A friend of mine has just inherited a home. The home has 2 mortgages. The first is in her Mother's name (deceased) - an interest only loan. The second loan (I think it is a loan not HELOC) is in the Mother's name and the daughter. The daughter inherited the home. In regards to the second loan is the daughter responsible for this entire loan since it is in both of their names.
2 Answers from Attorneys
As I am sure her probate lawyer told her alrteady (and if she doesn't have one she should have hired one), unless she pays BOTH loans, the house will get foreclosed on. She's only personally liable for the loan she actually signed, but the liens remain regardless.
While you are no doubt well-meaning, its not ethical to discuss someone else's legal issues with you. Your friend has a problem and its one that she needs to discuss with the probate attorney.
Speaking in general terms about liability for liens after the death of a person, I would agree with Attorney Ashman. I do not know where the estate is pending or where the land is located but usually a beneficiary inherits a home subject to any existing liens/mortgages. This means that any beneficiary who inherits land has to keep paying for any liens that are on the land if the beneficiary wants to keep the asset. The exception would be if the deceased had a will that provided for the satisfaction of any liens by other estate assets or an insurance policy.
What is the home worth? How much is the first loan? The second? That may dictate what the beneficiary would do. As noted by Attorney Ashman, the friend is going to be obligated to pay the second regardless as she signed the loan. If the home is in Georgia and is worth less than what is owed, it might be tempting to just let the first lender foreclose. The problem is that the holder of the second note may sue on the note itself and not try to foreclose (foreclosure on the first would wipe out any secondary mortgages).
If the home is worth more than the liens, then the beneficiary may want to try to sell the home OR may want to refinance to get the first and second loans combined and get out of this interest only loan. If the home is worth less, then is there any equity in the home at all? If so, the beneficiary might want to try a short sale of the property. This would require negotiation with both lenders. If the home is worth a whole lot less, the beneficiary may want to walk away from a bad deal and let the first lender foreclose and make whatever deal is possible on the second because she will be liable for the whole amount of the second if she signed as a co-borrower. The deceased person's estate would only be liable if the decedent was the primary borrower and the beneficiary only signed as a surety or co-signer and if the decedent's estate has other assets to pay.
Either way, I suggest that the friend consult with a probate attorney or real estate attorney if there is no need for probate.
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