There’s plenty of advice out there for dealing with an underwater house via New York bankruptcy, but it’s another question entirely when you inherit one. Given that so many underwater homeowners are older Americans, it’s not as unusual a situation as one might think. So the question arises: What do you do if you inherit an underwater home?
The first step—if it’s worth calling it that—is to not panic. Deceased relatives cannot force you to take on their debts against your will. Rather the first thing to happen is that the house will pass to the relative’s (lawyers call them “decedents”) estate. The process (and terminology) is somewhat similar to bankruptcy. Unlike bankruptcy, the decedent’s estate is usually not managed by a trustee but by an “executor” who is either another relative or someone else named in the decedent’s will. The executor disposes of the decedent’s estate according to his or her wishes or the laws of the state.
So, to begin with, the underwater house passes to the decedent’s estate, and then whether there’s a will involved or not, let’s say you’re the one (or one of the ones) who’s slated to inherit the house. Because the house secures the mortgage, if you decide to keep the house, you will assume the mortgage. For example, you can move in yourself or rent it out in the hopes of making money off it. Beware that rental properties don’t get all the benefits that owner-occupiers do.
If you don’t want the house, you can disclaim your interest in it. Then the house will pass to your relatives as though you had died. If you have children, this means they would end up with an underwater home. They might not want that, or they might not be old enough to handle it, so if they disclaim it too, and all their relatives have disclaimed it, etc., then the house will revert to the lending bank’s ownership.
Alternatively, you might co-own the home with the decedent. If true, then the decedent’s interest in the home passes to his or her relatives along the same process described above, but your interest in the house will remain. This might mean that you’ll have to take up the slack for any missed payments before the decedent’s estate is closed.
If the house does revert to the lender, then in all likelihood the rest of the decedent’s estate will be liquidated to satisfy the mortgage. The bad news is that you might end up with little or no inheritance at all, save a few special gifts and unmovable goods that the lender doesn’t want.
Inheriting an underwater home from a loved one is probably a bitter pill to swallow, but there are ways to prevent it from happening and maximizing your inheritance before a death occurs. If you’re concerned about inheriting or passing an underwater home to your family, talk to a New York bankruptcy lawyer to explore your options.
For answers to more questions about underwater houses, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy automatic stay Bruce Weiner for a free initial consultation.
