Author Topic: Dabts passed to heirs?  (Read 3488 times)

Exflyboy

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Dabts passed to heirs?
« on: March 28, 2014, 12:50:59 PM »
Hi all,

I was watching the Nightly Business Report on NPR last night and they had a piece on reverse Mortgages.

Apparently if say your Mom had a reverse mortgage prior to 2008 (and was not an FHA approved deal),  if the homeowner lived too long and the house was worth less than the amount paid on the annuity then the difference can be passed to the heir..

As I have a Mother in Law who would spend evryone else's last penny if she could.. I had a bit of a reaction to this piece, although I honestly don't think she has a RM.

So wait a minute.. You can take out a loan and if its not repaid and you die.. the debt gets passed to your heirs who have not signed anything and have no knowledge of said loan beforehand??

This can't be right can it??.. He says knowing that MIL will die with a huge bill!!!

What debts if any could be passed onto us??

Frank


FIPurpose

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Re: Dabts passed to heirs?
« Reply #1 on: March 28, 2014, 12:57:32 PM »
No debts can never be passed onto you, but they can be passed onto the person's estate.

So if you consider the debt going toward her estate as being your debt then I guess so. But if the estate is negative you have no responsibility to pay it.

Exflyboy

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Re: Dabts passed to heirs?
« Reply #2 on: March 28, 2014, 01:00:49 PM »
Phew.. thankyou!

MissPeach

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Re: Dabts passed to heirs?
« Reply #3 on: March 28, 2014, 01:03:25 PM »
I have the same understanding. So if you parent has any assets and this debt you might not get anything. I've never been in the situation but I've read in online comments that debt collectors may try to collect from you but have no legal right to be repaid by you.

Frankies Girl

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Re: Dabts passed to heirs?
« Reply #4 on: March 28, 2014, 01:08:46 PM »
NOT a lawyer, but I think that's wrong. The reverse mortgage means that if they had one, and the heirs wanted to keep the house, they would have to basically buy back the house from the company. Heirs are given the option to do this, but it's not mandatory they do so. I've seen a few stories lately that said some of these companies were misleading heirs and foreclosing on the houses without them really understanding all of the options, but I've also read that RMs are on a decline lately...

But there is no way they could decide that the house isn't worth what they paid so they're going to take it out of the heirs - I can't image that is in any way legally enforceable.  The heir didn't enter into a legal contract and a relative can't represent them or bind them into an agreement without their knowledge or consent. You just don't get to keep the house.

And as far as what debts can be passed on to heirs, well, none that I know of. Any money owed at the time of death is then taken from any existing estate. If there is property (less some personal items I believe that can be held out in some cases but again, I'm NOT a lawyer) then they can force a sell-off to satisfy the debts, but once the money/property is gone, that's it for what they can legally tap. Which means the heirs themselves might be left with nothing, and might have to pay funeral expenses if there isn't enough in the estate or other plans already made, but they can't be held liable for the deceased person's debts unless they co-signed something legally obligating them.

I know when my dad died, the state required us to publish a notice in the paper to alert any creditors. They had 6 months from the date of that notice (whether anyone saw it or not) to file a claim against the estate, and after that point in time, they're out of luck no matter what the circumstances. I'm pretty sure that's not common, but if there were any obscure debts we didn't know about, too bad, so sad.


Exflyboy

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Re: Dabts passed to heirs?
« Reply #5 on: March 28, 2014, 01:53:23 PM »
Yes that RM didn't sound right to me.. Maybe if the Daughter co signed for the RM then yes they are on the hook.. (I just reminded my Wife that we don't co-sign anything for anyone at any time).

Frank

yahui168

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Re: Dabts passed to heirs?
« Reply #6 on: March 28, 2014, 02:03:05 PM »
I believe one issue is that you cannot pick and choose which part of the estate to receive. If you are the heir to the estate, you can choose not to accept the entire estate. However, if there are two houses in the estate, one without mortgage and one with reverse mortgage, the heir may not be able to accept only the house without mortgage.

Timeshares with onerous fees are a particular pernicious example of this. Heirs cannot opt out of the timeshare without opting out of the entire estate.
« Last Edit: March 28, 2014, 02:12:13 PM by yahui168 »

Exflyboy

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Re: Dabts passed to heirs?
« Reply #7 on: March 28, 2014, 02:21:30 PM »
I'm pretty sure there will be a grand payout of ZERO to us.

Which also means my waste of space BIL got his huge loans forgiven by his Mom paying them off.

Daleth

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Re: Dabts passed to heirs?
« Reply #8 on: March 29, 2014, 09:27:58 AM »
I'm pretty sure there will be a grand payout of ZERO to us.

Which also means my waste of space BIL got his huge loans forgiven by his Mom paying them off.

Everyone is right that the debt doesn't pass to the heirs; the debt is against the house (i.e. house is collateral), so a bank that has a mortgage on a house can take the house as payment for the debt--or if the debt is worth less than the house, the executor of the estate must sell the house, pay off the bank's debt and then distribute the rest of the sale proceeds to the heirs--but either way, the bank can't take more than the house since the deal with a mortgage is that the house, and nothing else, is collateral.

That being said, many states permit banks that foreclose on houses to go after the borrowers for the rest of the money if the house is no longer worth as much as the loan. That's called a recourse loan (or a "recourse state" if you're talking about states that allow this), but I've only ever heard of it being done to borrowers who were alive--I don't know if it works against estates, and even if it does with regular mortgages, I don't know if it does with reverse mortgages (there are special federal rules for reverse mortgages).

So you should talk to an attorney in your state to find out whether a bank holding a reverse mortgage where the borrower has died can go after the rest of the estate to make up the difference if it turns out the house is worth less than what is owed on the loan. But note, even if that is possible, all they can do is go after the rest of the estate (i.e. the rest of the deceased borrower's assets)--they cannot go after the heirs.

One thing with reverse mortgages that's very different from regular mortgages is that the heirs do have the option of buying the house from the bank, AND federal rules require the banks to let heirs buy the house for a percentage of the loan amount instead of the full amount. Most banks will not tell you this, but it's the law. Here's an article on that:
http://dealbook.nytimes.com/2014/03/26/pitfalls-of-reverse-mortgages-may-pass-to-borrowers-heirs/
« Last Edit: March 29, 2014, 09:31:20 AM by Daleth »