For many people, the primary motivation for visiting an estate attorney is to ensure that carrying out their final wishes doesn't place excessive stress or burden on their loved ones. Unfortunately, this process is often not straightforward when dealing with larger assets like homes. Mortgages can further complicate the situation.
However, a good estate attorney can help guide you through this process and explain your options. If you're concerned about how your home's mortgage will affect your estate planning process, schedule a consultation with an experienced attorney and check out these three crucial facts.
1. Acceleration Clauses Rarely Apply
An acceleration clause is also known as a due-on-sale clause. If you've ever sold a home with a mortgage before, you already have some experience with these clauses. Essentially, you can't sell your loan along with your house. When you transfer the property via sale to another individual, your lender "accelerates" your loan, and the full balance is due immediately.
Fortunately, acceleration clauses don't apply under typical inheritance conditions. If you leave your home to a relative, your lender cannot demand the full loan amount from them. Note that federal law spells out specific exemptions to the due-on-sale clause, so you'll need to consult with an attorney if you plan to leave your home to someone other than a spouse or child.
2. Liens Will Transfer
While many forms of death do not survive the debtor, liens are a specific exception. Liens are claims against your property, including your home, made by a creditor. Most liens are non-consensual liens, meaning that they result from a judgment by a creditor against the property owner. The lien is attached to the property rather than to the individual.
When you leave your home to a relative, any liens on the home will transfer to them, assuming your estate cannot otherwise pay them off. Your inheritor will then be responsible for paying the lien, although some states may have homestead laws that protect a certain portion of a home's equity from creditors. In some cases, your inheritor may also be able to negotiate directly with the creditor.
3. Inheritance Is Usually Assumable
An assumable mortgage is a specific type of mortgage that allows a new owner to assume the terms of the previous owner's mortgage. In other words, the new owner won't apply for a new mortgage but will instead take on the payments, interest rates, and so on of the existing one. Assumable mortgages are rare for standard transactions but typical during inheritance.
As with acceleration clauses, assumption usually implies when you leave a mortgaged property to a family member, but there may be exceptions if you leave your home to someone other than a spouse or child. If in doubt, always consult with an attorney to ensure that your property will be transferred as you expect.
