Not many people today own their home free and clear. You could even inherit a home that still has a mortgage, which could leave you in a complicated situation. You must navigate this situation properly to retain as much value as possible from the property. Here's what you need to know.
Your Property Could Be Immediately Foreclosed On
Some properties include a "due on sale" clause. This clause means that any time the property changes hands, the entirety of the mortgage needs to be paid off right away. During a home sale, this is the norm. During an inheritance, this can be more difficult.
If your property has a "due on sale" clause, you may need to race to get a mortgage of your own in order to pay off the debt. Otherwise, you may need to pay it in cash in order to keep the property. But the "due on sale" clause isn't in every contract, and it is often still possible to negotiate with the bank.
You May Be Able to Assume Payments
You may also be able to assume payments on the mortgage loan, paying it as though you had just gotten the mortgage yourself. The home's title will be moved into your name and the mortgage loan will also be moved into your name. You will pay the same amount the person you inherited the home from was paying.
This is usually the case if you are inheriting a property from a close family member or if you were already living in the home before inheriting it. You'll need to fill out the appropriate paperwork, and you will also become responsible for things such as property taxes, insurance, and other fees, which means the home payment alone isn't what you'll be responsible for.
You May Inherit Together With Other People
If you're inheriting a property with multiple people, you may want to procure an additional financing option. If you're inheriting a property with many people, it's usually best to liquidate the property and pay off the loan. This commonly happens when multiple grandchildren inherit the home of their grandparents: so many people may be involved and have a stake that it becomes confusing.
A core problem of inheriting with other people is that everyone becomes jointly liable for the new mortgage payments. Though you may have a deal with the others to pay a portion of it, if a payment goes unpaid, every single person involved will become responsible and will have their credit impacted. Also, everyone will have to deal with logistical difficulty of working out who will ultimately benefit from the property's use.
You Could Have a Reverse Mortgage
In addition to regular mortgages, you could possibly inherit a property that has a reverse mortgage on it. A reverse mortgage pays the homeowner out for the equity of the property. Once the homeowner passes on, the property is expected to revert to the reverse mortgage company.
You may still be able to get the property, but you'll often have a limited amount of time to pay back the reverse mortgage company. This can sometimes be done through your own mortgage loan. Failing that, you would need to use cash.
Inheriting a property with a mortgage can lead to some complex negotiations and dealings, so you should have a real estate attorney on your side to help you navigate through it all. You could easily lose a property that you wanted to keep during this process if everything isn't done correctly. Contact Hassen & Associates today to schedule a consultation and discuss your legal case.