What Happens When I Inherit A Property With A Mortgage?

What Happens When I Inherit A Property With A Mortgage?

Inheriting a property with a mortgage can impose a financial burden on the beneficiary. So, what happens when you inherit a property with a mortgage? Here’s a quick guide on what to expect and what to do if you’ve inherited a property with a mortgage.

Inheriting A Property With A Mortgage

Inheriting a property can sometimes be a financial burden.

A mortgaged property can be inherited just like a property that is free and clear of any loans. If you’re the inheritor, make sure you have actual ownership by recording the deed at the county recorder’s office. Another issue to make sure of is check to see if the property is insured. Calling a title company to make sure your property has a title policy on it is important, as well as calling an insurance company to make sure you have a homeowner’s or landlord’s policy on the house.

What Happens To The Mortgage Or Liens When You Inherit Property?

The mortgage, back taxes, liens, etc… do not just go away when a person passes. They follow the property and survive the death of the owner.  The good news is, some of these liens may be negotiable, however, some may not be. Consult with a professional to help you with these matters.

Sometimes, these mortgages cannot just be assumed (for example, on properties with more than 5 units, apartment buildings). The Due-On-Sale clause prevents this. This basically means that the full balance of the mortgage is due upon the transfer or sale of the property. The Garn-St. Germain Depository Institutions Act of 1982 allows an exception to the Due-On-Sale clause when a property transfers by inheritance to a close relative. Also, a joint-tenant may assume a mortgage. A joint-tenant is A type of shared ownership of property, where each owner has an undivided interest in the property. This type of ownership creates a right of survivorship, which means that when one owner dies, the other owners absorb the deceased owner’s interest.

What Happens When I Inherit A Property With A Mortgage Or Liens?

Reverse Mortgages:

If the property as a reverse mortgage, (where the lender pays the owner for their equity usually monthly) then the estate must pay the lender back. If the property passes to a beneficiary, then the beneficiary must pay back the amount to retain ownership. The beneficiary also can sell the property to satisfy the amount owed. They may also obtain a new loan to pay the amount owed.


The lender may foreclose on a property if the new owner fails to pay the mortgage. A lender might foreclose if the new owner doesn’t meet the credit guidelines, and also may have a strong motivation to foreclose if interest rates are rising.

If you’re asking, “What happens when I inherit a property with a mortgage?”, then you’ve come to the right place! This article should give you a good background of what to expect.

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We’re not offering legal advice and we’re not attorneys. Make sure you consult with a professional should you have any legal or tax questions.