Inheriting a parent’s home can be a mixed blessing. Even if they paid off the mortgage and owned it “free and clear,” it can take a good deal of time and money to get it into shape to sell, use it as a rental property or move in.
Additional complications may present themselves if your parent had a reverse mortgage on the home. These mortgages have been widely marketed to seniors in recent years as a way to get income from the equity in their home. Unfortunately, not everyone considers the problems this will cause for their heirs after they’re gone.
You’ll need to make some decisions soon
As the beneficiary of the home (or the executor of the estate), you’ll need to take some action – and soon. If there’s no surviving spouse or other co-borrower eligible to continue the mortgage, that balance left on the mortgage becomes “due and payable” upon their death.
You’ll get a notice from the lender with a list of options and deadlines for actions. Even if you don’t notify the lender of the death, these companies typically use databases that keep track of death certificates, so don’t be surprised if you get a notice before you’ve had time to think about it. You can ask for an extension on the initial 30-day deadline of up to six months to determine what to do.
Paying off the mortgage
When paying off the mortgage, you’ll owe the lesser of the mortgage balance or 95% of the appraised home value. You’ll need to get it appraised as soon as possible, as there’s a deadline for that as well. To pay off the mortgage, you either must come up with the money yourself or sell it and pay off the mortgage with the proceeds of the sale. If your loved one left a life insurance policy or assets that don’t have to go through probate, that may be enough to get out from under that reverse mortgage and then determine what to do with the home. Either way, that extension past 30 days can be crucial.
What if you can’t pay it off?
Another alternative is to let the lender have the home by signing a deed-in-lieu-of-foreclosure. If you do nothing, the lender can begin the foreclosure process on the home after six months after the borrower’s death.
It’s a lot to think about – and this is just a brief overview. Having sound legal and real estate guidance can help you make the best decision for yourself and your family.