If your parents pass away and will their home to you, the existence of a mortgage typically won't prevent you from inheriting the property. Mortgage considerations will, however, normally require that you pay off the debt or refinance the property, which means that, in the end, you may wish not to accept what has been bequeathed to you.
Financing Instruments
Some states use the mortgage system when financing a real estate loan. In a mortgage loan, the lender holds a lien on the property, which is a claim giving the lender the right to foreclose should the borrower default. Other states use the deed of trust system, which is a three party system involving a lender, borrower and the trustee, who holds naked title on the property. Naked title does not give the trustee the right to possess the property, yet it does give the trustee the right to sell the property for the lender, should the borrower default. The rights held by the lenders typically don't prevent an inheritance.
Conveying Title
Conveying title from one owner to another, such as when issuing a quitclaim deed or in an inheritance, does not dissolve the liens on the property. While there may be a new owner, the old liens stay attached to the property.
Mortgage Payments
After you inherit the property, the lender typically won't expect you to pay off the property loan immediately. Yet, expect to continue paying the mortgage payments until you have resolved the financial situation with the lender. Don't assume that you're free of the responsibility just because it is your parent's mortgage loan. You risk possible foreclosure if you fail to keep the loan payments current. Normally, the executor of the estate contacts the lender to inform them of the situation and arrange payment of the existing loan.
Reverse Mortgage
If the property has a reverse mortgage, you may not be able to inherit the house until after you pay off the debt. A reverse mortgage is a loan for senior citizens, enabling them to take out a mortgage based on the equity in the property. Instead of paying monthly mortgage payments, the lender sells the property after the borrower dies.
Tags: mortgage loan, borrower default, does give, does give trustee, give trustee, give trustee right