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Who pays mortgage on inherited home until estate is settled?

For this post, let's first set the stage. A beloved older relative, a 65-year-old New Jersey woman, dies and leaves her children all her worldly possessions, including a home with a mortgage. There was a time, before the real estate market bubble burst, when inheriting a house might have been looked upon as coming in to some money. These days, it may just be seen as inheriting a debt.

Experienced estate planning attorneys know that can lead to some questions on how to handle things. Here are some thoughts.

If the home is worth more than the mortgage, those inheriting it could simply decide to sell the place, pay off the loan and split whatever may be left over. But if the heir, or heirs, decides to keep the place, the issue of mortgage payments needs to be addressed. Who will pay?

Federal rules say that the mortgage passes directly from one person to another after a death, unchanged. But who picks up the tab after that may depend. If the deceased planned ahead and drafted a viable will, terms might be spelled out there.

For example, the will might say the house goes to the heir, free and clear. If so, that might have an effect on other assets in the estate. The executor might have to sell some off to pay off the mortgage so that the house can be transferred as the will stipulates. If there is no will, state law may take precedent. Then it's up to the courts.

There is a practical aspect to consider in this, as well. Can the survivors afford to keep the house? With a mortgage and the cost of upkeep, a house can wind up being a hole in the ground that you pour money into. Questions to consider include:

•· Are there any back taxes owed?

•· Are mortgage payments up to date, or in arrears?

•· If the mortgage is more than the house is worth, is it worth keeping? Might the lender accept a short sale?

In all these instances, the advice of an estate lawyer may be helpful in getting answers and drawing up an appropriate plan of action.

Source: The New York Times, "Inheriting a Home, and a Loan," Vickie Elmer, Nov. 17, 2011

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