The family home is a major asset for most Americans. Yet it’s becoming increasingly uncommon for aging Americans to own their home outright. Generations ago, a mortgage-free retirement was the norm. Now, it’s a rarity.
As a result, estates frequently include mortgaged real property. Executors are responsible for handling the disposition of the property and any debts that go along with it.
Keeping payments current
Mortgages don’t simply disappear when homeowners pass away. The payments become administrative expenses incurred by the estate. The executor must keep payments current while the estate administration or probate proceedings are underway.
Missed payments can result in penalties or even foreclosure (which can also expose the executor to personal liability for failure to uphold their fiduciary duties). Additionally, because mortgages are secured debts, they take priority over unsecured debts like medical bills or credit card payments.
Determining the final disposition
Ideally, an estate plan will determine the final disposition of the home and mortgage. There are numerous approaches to doing so. For example:
- The estate plan might require the sale of the property to satisfy the mortgage.
- It might transfer the property outside of probate through a trust or joint tenancy.
- It might direct the executor to apply other estate assets toward the mortgage.
- More sophisticated estate plans might establish a trust for the maintenance of the home and payment of administrative expenses, including the mortgage.
Unless the home is transferred outside of probate, the probate court will supervise and approve the disposition of the home, mortgage, and other estate assets and debts.
Navigating special circumstances
Of course, every situation is unique, and many estates involve special circumstances. What if the home is underwater, for example? What if a dispute erupts between beneficiaries? Because so much can go wrong – and so much is at stake – knowledgeable legal guidance is critical during the estate administration and probate process.