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What Happens To Mortgage And Debts When You Die?


Mortgage debt accounts for the vast majority of U.S. consumer debt.  Not all mortgagors (people who borrow money from a lender to purchase real estate) pay off their mortgage before their death.  When a person dies before their mortgage is paid off, the next in line heirs or beneficiaries must find a way to pay the mortgage until a successor Trustee is appointed or a Personal Representative is named.

Some other types of debt are best to wait to pay until the appropriate party for a trust or estate is appointed.   The difference between other debts and a mortgage is that a mortgage is a secured debt on real property, and the mortgagee (the lender of money to the mortgagor) can foreclose on the real property if payments are not continued.

Making a List of the Decedent’s Debts and Liabilities

If your loved one has died, you should list all of the decedent’s debts and liabilities, including any mortgages or other secured liens. Having a complete list of the liabilities can help during any administration process, whether it is through probate or a trust administration. Look for the following debts and bills of the decedent:

  • Mortgage
  • Car loans
  • Utility bills
  • Credit card debt
  • Cell phone bills
  • Hospital bills
  • Lines of credit
  • Income taxes
  • Property taxes
  • Student loans and other personal loans

Dividing the Decedent’s Liabilities into Two Categories

In order to determine what happens to the decedent’s liabilities and debts, it is important to divide them into two categories:

  1. Administrative expenses, or the liabilities that must be paid during the course of administering the decedent’s trust or estate. These include the decedent’s mortgage, utility bills, insurance, property taxes, and other payments that must be paid while managing and distributing the probate or trust estate.  This is what we also call “ongoing” expenses, or bills that we want to be continued despite the original debtor’s death.
  2. Final bills, or liabilities that can wait to be paid because they are not ongoing necessities. These include personal loans, credit card debt, hospital bills, cell phone bills, and others.  The beneficiaries should not pay these types of bills out of pocket. Instead, some time should pass to ensure that we have a full idea of all the outstanding final bills.  Then, the Personal Representative or the Trustee will determine which final bills are valid, and how to submit payment.

What Happens to the Decedent’s Debts and Mortgage?

The personal representative of the estate, or the Trustee of the Trust, will handle the payment of the decedent’s administrative expenses and final bills.  Some of the decedent’s assets may have to be liquidated in order to pay some or all of the outstanding debts and liabilities.

One misconception people have is that debts die with the deceased person.  This may not always be the case.  Creditors may have greater rights in an estate or trust administration than a beneficiary, so it is important to discuss these issues with an attorney.  Contact our attorneys at Legacy Protection Lawyers, LLP, to discuss this with an experienced probate/trust administration attorney.

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