My mother-in-law has 5 houses in her trust, 2 of which she owes more money than they are worth. She doesn't even collect enough rent on them to cover the full cost to own them.
We are concerned with what will happen when she dies. Most likely they will have to be foreclosed, since we can't cove the extra monthly money she pays to core them and they can't be sold for how much they are worth.
We are concerned this will affect our credit. Her lawyer told her that as long as we leave them in the trust, they will foreclose but not affect us, since we never put them in our name.
She does have considerable assets in stock as well, so we are concerned about if this money will be affected if the 2 houses left in the trust are foreclosed.
3 Answers from Attorneys
The lawyer for your mother is correct, that as long as you leave them in the trust, the bank will foreclose but not affect you, since you never put them in our name.
I agree with Mr. Waid, as far as his answer goes. What he does not address is her other assets. Although it is unlikely, it is possible that the lenders on the upside down properties will file a claim in probate, or even a judicial foreclosure, to reach the other assets and be paid in full. Depending on the state of her health and what need if any she has for good credit, it may be a wise estate planning move to strategically default and the those properties foreclosed on before she dies, when it will be harder for them to go after her other assets than it would be in probate. You should consult a really good estate planning attorney on this.
The property can be put in your name through a trust transfer, but if you have not assumed the underlying obligation, in this case the promissory note, the lender cannot affect your credit.