What happens when a family member passes away while owning real estate? This is a common question in Cary, North Carolina, and the answer depends on a number of factors. Today we'll discuss several things you should consider as it relates to property ownership following a death in the family.
Let's start with an example. Your parents or grandparents pass away and they leave behind a piece of land. As is often the case, the land is encumbered by a deed of trust (aka a mortgage), or other liens. You knew that you'd inherit this piece of property upon their death, but you didn't realize that you also inherited the debts attached to the land that you've now inherited.
Do you have to pay the mortgage?
One of the first questions we are often asked is whether or not you have to pay the mortgage or whether you can use the funds in the estate to pay the mortgage. The answer to both of those questions is “no.”
While you cannot use funds in the estate for the purpose of paying real estate expenses (with the exception of Court approval or if the decedent had a will that instructs otherwise), there are repercussions for not paying the mortgage, such as a foreclosure.
Once your family member passes, you own the property. As such, you must use your own funds to pay any debts of the estate. This includes the mortgage, county property tax, insurance, and utilities. However, if there is a mortgage, the lender likely will take care of the next payment for the home insurance and the property tax bill, which is published between July and September in a given year (this varies per county).
That said, the lender will naturally expect that the mortgage will continue to be paid and will take action against the real estate if it is not paid beyond the next payment. Any property or real estate is collateral for the loan that is memorialized in the mortgage, and if the loan is not paid, the lender will want to take back the real estate through a foreclosure action. This is true even though you inherited the real estate the moment your parent or grandparent, whoever the original owner was, passed away.
Still confused? Ownership of property after death can be quite complicated. Although you own the real estate, you do not own the debt. Furthermore, even though you own the real estate, the lender can also foreclose and take it back.
So, what are your options? Let's discuss.
Are there any debts or claims against the estate?
One item to consider is whether or not your family had any other debts or claims against their estate. If so, these debts must be dealt with, fairly quickly. Common examples of debts of the estate include, but are not limited to car payments, credit card bills, unpaid bills, and even the funeral bill for the recently deceased.
If the recently deceased family member also left behind a bank account or an insurance policy to pay for the funeral, then these accounts are easily accessible and can be used to pay off these debts.
However, if the only asset of the estate is the real property, then the real property can be brought into the estate and sold so that the proceeds can be used to pay off the credit card bills and reimburse whoever paid for the funeral.
Can you sell Real Estate as an Administrator or Executor of the Estate?
If you are the administrator or executor of the estate, and you find yourself in a situation in which you need to sell the real estate (to pay any debts or because you are uninterested in ownership of property after death of a family member in Cary, NC), you should know that you are not automatically allowed to put the real estate on the market. In fact, there are specific steps you must take prior to entering into a contract to even list the property.
How do you get permission to sell real property that belonged to your family members before their passing?
The easiest and most straightforward option to sell real estate after a family member has passed is if the will specifically instructs the executor to sell the real estate. This is usually the case if there is no fair and even way to divide the real estate amongst the family members or if the decedent thought it best to divide proceeds of the sale rather than leave behind real estate that may not be centrally located amongst their heirs.
In this situation, when directed in the will, you do not need the permission of the court. Using the authority granted in the will, you may simply call a real estate agent and list the property for sale.
That said, if the will does not grant you permission to sell the real estate, you must seek permission from the Clerk of Court. In this scenario, you must commence a special proceeding in the clerk’s office and petition to sell the real property.
How do you get Court permission to sell real estate?
If the dearly departed's will has not granted you permission to sell the property in question, then you must ask the court for permission to bring the real estate into the estate. A petition must be filed in the county where the real estate is located. For example, if the property is located in Cary, North Carolina, then any ownership of property after death petitions would need to be filed in Wake County.
A well-worded Petition to bring property into the estate should include the full property description of the real estate (which you can find on the most recent deed conveying the real estate). It must also identify all the heirs who have also inherited a portion of the real estate and include their addresses. Furthermore, you will need to explain why it is necessary to take this real estate out of the hands of you and all the other heirs and sell it for the benefit of the estate. Much like any other lawsuit, a petition in the special proceedings division of court requires that you swear out a summons and have the petition and the summons served to all interested parties.
Who are Other Interested Parties as it relates to Ownership of Property after death of a family member?
In the case of ownership of property after death, the interested parties are all the heirs who inherited a portion of the real estate. For example, this might include you and each of your siblings who inherited the real estate property from your parents upon their passing. If you have a very large family, or if the property was inherited by a generation above yours, you may have the task of identifying all the heirs and even having to appoint a guardian for the unknown heirs. Additionally, if some of the heirs are minor children, they need a guardian as well.
Please see one of our other blogs featuring guardians or guardians ad litem who would stand in the shoes of the unknown heirs or minor children.
Get the best deal on Your Real Estate
Once the court grants you permission to bring the property into the estate, you are then permitted to put it on the market. Work with one of our experienced team members or real estate agent colleagues to get the best offer on your property.
After the agent finds you a competitive offer, the Court will then offer to take additional steps to make sure that you got the best deal and will allow other prospective purchasers to bid on the property. This guarantees that you get top dollar for the real estate, which you can use to pay off debts of the estate. Any funds that are left over get distributed to you and the other heirs.
If you find yourself in a situation where you are faced with ownership of property after death in Cary, NC, it is always best to consult with an attorney. Be warned that there are many opportunists in the world who are looking for a property such as yours and they are eager to offer you a very low amount to purchase the real estate. While it may be tempting to take one of these low offers just so you don’t have to navigate the situation of bringing property into an estate. You are always better off going through the court system and getting the best deal on your real estate. Let us help you do just that!