having the highest priority. If a person dies without a spouse, the administrator continues down the list until they find someone to take over, often in this order:
Aunts and uncles
If, for example, an elderly widowed person with four children dies without a will, their assets would go to their children in equal (one-fourth) shares.
What happens if a deceased homeowner has multiple heirs?
A home may pass to multiple heirs by various means. A will could leave it to multiple people. A living trust could name multiple beneficiaries. A TODD could name more than one grantee. An intestate succession case could result in a group of siblings inheriting their parent’s house in equal parts.
If the deceased person did not leave any specific instructions about what to do with the house, the new owners will have to figure it out on their own. They might not be able to agree. That’s when things often get interesting. As co-owners of the home, they are all responsible for mortgage payments, property taxes, and other expenses.
Can one heir buy out the other heirs to inherit a home?
It is not at all uncommon, when multiple people inherit a home, for them to disagree about what to do with it. The simplest course is often to sell the home and split the proceeds, but even then disagreements may arise about how to sell it. If one person wants to keep the home, they can ask the others if they could buy them out. They might need to utilize a cash-out refinance on the home in order to get the cash for the buyout.
What happens with a mortgage when someone dies?
If the home still has a mortgage, any heir or heirs who want to keep it can talk to the deceased relative’s lender about their options. It might be possible for them to assume the loan. If not, they will have to refinance into a new loan. Either way, they will be making payments on the home.
The home secures the mortgage, and will continue to secure the mortgage no matter what happens with the homeowner’s estate. “Securing the mortgage” means that the home is being used as collateral in case the mortgage payments are not paid. This protects the mortgage lender. If no one makes payments on the deceased person’s home, it will be foreclosed.
» READ MORE: All About Home Foreclosure
A reverse mortgage presents a different issue. If the homeowner took out a reverse mortgage, they received periodic payments from the lender over time. The balance of the mortgage went up instead of down. The amount paid by the lender will most likely come due when the borrower dies. Selling or refinancing the home is likely the only way to cover that debt.
Get guidance from mortgage professionals that care.
If you have recently lost a loved one, dealing with their mortgage might be the furthest thing from your mind, but it’s an issue that will need your attention sooner rather than later.
The home mortgage professionals at the Wood Group of Fairway are here to gently help you transition. Answer a few easy questions and we’ll reach out about the best options for you!