A death in the family can be a confusing and frightening time, particularly if the death is unexpected. You may have never experienced a death, and you may have no idea what to do with your loved one's estate. If your family member dies with an unpaid mortgage balance on her home, a number of different scenarios may play out. Being prepared will help ensure that you know what to do, and what your rights are.
In some cases, you may simply wish to continue paying the mortgage. If you were a joint owner or joint borrower listed on the mortgage prior to your family member's death, you are still responsible for payment of the mortgage. If your family member filed a quit claim deed bequeathing ownership of the property to you, you may simply continue making payments until the mortgage debt is paid off. You may also apply for a mortgage in your own name in order to pay off the original mortgage of the deceased.
If your family member dies with a will in force, the executor of the estate will handle the payment of debts and distribution of assets. Funds from retirement accounts, life insurance, mortgage insurance and other investments will be pooled together and divided appropriately to cover the estate's total outstanding debts. In the event that your family member did not have a will, you or another family member may open probate, and ask the court to appoint you executor of the estate. This allows you to act on behalf of the deceased to close out accounts, liquidate assets and pay off debts.
When there are adequate funds to cover the debts of the deceased, payments will be made to the secured debts such as mortgages and car loans, and then to unsecured debts such as medical bills and credit cards. The heirs of the deceased will be the final recipients of any remaining funds. If there are inadequate financial resources to cover the outstanding debts, such as a mortgage, a sale of the property and other physical assets may be court-ordered to cover the outstanding debt.
If there are no family members who wish to open probate, sell the property or settle the debt, the mortgage will go unpaid. After a number of months, the bank will have no choice but to foreclose on the property. Assuming the bank follows the correct legal channels, the property will be foreclosed upon, and the home will be sold at a foreclosure sale in an attempt to regain some of the bank's financial losses. If the bank is unable to recover all of the money, it may file a judgment against the deceased's estate, allowing the bank to recover money from any funds that may be paid to the estate in the future.
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