The loss of a loved one is devastating enough, but when that loss is coupled with the prospect of losing the family home, inherited real estate, which is typically the most valuable asset in these situations both financially and emotionally, the burden can almost be too much.
Massachusetts is a non-judicial foreclosure state. In many cases, delinquent borrowers receive little more than a notice of acceleration and a notice of sale before the property is transferred at auction. New Hampshire is a judicial foreclosure state, so before the bank takes the property back, it must go through the courts.
With regard to inherited real estate that’s in foreclosure, many time, the owner was already behind on payments before the heirs took over the house. Estate administrators often make the problem worse, either because they erroneously assume that the bank cannot foreclose on a property that is in probate, they forget to make the payments, or they do not have the funds because the estate is tied up in court.
What to Do About Inherited Real Estate
Opinions vary greatly as to whether or not banks really want to foreclose on property. Bankers will say they do not want the property and they are only interested in the money, while housing advocates contend that banks target certain properties for expedited foreclosure and will take adverse action at the drop of a pin.
Things to Consider with Inherited Real Estate
The lender’s side may be an unknown, but borrowers do have options. The first thing to do is ensure that you are legally the borrower, because not all promissory notes automatically change title from person to estate. Once that technicality is over, there are several avenues:
Refinance: If the property has equity and the borrower has good credit, the existing lender can be paid off in a lump sum with a new loan, and the borrower may even have a little cash left over.
Loan Modification: If the property has no equity or the borrower has poor credit, the bank may lower the interest rate and recapitalize the delinquent amount back into the unpaid principal balance. In layman’s terms, the bank will call off the sale and allow borrowers to start over.
Short Sale: If there is too much delinquency for a refinance or loan modification, the bank may allow the borrower to sell the property for less than it’s worth and eat the difference. A realtor can help borrowers facilitate these sales.
Deed in Lieu of Foreclosure: This process is essentially voluntary and agreed foreclosure; deed in lieu looks a little better on credit reports than straight foreclosure.
Cash for Keys: This procedure, which usually involves cleaning up the property after foreclosure in exchange for a little cash, falls into the “better than nothing” category.
Short sales are usually a great option for pre-foreclosure inherited properties, because the heirs liquidate the house and simultaneously get rid of the bank.
Foreclosure procedures are daunting, but they are not the end of the world. Contact us today to learn more about short sales and other foreclosure, inherited real estate, alternatives.
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