Dealing With Debts and Mortgages in Probate

Updated on January 14, 2022

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A woman looks at her deceased parent’s debts while speaking on the phone with a probate attorney. — Photo:
Echo / Cultura / Getty Images

When a loved one dies and leaves 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
Cell phone bills

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

Liabilities that will be ongoing during probate. These will be administrative expenses.
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 or foreclosing when ownership changes hands due to death. Typically, the mortgage must be current to qualify.

Frequently Asked Questions (FAQs)

What happens if the decedent had a reverse mortgage?

The deceased's heirs would usually have the option of either paying off the outstanding reverse mortgage loan or paying the lender 95% of the home's appraised value, whichever is less. They have 30 days. They can also refinance or sell the property, but the reverse mortgage must be paid off when the homeowner/borrower dies and no longer lives there. Special rules can apply to certain surviving spouses.

Are there any debts that don't have to be paid in probate?

The estate must pay any debts owed by the deceased, provided that it has enough funds or property that can be liquidated to raise the cash to do so. The debts won't be paid if it doesn't. Beneficiaries aren't responsible for paying them unless they cosigned or are otherwise also obligors on the loans or debts. Different rules apply to spouses in the nine community property states.

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