Dealing With Debts and Mortgages in Probate

A woman looks at her deceased parent’s debts while speaking on the phone with a probate attorney.

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When a loved one dies leaving property, debts, and a mortgage, and if he did not have a living trust, probate is required to sort everything out. Probate is the process of paying off the deceased person's final bills and expenses and transferring his property into the names of beneficiaries. Dealing with debts can begin before probate is officially opened. 

Dealing With Bills and Mortgages Before Probate

Make a complete list of the decedent's liabilities, even before the probate estate is opened. It will help streamline the probate process later. Bills and statements you should look for include:

  • Mortgages
  • Lines of credit
  • Condominium Fees
  • Property taxes
  • Federal and state income taxes
  • Car and boat loans
  • Personal loans, including student loans
  • Storage fees
  • Loans against life insurance policies
  • Loans against retirement accounts
  • Credit card bills
  • Utility bills
  • Cellphone bills

After you've made a list of liabilities, divide them into two categories:

  1. Liabilities that will be ongoing during probate -- these will be administrative expenses
  2. Liabilities that can be paid off in full after the probate estate is opened -- these are the decedent's final bills

Administrative expenses include the mortgage, condominium fees, property taxes, storage fees, and utility bills. These must be kept current until the estate closes. To the extent possible, the estate beneficiaries should pay these bills until the probate estate is opened.

The deceased's final bills include income taxes, personal loans, loans against life insurance and retirement accounts, credit card bills, and cell phone bills. The estate beneficiaries should not pay any final bills out of their own pockets but should wait and let the estate's personal representative or executor deal with them in the process of settling the estate. 

With some liabilities, the beneficiaries will have to make a judgment call as to whether they intend to keep the assets with loans against them. If a beneficiary wants to keep the car or the house, he might want to continue paying down the debt. Otherwise, payments should be made from the estate. 

Dealing With Bills and Mortgages During Probate

The personal representative or executor of the estate will be responsible for taking over payment of administrative expenses and settling the decedent's final bills after probate is open. This will include determining which debts are valid and to what extent, then assessing which, if any, of the decedent's assets, should be liquidated or sold to pay ongoing estate expenses and final bills.

If the beneficiaries have continued to pay some or all of the decedent's bills prior to the probate estate being opened, the personal representative should then reimburse them accordingly, with one exception. If the decedent left real estate to a specific beneficiary in his will and that beneficiary intends to assume or refinance the mortgage against the property, he should not necessarily be reimbursed 

Mortgages and Probate 

A beneficiary who inherits a house or other real estate may be able to assume the mortgage during or after probate according to the terms of the Garn-St. Germain Depository Institutions Act of 1982. This federal law forbids lenders from calling loans due or foreclosing when ownership changes hands due to death. The mortgage must typically be current to qualify.