You inherited a loved one’s home, only to find out that the amount left on the mortgage is greater than the home’s current value. That’s what’s called being “upside-down” or “underwater” on the mortgage. Maybe your loved one didn’t intend for this to happen. They hoped the real estate market in their area would turn around.
But here you are. What are your options?
Decline the inheritance
You don’t have to accept every asset you inherit. If you don’t want to deal with it, you don’t have to take it. The lender will likely foreclose on the property and sell it. However, be aware that if the lender can’t get back the money still owed to them (which they probably can’t if it’s not worth that amount), they can collect that amount from the estate.
Keep the home
If you want to keep the home and take over paying the mortgage, you can. The lender isn’t allowed to change the terms of the mortgage, so you can just continue paying the current mortgage. If your loved one also left you some assets that do have value now, you might want to consider selling them to make additional payments on the mortgage. You can eventually refinance the mortgage in your name once the home is worth more than the amount owed.
If you just don’t want to see the home go into foreclosure, there are a couple of options. One is a short sale. That’s where you sell the home yourself for as much as you can get for it and reimburse the lender from the proceeds. The lender may or may not agree to let the rest of the debt go.
Another possible option is a deed in lieu of foreclosure. This is where you sign the deed over to the lender and it’s accepted as payment in full on the mortgage. Depending on how much your loved one owed to their lender, either one of these two things may be an option.
If you’ve inherited a home, make sure you have all of the information you need about it before you accept the inheritance. If more is owed on it than it’s worth, be sure you study all of your options. Taking on a home with a large mortgage will affect your finances, your credit and more.