Stay Current on the Decedent’s Mortgage
Selling property through probate can be complicated. The last thing you want is to add another level of complexity by allowing the home to fall into foreclosure before it is sold.
The personal representative has a legal duty to care for and maintain estate assets during estate administration. (See C.R.S. §15-12-709) This means ensuring a house owned by the decedent stays out of foreclosure if there are enough estate assets to keep the mortgage current, or at least current enough to stay out of foreclosure. A decedent’s residence may have considerable equity in it which could be lost if the bank forecloses. Allowing something like this to occur could cause financial loss to the estate or trust, for which the personal representative or successor trustee could be liable. However, there is no legal obligation for a personal representative to use his own funds to pay estate obligations.
There are several avenues that can be followed to keep the property’s mortgage current (or at least out of foreclosure) before it is sold. If there are funds in the estate bank account, those can be used to pay the mortgage. The estate also can liquidate other estate assets like stocks to provide liquidity for paying the mortgage. Additionally, the estate can take a loan from a lender to pay the mortgage. If this is done, it is imperative that the loan and any security agreements be formalized through written documentation to avoid any misunderstanding when it comes time to pay the loan back after the property is sold. This would be an ideal time to have your probate attorney draw up the appropriate paperwork.
A personal representative or trustee should notify the mortgage lender of the decedent’s death as soon as possible. The personal representative should be prepared to discuss with the bank how the estate intends to list and sell the property. She should also request that the bank provide a current payoff amount for the mortgage and any amounts that are past due. This information is critical to establish a proper listing price for the home. She should also request that the bank inform her of any impending deadlines or limitations on the estate’s ability to pay off the mortgage at closing.
