When a loved one passes away and leaves behind assets and debts, including a mortgage, and if they have no living will, it requires probate proceedings to sort everything out. Probate is the process of settling the deceased person’s final bills and expenses and transferring their assets to the beneficiaries’ names. Dealing with the debts can start before the official probate opening.
Handling Bills and Mortgages Before Probate
Prepare a comprehensive list of the deceased’s obligations, even before the official probate opening. This will help facilitate the probate process later. The bills and statements to look for should include the following:
- Mortgages
- Lines of credit
- Condominium fees
- Property taxes
- Federal and state income taxes
- Auto and boat loans
- Personal loans, including student loans
- Storage fees
- Loans against life insurance policies
- Loans against retirement accounts
- Credit card bills
- Utility bills
- Mobile phone bills
After preparing the list of obligations, categorize them into two groups:
- Obligations that will continue during the probate period. These will be administrative expenses.
- Obligations that can be paid off entirely after the official probate opening. These are the deceased’s final bills.
Administrative expenses include mortgage payments, condominium fees, property taxes, storage fees, and utility bills. These bills should be kept until the probate is closed. Beneficiaries of the probate should pay these bills as much as possible until the official probate is opened.
The deceased’s final bills include income taxes, personal loans, loans against life insurance policies and retirement accounts, credit card bills, and mobile phone bills. Beneficiaries of the probate should not pay any final bills out of their own pockets but should wait and allow the personal representative of the probate or executor to handle them in the probate settlement process.
For some obligations, beneficiaries will need to decide whether they intend to keep the assets secured by the loans. If one of the beneficiaries wishes to keep the car or home, they may want to continue paying off the debt. Otherwise, the amounts should be settled from the probate.
Handling Bills and Mortgages During Probate
The personal representative or executor of the probate will be responsible for taking care of the administrative payments and settling the deceased’s final bills after the probate opens. This will include identifying valid debts and to what extent, then assessing which of the deceased’s assets should be liquidated or sold to pay ongoing probate expenses and final bills.
If beneficiaries continue paying some or all of the deceased’s bills before the official probate opening, the personal representative must reimburse them accordingly, except in one case. If the deceased left a property to a specific beneficiary in their will and that beneficiary intends to assume or refinance the mortgage against that property, reimbursement may not be necessary.
Mortgages and Probate
A beneficiary who inherits a home or other property may be able to assume the mortgage during or after the probate according to the terms of the Garn-St. Germain Depository Institutions Act of 1982. This federal law prohibits lenders from calling loans or initiating foreclosure proceedings when ownership changes due to death. The mortgage must typically be current to qualify.
Frequently Asked Questions (FAQs)
What happens if the deceased has a reverse mortgage?
Typically, the deceased’s heirs have the option to either pay off the outstanding reverse mortgage or pay 95% of the appraised value of the home to the lender, whichever is less. They have 30 days. They can also refinance or sell the property, but the reverse mortgage must be paid off when the owner/borrower dies and no longer lives there. Special rules may apply to some surviving spouses.
Are there any debts that do not need to be paid during probate?
Probate must pay any debts owed by the deceased, provided there are sufficient funds or assets that can be liquidated to gather the necessary cash. Debts will not be paid if there is not enough money. Beneficiaries of the estate are not responsible for paying them unless they have signed as guarantors or co-debtors on the loans or debts. Different rules apply to spouses in nine community property states.
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Sources:
- FDIC. “FDIC Law, Regulations, Related Acts: 8000 – Various Laws and Regulations: Part 591 Exceeding Sale Laws.”
- Consumer Financial Protection Bureau. “If I have a reverse mortgage, will my children or heirs be able to keep my home after I die?”
- Consumer Financial Protection Bureau. “Do a person’s debts disappear when they die?”
Source: https://www.thebalancemoney.com/handling-deceased-debts-before-and-during-probate-3505239
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