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Dying with a mortgage on your house can be an issue for your heirs. If they want to sell the house, it’s no big deal – the mortgage will be paid out of the sale proceeds. But what if they want to keep the house?
In North Carolina, unless you direct in your will to have the mortgage paid off through the assets of the estate, your beneficiaries will inherit the house subject to the mortgage.
No one is forced to take possession of a house – and mortgage – if they don’t want to. Beneficiaries can disclaim their interests in the inheritance. So, the burden of a mortgage is not automatic just because you left the house to someone in your will.
If your mortgage has a due-on-sale clause, which most do, the Garn-St. Germain Depository Institutions Act of 1982 allows immediate family members to take over the mortgage without triggering the due-on-sale clause. This exception does not apply to non-family beneficiaries, though.
Proper planning can avoid these potential mortgage issues.
First, figure out if any of your potential heirs even want the house. Next, if they do, determine your monthly mortgage/tax/insurance payment and determine whether your potential beneficiary can afford to inherit the house as it is. If not, determine if there is enough money in the estate to pay off the mortgage, or at least reduce it substantially. If all else fails, you may consider purchasing life insurance for the purpose of paying off the mortgage when you pass. A term policy should do the trick.
Sit down with your family and discuss these issues. Then, visit StephensonLaw for an Estate and Wealth Planning Sessions to discuss your options and Leaving a Legacy.