Inheriting Property Subject to a Mortgage

Generally, a creditor’s notice must be sent to every creditor to whom the Decedent owed money to at the time of death.  NRS 147.010.  If the creditor does not file a claim within a particular period of time, their claim will be barred.  NRS 147.040.  However, a recent decision indicates that this is not necessarily the case when it relates to inheriting property subject to a mortgage.  In the matter of SUMMERS v FINANCIAL FREEDOM ACQUISITION LLC, the United States Court of Appeals, First Circuit, held that failure of the mortgage company (the “mortgagee”) holding a reverse mortgage to file a claim in probate does not bar the mortgagee from the equitable relief of foreclosure. A probate process only separates personal liability from the underlying mortgage; it does not extinguish the mortgage itself. Analyzing cases from other jurisdictions and the Restatement (Third) of Property, and drawing analogies to bankruptcy and maritime law, the court reasoned that failure to pursue monetary claims in probate does not result in the mortgagee losing its in rem right to foreclose against the property that secures the debt.

If the Nevada courts were to follow the same ruling, the heir or beneficiary receiving real property subject to a mortgage through a #probate proceeding would not prevent the foreclosure unless they could secure proper financing.  It should be noted that while the probate would not prevent the foreclosure, the beneficiary will not have personal liability for any deficiency.

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.