I’m somewhat belatedly working on how my estate will be handled once I shuffle off the proverbial mortal coil, and one of the issues that’s been of concern is that the house I live in has a mortgage. Then I stumbled across the Garn-St. Germain Act. Since my mind tends to curl up into a fetal position and whimper whenever it encounters legalese (and doubly so when said legalese involves financial matters), I haven’t read the act itself; but I do want to see if I understand it correctly as it applies to my situation.
My impression is that according to the act, when a mortgaged property is left to a relative (in this case, one or both of my daughters):
- The lender cannot enforce a “due on sale” clause;
- The lender cannot force the heir(s) to go through an application process;
- The lender must allow the heir(s) to assume the mortgage “as is,” with the existing balance, interest rate, number of payments remaining &c.
All of this assumes that the executor keeps the mortgage current (which will be specified, including the source of funds). But overall, the cynic in me sees this as a “too good to be true, so it probably isn’t” scenario; so I turn to the Dope to see if I have it right — and specifically, whether I need to put the property in a trust beforehand — or to suggest alternatives if I don’t.
As always, thanks in advance for any insights.
I think you have it right, and you likely do not have to put the property in a trust to take advantage. But why not ask the estate lawyer who created your estate plan to be certain? There may be state or local issues involved that the lawyer would be aware of. Putting the property in a trust is helpful in that the property will transfer without going through probate (that comes at the expense of setting up the trust), but you’ve probably made these decisions when you created your estate plan in the first place.
Or am I misreading this and you are only now creating your estate plan? If so, the estate lawyer will answer your questions.
And this is beyond the factual question (so ignore it if it’s not appropriate), but I assume that you have talked to your daughters about this and at least one of them wants the house and mortgage? Do they both want the house and mortgage as co-owners? Do they know the mortgage payment (plus property taxes and insurance) and the time left on the mortgage?
I believe that’s correct. The heir becomes the mortgage holder with just some basic paperwork. In case you’re not aware, you can actually avoid the house going through probate by filing a Transfer on Death Deed with the county. When you die, the county would re-deed the property in the name of whoever is specified in the ToDD. The ToDD can simplify the transfer of property since it doesn’t go through the probate process.
However, you should carefully consider whether or not to leave the house to your heirs. Large assets are commonly a source of contention that can cause rifts between family members. Putting multiple heirs on the deed would almost certainly create complications, as each person may have different ideas about what to do with the house. To avoid this, you could state that the house is to be sold and the proceeds be added to the estate to be split among the heirs.
[Moderating]
Since you’re looking for how it relates to your own situation, that makes this legal advice, which goes in IMHO. Moving.
Apologies for the delay in replying — among other things, having a Lit degree compels me to review & edit ad nauseam. Anyway …
@Dag_Otto and @filmore, while the question I intended to ask was “what can I do” rather than “what should I do,” I appreciate your observations. And the points that you raised are not unknown to me. Since I have one house and two heirs, the obvious thing to do would be to sell it and distribute the proceeds; but the idea of being able to pass on a house that a) is valued at more than five times the mortgage balance, b) has an interest rate about half the going rate, and c) doesn’t need to be “spruced up” for sale has a definite appeal. And there would be a perverse post-mortem satisfaction in being able to stick it to the lender, which has a reputation of screwing over their borrowers. Last I looked, one daughter was interested in taking over the property, the other not so much (and definitely would not want to live here if I died in the house). So there will be some discussion in the soon future.
One thing that causes me concern is that the house comprises the majority of what I have to leave. It wasn’t always so: the house would have actually been paid off, and my other assets would be a lot more robust, were it not for my younger daughter’s lengthy (and ongoing) battle with Crohn’s. But I dasn’t go there, lest my opinions on Crohn’s — and “the greatest healthcare system in the world” — lead me to use language that would get me banned from the Pit.
So again, thanks. You’ve given me food for thought.