What will happen to an upside down mortgage if the owner passes away? 5 Answers as of May 15, 2014

My parents have a trust in which their home is included with my 2 brothers and I as the beneficiaries. The house is in an upside mortgage. My father passed away last year. If my mom passes away and the home is still in an upside down mortgage, what are our options? Will the lender put a lien on the estate for the difference owed? Will my siblings and I be responsible? As the executor of my parent's trust, what is the best route to take if the house remains in an upside down mortgage? Is a short sale an option? If so, as the seller, will we receive any monies?

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James M. Chandler | James M. Chandler
If you are in California you can just let the house go into foreclosure if you do not want to stay in the house. If you want to stay in the house you will have to continue making payments. If it went into foreclosure there would be no deficiency if the house is in California.
Answer Applies to: California
Replied: 5/15/2014
Law Ofices of Edwin K. Niles | Edwin K. Niles
In a short sale, there is typically no money left after the bank is paid. Your best option might be to simply let the bank foreclose, as you would have no personal liability. The foreclosure process can take from 4 months to as long as a year or more, so you could earn some rental income while waiting for the foreclosure. Another option might be to hold the property as a rental, if the income would be at least the amount of the mortgage. Who knows, maybe the market will continue to strengthen and some day you'll be right side up.
Answer Applies to: California
Replied: 5/14/2014
Law Office Of Victor Waid
Law Office Of Victor Waid | Victor Waid
Your questions are very insightful. As to the residence, if payments stop, the bank will foreclose; or if payments are current, but house is still upside down, and don't want to keep the house. Allow to go into default and the bank will again foreclose. As to your remaining questions, you are best advised to seek the legal counsel of a probate/trust lawyer to advise you.
Answer Applies to: California
Replied: 5/14/2014
James Law Group
James Law Group | Christine James
It depends upon the loan, whether there is a second mortgage, if there are other assets, etc. I can tell you that you and your brother will not be personally obligated on the loan.
Answer Applies to: California
Replied: 5/14/2014
Law Office of Jeffrey T. Reed | Jeffrey T. Reed
Normally the mortgage is a lien only against the home and should not affect the estate. You should probably have an attorney or good loan broker look at the loan documents to make sure. As long as you make the payments there shouldn't be any problems. When she dies or if she doesn't want to live in the home anymore you could talk to the lender about a short sale or maybe a deed in lieu of foreclosure and just give it back to them. If there is a short sale that means the lender has agreed to take less than they are owed to satisfy the loan and you would not get anything from the sale. If the home is held by the trust you may want to keep making the payments until the real estate market recovers, maybe rent it out to cover the costs. You should talk to an accountant about the tax consequences and a real estate agent about your local real estate market before you decide.
Answer Applies to: California
Replied: 5/14/2014
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