Real Estate Issues Can Haunt Your Estate

Real estate often involves both a mortgage and a title. The person on the mortgage is the party who is responsible for paying the mortgage note. The name(s) on the title is who legally owns the home. It is important to understand the interplay between the mortgage and the title as a baseline.

Hypothetical #1: Jessica owns her house. Her boyfriend, Tom, moves into the home with her. Since he pays her rent, she adds him to the quit claim deed as a joint tenant. Jessica dies.

Analysis: Tom owns the home, but has no legal obligation to pay for the home. So, Jessica’s estate will be responsible to pay the mortgage as it is a valid debt.

Hypothetical #2: Jessica owns her house. Her boyfriend, Tom, moves into the home with her. Since he pays her rent, she adds him to the quit claim deed, but does not specify that he is a joint tenant. Jessica dies without a will.

Analysis: Tom owns ½ of the home, but has no legal obligation to pay for the home. Jessica’s estate owns ½ of the home. Jessica’s estate will need to be probated. The estate will be responsible to pay the mortgage as it is a valid debt. Unless Tom and Jessica’s estate come to an agreement, a real estate partition action will need to be brought in order to fully resolve the ownership to the home.

Hypothetical #3: Jessica and Tom are married. Jessica’s name is on the title and the mortgage. Jessica dies.

Analysis: Jessica’s estate will need to be probated. Since Tom is Jessica’s heir, Tom will be awarded the house in probate court. However, since there is a mortgage on the home in Jessica’s name and the mortgage company has a secured interest in the home, Tom will need to refinance the mortgage and pay off the existing mortgage or the home will have to be sold to pay off the mortgage.

Hypothetical #4: Jessica and Tom are married. Both of their names are on the title and the mortgage. Jessica dies.

Analysis: Jessica’s estate will need to be probated because the title does not say that it is owned as joint tenants. If the title does not specifically state that the owners are joint tenants, then automatically the owners are tenants in common. That means that even though as a matter of law Tom will be awarded Jessica’s entire ½ ownership, he will incur the additional expense of probate.

Hypothetical #5: Jessica and Tom are not married. Both of their names are on the title and the mortgage has been paid off. Jessica dies. At the time of her death, Jessica has a judgment against her in the amount of $200,000. The value of the home is $400,000.

Analysis: The judgment creditor will receive the entire $200,000 of equity that Jessica had in the home. That is because her interest did not automatically pass to Tom as either a joint tenant or through a Transfer on Death Deed (TODD). Moreover, because Tom is neither Jessica’s spouse nor a child of hers, Jessica’s ½ interest is subject to creditors.

It is important to understand: 1) Generally the home is a security interest on a mortgage. So, regardless of the circumstances, the mortgage must be paid off. The mortgage company always receives their money unless they did not properly secure the homestead as a security interest, which rarely happens; and 2) A homestead is exempt from creditors if the decedent’s spouse or the decedent’s children inherit it.

Spangler and de Stefano, PLLP advises individuals and business owners on their estate plan.

The material contained herein is for informational purposes only, and is not intended to create or constitute an attorney-client relationship between Spangler and de Stefano, PLLP and the reader. The information contained herein is not offered as legal advice and should not be construed as legal advice.