In this article, we discuss what happens if you inherit a house in foreclosure in Illinois and answer the following questions:
- How is a property in foreclosure transferred upon an individual’s death?
- Do I automatically assume the debt of an inherited home in foreclosure?
- What options are available to me if I want to keep an inherited home in foreclosure?
- What should I do if I don’t want to keep an inherited home in foreclosure?
How Is a Property in Foreclosure Transferred Upon an Individual’s Death?
In an ideal situation, the inheritance of a home will be described in the decedent’s will, trust, or Transfer on Death Instrument. These documents act as instructions telling the court what is to happen to the property upon the death of the creator of the document, allowing the property to avoid probate and pass directly to the heirs, beneficiaries, etc. However, the unfortunate truth is that not all elderly people are able to pay their mortgage or have a well-prepared estate plan. When an individual dies while their home is going through the foreclosure process or is nearing foreclosure it adds an extra layer of legal consideration and stress to the inheritor of the property. Unless the inheriting individual is well-versed in real estate and probate law, this situation certainly demands the assistance of a qualified attorney.
The first step in understanding a foreclosed property transfer is determining how the property title is held. This information can be found on the property deed, which can be accessed at the Recorder of Deeds office in the county where the property exists. There are four ways a title can be “held” or owned:
- Joint Tenancy: If a title is held in a joint tenancy the remaining tenants will assume the property and nothing else must be done regarding the transfer of the property and title.
- Tenancy By The Entirety: This type of tenancy only exists between spouses and requires no extra action regarding the transfer of property and title after the individual’s death.
- Tenancy In Common: This type of tenancy is often seen in business relationships or when multiple family members own a property. Each tenant has an individual share of the property and the title must be transferred upon the death of a shareholder.
- Sole Title (ownership): Here the decedent was the only owner of the property and title and so the title must be transferred upon his or her death.
If the decedent had a will that named heirs of the property, the heirs will need to bring that will to probate court to get approval from the probate judge to transfer the title. If a trust exists it should detail the transfer of the title. No matter what, if the issue of the title transfer is not taken care of the mortgage company will move to foreclose the home and sell it at auction to satisfy any debts.
Do I Automatically Assume The Debt of an Inherited Home In Foreclosure?
No, an inheritor is not immediately attached to the debt of a home in foreclosure and is not legally obligated to pay the mortgage of an inherited home in foreclosure. The inheritor can simply refuse to inherit the home and let the foreclosure process play out and either take any surplus from the sale of the home after debts are paid or be free of the property after it is sold by the executor or administrator of the estate. If the inheritor decides they want to keep the home or sell it themselves they will need to bring the mortgage current or file a “stay” with the mortgage company with the intent to sell the property.
What Options Are Available To Me If I Want To Keep an Inherited Home In Foreclosure?
If the inheritor decides to save the house they will first need to determine the status of the foreclosure case. This information can be gleaned from the Recorder of Deeds who will have a case number and associated documents that can be taken to the Circuit Clerk. Sometimes the inheritor will be surprised to find that a home they thought was in foreclosure was just behind on payments and a foreclosure case has yet to be opened. In this situation, the foreclosure can be avoided by bringing the loan current. If a foreclosure case has been filed the options available to the inheritor will depend on where the home is in the foreclosure process. The inheritor may be able to redeem the home, pay off the mortgage, or have the home reinstated. An attorney can help the inheritor decide on the best option and what steps to take next.
If the inheritor decides to keep the property they should be aware about the possibility of a “Due-On-Sale clause” in the contract. This type of clause is unlikely but may have been written in specifically for foreclosure transfers. It requires one of three things to happen upon the transfer of the property: 1) the entire loan be due, 2) the property be sold, or 3) the new owner gets a new mortgage to pay off the old. There are more rules surrounding a “due-on-sale clause” that can be discussed with your attorney.
What Should I Do If I Don’t Want To Keep An Inherited Home In Foreclosure?
If the inheritor doesn’t want to take on another mortgage, spend money to bring the loan current, or would prefer to not deal with the issue at all they can simply make the probate judge aware that they refuse the inheritance. The property would then go through the normal foreclosure process and be sold by the executor or administrator of the estate to satisfy any of the decedent’s outstanding debts. If the inheritor refuses the inherited property it may open the door for other family members to assume control of the property, but this is a discussion for the attorney handling the case. If you have any questions about inheritance, foreclosure, or real estate law give our office a call at 630-324-6666.
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