Can A Bank Foreclose On A House In Probate?
Can a bank foreclose on a house in probate? During probate, the bank can still foreclose on the home if the decedent’s estate does not pay the overdue mortgage amounts.
The purpose of the probate process is to ensure that an inheritance, referred to as a “probate estate,” is distributed correctly.
The law requires probate if someone in Michigan has passed away and their assets were not placed in an estate planning trust. However, if two people jointly owned the assets, had a designated beneficiary through the deed, or were held in a living trust, then probate is typically unnecessary.
If there is confusion about the rightful recipient of the deceased person’s assets or disagreement among the heirs or beneficiaries, it is crucial to seek assistance from a lawyer.
The Importance Of Leaving A Will
If the person who passed away had a valid will, their estate would be handled by an executor or personal representative during probate proceedings.
The probate court is responsible for ensuring that a will is executed correctly when available. Without a valid will, the court will distribute the deceased’s assets based on the state’s laws.
If someone passes away without leaving a will, the court will choose an administrator to be the personal representative and manage the proceedings. The administrator, typically a close family member, serves as the executor.
Estate Administration
After someone passes away, estate administration collects their assets, settles debts, and pays final expenses. Additionally, estate administration may include distributing any remaining assets.
If a person passes away without a will, their property may be inherited by their closest family member. However, it’s important to note that the property may still have an outstanding debt that needs to be managed during the estate administration process.
It is recommended to hire a lawyer for assistance throughout the process, as the property remains subject to any conditions outlined in prior documents.
The Probate Process
When someone dies, it can be hard to feel happy again. Things are complicated if the people related to them must agree on how to divide their belongings. Sometimes distribution needs to be more explicit, so it needs to be decided in court.
The probate process will occur when a court decides how to share the property of someone who has died. Even if the person did not leave behind a will, the court would ensure, as best as it can, their wishes are followed.
Essential Documents To Handle The Deceased’s Estate
As soon as possible after a homeowner passes away, search for and hand over the listed items to the individual in charge of carrying out the deceased person’s final arrangements. This person can be the decedent’s executor or a lawyer.
Funeral arrangements (including burial contracts) are the first thing to be found and handled.
Then the executor should also collect the following documents: will, premarital agreement, death certificate, last tax return, bank statements, vehicle titles, insurance policies, and the deeds of real estate.
In What Situations Is Probate Necessary?
Not every time a property owner passes away, you must go through probate.
You may not require the probate legal process in these three cases:
- Joint ownership: When two people own something together, it is called joint ownership. If one dies, the real estate property passes automatically to the other person.
- Named beneficiary: After the custodian receives a legitimate claim, they will give property like life insurance, pension benefits, pay-on-death bank accounts, and IRAs to the named beneficiary.
- Trust: If a person transfers their property to a trust before they die, probate will not be required.
Assets Not Subject to Probate
Although probate assists with organizing everything, some assets do not go through probate.
When someone who has passed away selects a recipient to inherit a possession after their death, it is referred to as a non-probate asset. This type of asset may not necessitate any estate administration or court procedures.
Assets classified as non-probate pay directly to the named beneficiary, bypassing the deceased person’s will. Examples include life insurance, 401(k) plans, IRAs, and annuities.
Joint Bank Accounts and Businesses
If one of the two bank account owners passes away, the co-signer can inherit it without involving the court. Similarly, if a deceased person owned a business, the legal documents may allow another person to take over the ownership without requiring a court order.
Furthermore, if the deceased held any assets in a trust, those assets would likely be exempt from probate court proceedings, as we mentioned before.
What Happens to a Mortgage After the Death of a Homeowner?
How assets are transferred to beneficiaries is determined by the decedent’s will and the state’s laws that apply. When someone dies, their property usually goes to their beneficiaries without any extra steps.
However, if the property still has debt associated with it – such as a home with an outstanding mortgage – the transfer of ownership does not erase that debt.
Tip For Communicating With The Mortgage Lender
When receiving a property in debt as an inheritance, it is recommended to communicate with the lender in writing, as it will create documentation of your conversations and simplify the resolution of any potential problems.
What Happens If You Inherit a Property in Foreclosure?
If the homeowner has passed away, the bank can still complete a foreclosure process on a property undergoing probate. However, the mortgage contract remains in effect, and it is the responsibility of the deceased person’s estate to continue making the mortgage payments if they wish to stay off a future foreclosure. If you seek to keep the home and the current mortgage, then you will need to ask the mortgage company whether they will allow you to take over the loan and become responsible for the current mortgage.
Also, if a property owner has passed away and a probate court is deciding its ownership, the property may be foreclosed.
During the probate process, if the decedent’s estate fails to pay the past due amounts on the mortgage, the bank is authorized to foreclose on the house.
How To Handle A Foreclosure Process During Probate
Even if a property is in probate and the estate cannot pay the overdue mortgage, banks or lenders may still foreclose on the house if there is an outstanding mortgage amount.
To stop the foreclosure, a state court lawsuit seeking an injunction or a bankruptcy filing may be required. However, seeking an injunction to prevent foreclosure is rare.
The personal representative of the probate estate is usually responsible for using assets from the estate to pay the mortgage and keep the property ownership current until it is sold or transferred to a new owner.
Generally, banks do not want to own any property and will work with the family to help preserve the family ownership until they can sell the property, and the mortgage is paid off.
The bank will need proof of ownership before beginning foreclosure proceedings. It is also possible for a family member to take on the mortgage payments.
Getting Help If Transferring Real Estate Facing a Foreclosure Sale
If you are facing foreclosure in a decedent’s mortgage, if you are the personal representative of the probate estate, then you can handle foreclosure by selling the real property.
If you don’t want to keep the property, and it’s worth less than the mortgage, you can negotiate a short sale or deed-in-lieu of foreclosure instead of going through a foreclosure.
How To Sell A House in Foreclosure
In Michigan, the court’s authorization is required for the estate executor to sell a home undergoing probate. The probate court will grant or deny the estate representative’s request to sell the property.
It is only possible to transfer the property with approval from the court. The court will ensure that the price you are selling the mortgaged property means enough money.
After getting proper notice from the court, the probate attorney can allow the personal representative to sell the home by setting a price and seeking potential buyers in the real estate market. Hiring an appraiser to determine the property’s fair market value is recommended.
If the amount owed on the mortgage is higher than the house’s current value, check with the lender if they agree to a short sale.
If there is any extra money left over after selling the house and paying off the mortgage, then the excess funds will be placed in the probate estate to pay estate fees and costs and also repaying known creditors.
Whatever money is left over can also be given to the people who inherit the deceased person’s possessions and assets.
Hiring a skilled real estate attorney can help you navigate through the loan documents and the state laws so you fulfill your loved one’s last wishes and still take care of your money.
What Happens If The Property Is In Foreclosure When The Homeowner Dies?
Suppose the house you inherit has an outstanding mortgage, and the original owner has passed away. In that case, you are not legally responsible for paying off the total amount, interest, and other fees, but failure to do so will ultimately result in the mortgage company foreclosing on the property. Therefore, selling the house and using the proceeds to pay the mortgage is one of your best options.
A lender can foreclose on a property inherited by a deceased family member. If the borrower dies and the home is already in the foreclosure process, the lender can proceed with the sale without notifying the beneficiaries. It may lead to the property being sold at a sheriff’s sale.
Mortgage Default
Is it possible for an estate to default on a mortgage during the probate process? Yes, it may happen if the estate’s only asset is the decedent’s home or if there needs to be more funds or property in the estate to pay off the outstanding mortgage payments.
Avoid Foreclosure
In certain states, if a homeowner dies while their property is being foreclosed upon, it is legally required for the mortgage lender to modify the foreclosure proceedings to involve the beneficiaries, executors, and administrators of the homeowner’s estate.
Is a Lender Allowed to Foreclose Once the Homeowner Dies?
Sometimes, if the original borrower of a property dies while it is in foreclosure, the mortgage lender may continue to foreclose without notifying the heir(s). It could lead to the home being sold in a sheriff’s sale.
It is common for heirs to discover foreclosure at a later stage, which leaves them struggling to take control of the situation.
Can I Get A Loan Modification On a Mortgaged Property I Inherited?
You may request that the mortgage company transfer the loan to the heir and they may accomplish this through a loan modification. However, if a loan modification is not approved, then it is necessary to pay off the outstanding loan of your deceased family member first to obtain a new mortgage. Approval of the mortgage application will depend on factors such as your assets, debts, credit score, and income.
One possibility is for the estate beneficiaries to make payments towards the estate upfront and later ask for reimbursement once the estate is sold. Another option is selling estate assets or borrowing funds to pay off the debt.
If you experience mortgage issues, it’s advisable to consult a foreclosure defense attorney to defend you against foreclosure. The lender may decline loan modification applications, and even if approved, they may not notify you.
Can You Freeze Assets During Probate?
You can request an injunction to allow more time to sell assets that do not have a readily available market.
The probate court can issue temporary injunctions that freeze assets claimed to be a part of a deceased person’s estate, even if there is a dispute about who ultimately owns those assets.
The temporary injunction is meant to preserve the asset while the ownership dispute is resolved. This aligns with the personal representative’s obligation to gather and safeguard the estate’s assets for future distribution.
An injunction may be granted if there is a risk of immediate and irreparable harm or if the person seeking the injunction has a clear legal right to it. Additionally, an injunction may be granted if there is no alternative legal remedy or if it would not harm the public interest.
Probate in Michigan
Whether supervised or unsupervised, probate in Michigan usually takes approximately seven months.
The probate period may be longer in some situations, such as:
- when it takes time to find the will
- if are contests over the will
- when the estate is large
- when there are conflicts with creditors
In conclusion, the probate process can be confusing and complicated. Seeking the assistance of a lawyer during the probate process can help to ensure that the decedent’s assets are distributed correctly and any outstanding debts are managed.
It is also crucial to have vital documents such as a will, premarital agreement, and insurance policies in place, as they will help to streamline the probate process.
Understanding the circumstances where probate may not be necessary, such as joint ownership, named beneficiaries, and trusts, can also be helpful.
Overall, being well-informed and seeking expert advice can make navigating the complex probate process more manageable during a difficult time.
