Rachel came to my office very angry. She just lost her mother a month ago. While her mom had no Will, she also had no spouse nor other children. By law, Rachel, as the only child, would inherit all of her mom’s assets.
However, when she went to the bank with her mom’s death certificate, they demanded that she provide the probate certificate issued by the Court. Without it, they cannot let her access her mom’s funds. While that seemed fair to Rachel, what happened next appeared outrageous. Upon being notified of her mom’s death, the bank immediately froze all of her mom’s accounts, meaning the mortgage payments will no longer be automatically deducted from the checking account every month.
This would put the mortgage into default, giving the bank the authority to sell the property within 15 days… although banks typically wait 6 months to a year before starting a power of sale.
My mom passed away – who pays her mortgage now?
Rachel asked me this question. Herself? She doesn’t have enough funds. Well, the official answer is that her mom’s estate is supposed to pay for it. So if there is cash left in her mom’s bank account, those funds can be accessed to pay for the mortgage. However, the bank, out of its standard procedure and fear of liability, will always freeze all of the deceased’s accounts right after they were notified that the deceased passed away. This is to prevent any unauthorized use of the inheritance. They would not allow funds to be used for mortgage payments until they see probate approval from the Court appointing Rachel as executor.
I calmed Rachel down. Although probate without a Will can take a long time, given our experience and expertise, we can typically obtain probate approval in 6 months. During this time, we will talk with the bank on Rachel’s behalf and delay the power of sale while we wait for approval.
Rachel wondered if she could ask her well-off uncle to pay for the mortgage in the meantime, and then reimburse the uncle from the estate. I told Rachel that she can try, but the mortgage being in default is not just because of missed payments. The mortgage was also income-tested against her mom’s income. Since Rachel doesn’t have the same income as her mom, even if she can find the funds to pay for the monthly payments, the bank may not agree to let her maintain the mortgage in good standing, effectively preventing interest penalties and power of sale.
The best course of action is to obtain probate approval as soon as possible while maintaining open communication with the bank. Thankfully, because Rachel hired us one month after her mom’s passing, we received approval within 6 months. Rachel applied for a new mortgage and used the funds to pay off the old one. Now, Rachel can keep the house stress-free.
Alternatively, if Rachel didn’t qualify for a new mortgage, she could also sell the house herself. She can usually sell it for a much higher price than the banks could, and since the bank would not be involved in the sale, she doesn’t need to pay for their legal and realtor fees.
Remember, while assets can be given to your children, debts cannot be given. Probate should always be done immediately after your loved one’s passing by an experienced law firm, especially when there is a mortgage on the estate property.
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