Inheriting real estate encumbered by mortgages can be like receiving a package you can't open. When your parent leaves you property he worked hard for all his life, you don't want to lose it. If the homes are encumbered by liens, however, you might inherit those as well. If you can't pay them, you risk foreclosure at a time when you’re already dealing with a loss. You may have some options, however.
Continuing the Loans
The good news is that you don't have to qualify to refinance the mortgages into your own name. The lenders can't call the loans due just because the property has changed ownership. Federal law protects relatives when property transfers to them due to a death in the family. You must continue making the existing mortgage payments in your parent's name, however, or you risk foreclosure. This law doesn’t apply to real estate with six or more dwelling units such as apartments, however, so if your parent left you such a property, the lender can demand payment of the entire mortgage or force you to refinance into your own name to keep the property.
Your Parent's Will
A best-case scenario is that your parent left instructions in his will that the properties should pass to you free and clear of any liens. In this case, the executor of his estate would be responsible for selling your parent's other assets to pay off the mortgages and you wouldn't have to worry about them. Even short of this, the executor is usually responsible for paying the mortgages while the estate is in probate and until such time as the real estate transfers to your ownership. At this point, however, you typically inherit the liens along with the properties, and they become your responsibility.
Selling a Property
Although you may hate doing so, you might have to sell at least one of the properties. If two homes passed to you, both of them encumbered by mortgages, it would take a lot of income – or at least some creativity – to satisfy them. You might want to invest in appraisals for each of the properties. If you can separate your emotions from the issue and look at the situation analytically, you might be able to avoid foreclosure on both properties by selling the one with the most equity. You can use the proceeds to pay off – or significantly pay down and refinance – the mortgage on the property you want to keep.
If there are several beneficiaries of your parent's estate, you might be able to negotiate a solution either directly with one of them or with the executor as part of the probate process. If you know you can't possibly afford the mortgages, it might make sense to let the properties pass to someone who can afford the financial responsibility instead. You could accept other assets in exchange, and the properties can stay in the family. You might also consider renting the properties for enough monthly income to satisfy the mortgage payments each month, or approaching the lenders to find out if there's a way to modify the liens so they're more within your budget. If you move in to one of the properties yourself, you can eliminate your own housing costs and put your money to that mortgage instead. Of course, this might mean selling the home you already have.
Beverly Bird has been writing professionally since 1983. She is the author of several novels including the bestselling "Comes the Rain" and "With Every Breath." Bird also has extensive experience as a paralegal, primarily in the areas of divorce and family law, bankruptcy and estate law. She covers many legal topics in her articles.