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Can a bank foreclose on a house in probate?

Can a bank foreclose on a house in probate? Yes. A bank can foreclose on a house in probate. Find out why, and what to do about it . . .

evident Editorial Team
published
October 20, 2021
house in foreclosure

Yes. A bank can foreclose on a house in probate. The homeowner's death does not dissolve the mortgage agreement, so the deceased person's estate must make the mortgage payments. If the decedent's estate fails to pay the past due amounts on the mortgage, the bank has a right to foreclose on the house even during the probate process.

Key Takeaways

What is probate?

Probate is the legal process that ensures a deceased person's property is distributed according to their last wishes dictated by their estate plan. The probate process can unfold either with or without a will.

A deceased person's estate can go through probate whether or not they had a will, though there are ways to avoid probate for certain assets.
When there is a will, the probate court makes sure the terms of a will are carried out correctly. When there is no will, or the will is not valid, the probate court will distribute the deceased’s assets in accordance with state laws.

The probate process is intended to make sure an inheritance--while in probate called a "probate estate”--is appropriately distributed. Depending on whether the decedent had a valid will, an executor or personal representative will act on behalf of their estate during probate proceedings.

Most wills declare an executor, and this person acts as a personal representative for the deceased’s estate and oversees any court proceedings. If the deceased did not leave a will, the court will appoint an administrator to act as the personal representative and oversee the proceedings. The administrator, often a next of kin, fills the role of the executor.

What happens to a mortgage during probate?

Like any other asset or liability of the decedent, their mortgage is part of their estate. The decedent's death does not dissolve the mortgage agreement.

The decedent's executor or personal representative has a duty to administer the estate and handle any outstanding debts. Many times, the executor will use a probate lawyer to assist with the process.

During the probate process, the executor typically has three main duties:

  1. Identify Assets: the executor must identify all of the deceased person's assets to be included in the estate assets.
  2. Pay Debts: the executor must pay any outstanding debts, including any past due amounts on a mortgaged property.
  3. Notify Beneficiaries: the executor must notify all beneficiaries named in the will, if there is one.

Why would an estate default on a mortgage during probate?

A deceased's estate can default on a mortgage during probate for several reasons, ranging from a lack of assets to mismanagement by the executor of the estate. Below are the most common reasons:

Reason Description
No money available to pay the mortgage It's possible that the decedent's home is the only asset of the estate, or there is not enough money or estate property that can be liquidated to make the past due mortgage payments.
Mismanagement by the executor It may be that the executor is unaware of the mortgage on the property, or simply assumes that the loan does not need to be repaid upon the death of the homeowner.
Conscious decision not to pay the mortgage In some cases, the house might be "underwater". In other words, the property is worth less than the outstanding mortgage amount. Family members in this scenario may simply decide not to pay and let the bank foreclose.

Regardless of why the decedent's mortgage goes into default, if the mortgage payments are not made the mortgage lender has the right to initiate the foreclosure process on the house during the probate proceedings. 

If the issue is not having enough assets to make the monthly payments and you're lucky enough to have a family member or close relatives who can help, that's great. But absent that, to avoid foreclosure you'll want to take several steps to avoid getting to the point where the mortgage lender executes a foreclosure sale.

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What to do if the bank starts foreclosure proceedings during probate

When a bank forecloses on a house, they typically initiate a non-judicial foreclosure process. This is a typical foreclosure sale, where an auction is held and the bank sells the property to the highest bidder. Sometimes the sale price is sufficient to pay off the loan, but sometimes it is not. For a mortgage lender to preserve the option to recover from estate assets beyond the property sale, they typically must initiate a judicial foreclosure sale.

In either scenario, the executor or personal representative will receive notice that the decedent owns real property subject to default on the mortgage.

There are several steps you can take to forestall the foreclosure process.

Communicate with the lender

The first thing the executor should do is call or send a letter to the mortgage lender to discuss stopping or at least delaying the foreclosure process. You'll also want to request a copy of the loan documents if they are not readily available.

It can be particularly difficult to navigate through the red tape at banks and get to someone who can actually make the decision, so the sooner you start the process the better. The lender may not be very flexible, particularly when the mortgaged property is in probate and there is a risk of the lender not getting paid back.

Request an Injunction to Provide Reasonable Time to Sell the Property

If the lender is unwilling to stop the foreclosure process, one option is to seek a temporary restraining order to enjoin the foreclosure. You'll likely want to speak to or hire an attorney to ensure the best chance of obtaining the injunction.

Enjoining the foreclosure process may give you time to sell the property and satisfy the outstanding debt.

The executor will also want to check whether the lender has given proper notice of the pending foreclosure. Improper notice can be a reason to force the lender to restart the process.

Sell estate assets or borrow funds to pay off the debt

The decedent's estate may have other assets that can be sold off to pay off the debt or bring the mortgage current. Another option is to borrow funds on behalf of the estate from a family member or close relative, or a potential heir, to pay the mortgage to avoid foreclosure.

Speak to an attorney

As the executor evaluates options to avoid foreclosure on the property of the deceased person, it is often helpful to speak to an attorney with knowledge of local foreclosure laws. The foreclosure process must be executed in accordance with appropriate contractual terms in the mortgage contract, as well as local laws and regulations. There may be an opportunity to find a misstep by the lender that will allow the executor to fend off the foreclosure process or at least come to an agreement with the bank on how best to settle the issue.

So in conclusion, if you're ever wondering "can a bank foreclose on a house in probate", the answer is yes. If you're ever facing foreclosure on a property during probate, evident is here to help you connect with an attorney so you know your rights and options.


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