Upside Down and Topsy Turvy

It is unfortunately all too common these days that a house or other asset is worth less than the mortgage owed on it. What happens if the owner dies, leaving the upside down asset to a spouse or children?

There’s good news and bad news. The good news is that the heirs of the deceased can still inherit title to the asset via probate (if it is held in the deceased’s name) or via a deed from the successor trustee (if it is held by a trust). The bad news is the lender will not simply allow the heirs to make payments on the same mortgage. The lender’s agreement to loan was with the deceased, based on his or her credit history and income. Any heir would have to pay off the debt or obtain a new loan; and the trouble is, of course, that a lender will not want to lend more than the asset is worth.

Is there a solution? If the asset is significantly over-encumbered, it doesn’t make sense to bother transferring title to the heir. Instead, you can just allow the asset to be foreclosed upon or repossessed. If the asset has some sentimental value and is not significantly over-encumbered, you can pay off the debt, or pay it down to an acceptable level and borrow the rest—if your credit is good and you are able to get a loan. I had a client whose mother died, leaving a luxury car worth about $39,000 with a debt of $42,000. My client was herself wealthy and decided simply to pay off the debt and take title to the car. Not many people can afford to do this, however.

If you are confronting this issue, you should contact a qualified Nevada probate attorney.

By Sharon M. Parker

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