Why is a Mortgage Not a Debt That the Estate Must Pay?
“How come I still have to pay the mortgage on my parent’s house, that I inherited in probate, when the Last Will states that all debts of the estate are to be paid?”
That is a question we get sometimes – and it’s a great question. Why is the mortgage not a debt that the estate must pay like it has to pay off creditor claims?
The answer is that under Florida law, a mortgage on real property is the exception to the general rule that the estate must pay the debts of the decedent. Unless the Will specifically directs the personal representative to pay off the mortgage, which most Wills do not, the estate does not satisfy that debt. But of course, it is still a lien on the property, as the death of a borrower does not extinguish the debt underlying a mortgage.
This means that the heirs inheriting mortgaged property are not personally responsible for the debt secured by the property, but unless the mortgage debt equals or exceeds the market value, there is valuable equity in the property that would probably be lost if the bank forecloses. The lack of responsibility for the debt only comes into play if the bank forecloses and seeks a deficiency judgment for which the heirs would not be responsible.
This sometimes creates a problem when the deceased parent did not leave enough cash to pay the mortgage payments, and their heirs don’t have that kind of income either. So what’s to be done? Several choices – rent it out, sell it, or refinance it, if that makes the monthly payments affordable. Yes, all of thee options take some effort by the heirs who may or may not be experienced in such matters, but there is always help available. There are realtors who handle rentals, realtors who would love to sell the house, and mortgage brokers and bank officers happy to talk to heirs about their options on mortgages.
If you have additional questions regarding the rights and responsibilities of heirs regarding mortgage, please contact the Florida Probate Attorneys at Statewide Probate®. Call our office at (850) 346-7926 OR (850) 776-5834 today.