Death and the Unpaid Mortgage

By Lane V. Erickson, Idaho Estate Planning Attorney

After a loved one passes away it’s difficult to know what needs to be done. For more than 70 years the premier Idaho estate planning attorneys at the Racine law office have assisted clients when a loved one passes away. We start by providing a consultation to talk with our clients and make sure we understand the circumstances that exist. This consultation usually includes discussing the probate process that exists in Idaho. Additionally, in this discussion the issue of mortgages almost always comes up. The reason for this is that for many people the home is the largest asset in their estate. Surviving family members and other loved ones often want to know what needs to be done to deal with the home and with any mortgages that might exist on the home.

Through our knowledge and experience we are able to provide advice and counsel about the probate process and the steps that remaining family members and loved ones should be aware of. Our team of Idaho estate planning attorneys is made up of partners Randy Budge and Lane Erickson and attorneys Nate Palmer and Dave Bagley. Our team of Idaho estate planning lawyers has been around for some time. This alone is not enough to qualify us to be considered one of the premier estate planning and probate firms in Idaho. Rather, it is our experience and knowledge that gives us the ability to help when a family member or loved one passes away.

We have helped numerous clients through the probate process after a loved one has passed away. We have also helped clients deal with property, assets, and other things associated with the estate, including mortgages on real property. We are confident that we can help you too. To help you get started below are three things that you should know about mortgages and what happens to them after a person passes away.

The place to start is to talk about what a mortgage is. In Idaho, mortgages are most often but not always called a deed of trust. Whether it is called a mortgage or a deed of trust it is really the same thing. When a person wants to purchase real property like a home but they don’t have enough money to pay cash for it they usually go to a lender such as a bank to borrow money to purchase the property. When this occurs, the borrower becomes the title owner of the real property through a deed that has his or her name on it and is recorded. In exchange for lending the money, the lender requires the borrower to pledge the real property as security to pay the loan that was used to purchase that property. This is done through a mortgage document.

To create the mortgage and make it a valid obligation, the borrower signs the mortgage document which simply says that if he fails to make the payments on the loan the lender can foreclose on the real property and sell it. If a foreclosure sale occurs, the lender is then able to take the money from the sale of the property to pay off whatever amount of money is left on the loan.

Once the borrower signs the mortgage, the lender will have the mortgage recorded the same way a deed is recorded so that other people can know there is a mortgage on that real property. Sometimes there is more than one mortgage on the same real property. Whoever recorded their mortgage first is in a senior lien position on that property. Other mortgages would be in junior lien position. If a foreclosure occurs the senior lien holder gets paid first.

There was a lot of detail in those last paragraphs so let’s summarize to keep it simple. When it comes to a mortgage just remember that it is simply the borrower’s requirement to pay the loan. If the loan is not paid the person who holds the mortgage can foreclose on the home to pay the loan.

It is important to understand what a mortgage is because the loan documents that create the mortgage usually have language in them that describes specific situations where the lender can foreclose on the property to pay off the loan. It used to be that the language in these documents would say that the loan would have to be paid off in full whenever the borrower died. However, both state and federal law now allow a successor in interest who receives the property through a distribution from an estate to take over the mortgage without having to pay the loan in full. In other words, the person who receives the property can simply become a “borrower” under the mortgage and take it over if they chose.

Again, to put it simply if a person dies when their home has a mortgage on it the mortgage doesn’t just go away. Rather, whoever receives the home through that person’s estate now has the duty and obligation to continue making payments on the loan. Specifically, death doesn’t stop the foreclosure process when payments are not made. If mortgage payments have been missed the family or loved ones of the person who passed away will need to make those mortgage payments in order to ensure that a foreclosure does not occur.

This then brings us to the final part of this article which is how your estate-planning can help your family and loved ones deal with mortgages after you die. In an ideal world, all mortgages would be paid off before a person passes away. However, this is not the case for everyone. When a mortgage does exist, it is important to think about that mortgage when you do your estate-planning.

When we assist our clients with estate planning, we always find out whether a mortgage exists on any real property that they own. When it does, we encourage our clients to organize all of their mortgage documents so that they will be easy to find for their family and loved ones if they pass away. We also encourage our clients to think about who they want to give their real property to upon their death. We ask them to consider any mortgages that may exist and what should be done with the real property when a mortgage has not yet been paid off. In other words, whoever you want to give that property to should either have the ability to pay the mortgage off themselves, or you should plan to give additional money to that individual they can use to pay the mortgage.

As we stated above. We have helped numerous clients work through mortgages after a loved one has passed away. Additionally, we have helped our clients getting their estate planning to plan for their mortgages and how to deal with them after their death. If you have questions about a mortgage, we are confident that we can help you too.

Our team of Idaho lawyers can help you with any of your estate planning or probate needs. Whether you are seeking to create or review an estate plan for yourself or would like to help a loved one, we are available to discuss your options and answer your questions at an initial consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a consultation. You can also email us directly at lane@racineolson.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho Estate Planning problems.