This article clarifies whether a house can go into foreclosure while in probate and what implications arise if that occurs.
It answers those questions and helps you to better understand the complexities to help you make more informed decisions and look after the assets of the estate.
So, continue reading to learn more about what happens should these two processes overlap.
Can a Bank Foreclose on a House in Probate?
The way probate and foreclosure procedures interact differs by state, but no state completely prohibits mortgage lenders from seeking repayment during estate settlement.
So, the answer is yes, a house can be foreclosed on while in probate.
Probate and foreclosure are distinct legal processes. Probate deals with managing and distributing assets, while foreclosure is based on contract terms and mortgage default.
The property owner’s death does not erase the mortgage obligation. The lender still has a legal claim on the property.
Therefore, responsibility for the mortgage shifts to the decedent’s estate.
The estate’s personal representative — whether an executor, if there is a will, or an administrator, if there is no will — has a fiduciary duty to address this financial liability.
If the required payments are not made from the estate’s funds, the lender can pursue recovery, regardless of probate status.
What might cause delinquent mortgage payments, putting the property at risk of foreclosure?
Lack of Liquidity
While you can sell a house in probate, that can take time. In the interim, the estate may not have enough cash or quickly convertible assets to cover the mortgage.
Oversight or Error
Heirs may struggle to focus on money matters after a loved one’s death. That can unintentionally lead to missed payments, or the misconception that the mortgage is paid.
Disputes Among Heirs
Conflicts can result in defaulted payments. For instance, if you inherited your parents’ house with co-heirs who disagree on who should handle the mortgage, it may go unpaid.
Upside-Down Mortgage
In some cases, heirs may decide not to continue paying for a house worth less than the mortgage balance, seeing no financial benefit.
Procedural Delays
The probate process can be lengthy, delaying access to estate funds needed to continue mortgage payments.
Pre-Existing Arrears
If the owner incurred arrears before dying, it can be hard to catch up. That can also complicate the process of selling the property of a deceased person to pay off the debt.
Executor Mismanagement
If the personal representative mishandles estate funds or neglects duties, that could result in skipped mortgage payments.
No matter the reason, default may lead to the lender pursuing foreclosure. However, it’s essential to point out that there are options to prevent this.
Selling the house is often the most practical solution. Understanding what happens when you sell a house you inherited is critical in this case, as you must comply with probate procedures.
Another option is for the personal representative to use other estate funds to keep the mortgage current. Or, if feasible, heirs may assume or refinance the mortgage.
What Happens if a House Goes into Foreclosure During Probate?
If you inherited a house with a mortgage and the estate defaults on it during probate, lenders can initiate a judicial or non-judicial foreclosure depending on the state and specifics of the case.
Judicial foreclosure involves the court system. It’s allowed in all states and required in some.
The non-judicial process lets lenders foreclose without court action. As it’s generally faster and less costly than the court process, it’s preferred by lenders in states where it’s allowed.
In both cases, the foreclosure process begins with the lender sending a notice of default, which includes a time frame for the estate to pay the debt.
At this juncture, the property is in pre-foreclosure, and any of the following things can happen:
- The personal representative may try negotiating with the lender to work out a settlement or a repayment plan.
- If the estate has other assets that can be sold, the funds could be used to clear the debt.
- The estate could borrow funds from heirs. For instance, if it’s your deceased parents home in foreclosure, you may choose to pay the mortgage to stop the proceedings.
- If the personal representative obtains an injunction to enjoin foreclosure, pausing the process can give the estate time to resolve the debt.
- If there’s equity, selling a house through probate can pay off the mortgage. In some cases, the lender allows the estate to sell the property for less than the amount owed.
If the allotted time for satisfying the debt expires and the mortgage is still in default, the lender can finalize the foreclosure and sell the house at auction.
If the lender doesn’t recover the total amount owed, it may waive or seek a deficiency judgment, where the estate is responsible for the remaining mortgage balance.
A house going into foreclosure in probate can also result in significant impacts on the heirs and the estate, including issues like these:
Loss of Inheritance
As an example, if you inherit the family home and it’s foreclosed upon, you may not realize the value you initially expected from selling your parents home after their death.
Higher Likelihood of Litigation
Legal actions may arise from disputes among heirs or between the estate and other creditors that may be impacted if the estate’s ability to pay them is hindered.
Reduced Estate Value
Property that’s auctioned typically fetches less than market value, especially if you inherited a hoarder house that’s rundown, which can reduce the estate’s overall value.
Delayed Asset Distribution
The bank’s process for dealing with mortgage default can slow probate down and delay the distribution of the estate’s assets to heirs while the property status is resolved.
Increased Probate Complexity
Foreclosure can introduce various challenges for the personal representative who has to navigate legal duties and lender communications.
How to Avoid Deceased Parents’ Home Foreclosure?
Even if things are more complicated than if you inherited a house with no mortgage, you shouldn’t give up on getting the most of your inheritance.
An effective solution when facing potential foreclosure on a house your parents left you is selling to a company that buys inherited properties for cash.
These investors can close quickly, so you can sell your probate house fast.
You can sell a house that you inherited and they will directly negotiate with the lender to prevent foreclosure, whether the home is still in probate or not, freeing you from a complex, stressful task.
Additionally, they buy houses in all states of repair. That makes this an easy option for selling an inherited house as is.
You will also save money by not needing to address any repair or renovation issues, further easing the financial burden of foreclosure when you’ve inherited a house that needs work.
Therefore, to keep foreclosure from jeopardizing your inheritance, we recommend exploring your options by taking these steps:
- Get a cash offer from vetted area investors approved by our website.
- Pick the most advantageous offer for your situation and initiate a hassle-free sale.
