Inheritance on property can be tricky.
Inheriting a property can sometimes mean inheriting a mortgage. Depending on the condition of the property, the beneficiary's credit history and market conditions, the process is often easier said than done.
Significance
Inheriting a home with a mortgage can mean navigating tricky legal waters. Depending on the language in the deed that the original borrower signed at closing, it might be a requirement for the beneficiary to refinance the mortgage into their own name before a new deed is issued and ownership transferred. If the beneficiary does not have strong enough credit to achieve an approval on a home refinance, they may be forced to sell the property.
Considerations
In a down market, it is possible to inherit an upside down mortgage. In these cases, the borrower owes more on the property than what it is worth, making refinancing difficult. The beneficiary will need to work directly with the lender in order to devise a financial scenario based on current market conditions. Often the lender will take a loss on a refinance, allowing the beneficiary to keep the property.
Warning
Inherited mortgages also can mean inherited liens. A lien is a claim to a property based on unpaid debt on behalf of the borrower. The Internal Revenue Service, contractors, or unsecured loan holders can place liens on a property. These liens must be paid in full prior to a refinance and a mortgage being transferred from the deceased to the beneficiary. This can mean that the beneficiary may have to come up with additional funds in order to close on a home refinance.
Tags: home refinance, market conditions, refinance mortgage