- In most cases, a mortgage owned jointly by the deceased and another person is automatically transferred to the surviving party. Check the mortgage contract for details on your specific mortgage. Language in the contract details what happens when one party on a mortgage passes away. The parent’s estate pays any debt owed alone. As long as children weren’t party to the debt, they aren’t liable for repaying a parent’s loan.
- To avoid later hassles with a mortgage company and other creditors, publish a notice of death when the parent’s estate enters probate. The notice should be placed in several local papers to ensure that the children can prove adequate notice. Some counties provide forms to alert creditors on public records of a deceased person. A property is tied to a mortgage, and contractually the mortgage company will retain the rights to the property if the estate chooses not to make mortgage payments.
- Claims against the estate, including a mortgage, must be paid before beneficiaries receive an inheritance. Secured debt, such as a mortgage or auto payment, are paid before unsecured debt. If enough cash isn't available in the estate to pay the mortgage, then the property must be sold to pay off the mortgage lender. Creditors have no claim against the children if they weren’t co-signers on the loan.
- If the parent owed more money than the property is worth, the lender is allowed to secure enough cash from the estate to make up the difference between the property value and the amount owed. This money comes from other assets inside the estate, but doesn’t come from children or other beneficiaries unless they were a party to the debt. Assuming children weren’t a party to the mortgage, they would receive no inheritance if the mortgage weren’t paid in full. Instead, the mortgage company could claim assets in the estate against the amount they were owed for the mortgage.
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