Inheritance of Real Estate with a Mortgage: Who Pays?

Your mother recently passes away and executes her Last Will and Testament before her passing. The Will provides that you are to receive her home worth $300,000 (which is still encumbered by a mortgage in the amount of $200,000). The Will provides that the remainder of the estate is to be distributed between you and your sibling in equal shares. The Will does not address whether you are entitled to receive the property subject to the debt or does the Estate have a obligation to pay the outstanding balance of the mortgage obligation.

The distribution of the home is known as a “specific devise”. Unfortunately, NRS 133.155 provides that a specific devise passes through probate subject to any mortgage or lien existing on the date of death, without right of exoneration, regardless of a general directive in the will to pay debts. In other words, you (not the Estate) are responsible for the mortgage.

So what happens if you’re not in a position to be able to obtain a new mortgage? Ordinarily, a transfer of a property subject to a mortgage from the owner to another triggers the “due on sale clause” and the debt would all become due. On October 13, 2013, the Consumer Financial Protection Bureau issued new regulations which required lenders to more easily provide certain information about the mortgage to persons who are successors in interest where the borrower has passed away. This information to be provided includes that fact that the Garn-St. Germain Act of 1982 (the “Act”) imposes certain limits on the application of due-on-sale clauses when real property is transferred as a result of the death of a borrower.

The Act provides that the lender may not exercise a due on sale provision if there is a transfer to a relative resulting from the death of a borrower or a transfer where the spouse or children of the borrower become an owner of the property. As a result, as the new owner, you can simply take over the old mortgage, without any change in terms. It’s essential to be informed about what to avoid when inheriting a parent’s house to ensure you’re managing everything correctly.

For more than 30 years, Attorney Lee A. Drizin has practiced in the areas of estate planning, probate, trusts, guardianship and real estate matters representing clients throughout the state of Nevada.

Drizin Law is providing this information for educational purposes only. It should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. This information is based on general principles of Nevada law at the time it was created and you should be aware laws frequently change. Moreover, the laws affecting you may differ depending on the circumstances. You should consult with a qualified attorney in your own state or jurisdiction concerning your particular situation. Review of this information does not create an attorney-client relationship.