What happens to an insolvent estate?

[Deleted]

I asked a question about an inherited house about 2 months ago. Since then I have spoken to 2 lawyers and 2 accountants. They agree with the feelings of the board that we should let the house fall into foreclosure. Honestly, with each layer of what needs to be done and how much it costs, our situation gets worse. Since the estate can’t be closed for months, we can’t afford to pay the bills of the estate.

What will happen once the estate stops paying the mortgage of the deceased? Will they ask us to sell her personal possessions? It is just a car and furniture, nothing of the value that will pay off the loans.

The only creditors she owes are the 2 banks who hold her first mortgage and HELOC.

[thyme4change]

I take it the house is underwater?

Okay - now that I posted that, it seems like a poor choice of words. Upside-down? Okay, that also seems weird.

Are the loans higher than the probable sales price?

[Deleted]

The house is underwater 25%.

[thyme4change]

I know nothing about estates. Are you in a recourse state? If not, then they couldn't make her sell her house and jewelry if she were alive, so I doubt they can sue the estate. If you are in a recourse state - they might sue the estate for the difference, but I'm not sure how that works. Maybe Bonnap will come and tell her experience. I know her mother passed last year leaving at least one house that was drastically under water.

[Deleted]

Depends on whether the state allows the mortgage company to sue for the difference between what they sell the house for versus the mortgage. If they can sue, then the estate would have to defend it's self. It the estate has no money or property, then I doubt that much would happen but i don't know.

[swamp]

The executor sells what he can, pays the creditors what he can, and then the creditors get nothing. Happens all the time.

[Deleted]

Recourse state. The estate doesn't have anything left, but a car (2004) and furniture.

[CCL]

So why not just sell the car and furniture and apply the money toward the debt?

[Deleted]

Mar 25, 2011 17:29:16 GMT -5 CCL said:

So why not just sell the car and furniture and apply the money toward the debt?

I want to make sure we are doing things right. It seems like if she was alive she wouldn't have to sell her furniture or car to pay a mortgage, even in a recourse state. It is a lot of work and there is nothing of real value. It won't make a dent in the mortgage debt.

[Deleted]

She was a boomer and not very old. I have dug everywhere. If she had an asset at some time she borrowed against it.

[TD2K]

Hi Pooks. I think the advice you are getting from the lawyers to let the house go into foreclosure is good. There's no point to you paying these bills (unless you want to) because it's money you obviously wont' get back from the estate. As far as the furniture and vehicle, you should pose this question to the attorneys. The vehicle, depending how it was titled, likely has to be sold and distributed among the creditors. The creditors may not care about the furniture (depending what we are talking about, I'm assuming it's not very valuable) but you need to find out legally where you stand.

Family members don't automatically become liable for any outstanding debts unless they have co-signed a loan for example. Simply being related to the deceased does not make you liable for the debts though some creditors will try to get family members to pay.

[Deleted]

Mar 25, 2011 18:46:11 GMT -5 CCL said:

I definitely wouldn't mingle any of my own money with the estate's.

Yeah some money has already gone in, but that is lost. I know I won't see it again.

[TheOtherMe]

Mar 25, 2011 18:38:20 GMT -5 TD2K said:

Family members don't automatically become liable for any outstanding debts unless they have co-signed a loan for example. Simply being related to the deceased does not make you liable for the debts though some creditors will try to get family members to pay.

Be on the watch for bill collectors who will try to tell you that you are liable for debts.

[Deleted]

I just went through this after my Ex died. Although he didn't have any real estate, he had minimal assets and was deeply in debt. He was in FL, we live in KS and I'm not a lawyer, but FWIW: I spoke with a lawyer here and asked if I needed to open an estate and have it probated. (You probably know what this means but for everyone else: a person called the Administrator or Administratrix is named to find out the creditors, determine the assets, sell them in an orderly manner, pay the debts and pay the heirs anything left over.)

He said that we didn't need to open an estate. If a creditor contacted us about his debts we should tell them that we aren't opening an estate and that any creditor has the legal right to open and probate an estate but there won't be enough assets to make it worthwhile. I passed that on to DS and to my Ex's sister. So far we haven't heard from any creditors.

So, in this case, the bank may have to open an estate to get the house and the car sold and get what cash they can out of it. If the car was financed, the car loan company and the mortgage companies will have to figure out who gets what.

[Deleted]

The estate has already been set up and in all honesty it has been run very poorly by the executor. There has been a lot of mixing of funds and running expenses through the estate that shouldn't have been. It is a mess. Now at the end of the day the estate only had $7,000 of the deceased's money and has spent $18,000 in estate expenses (funeral, mortgage, medical and other bills), but making sense of the transaction, where funeral costs were paid out of a relative's personal accounts and a huge non-estate expense was paid out of the estate's account is messy.

One last thing I might try before letting the house go to foreclosure is negotiating down the payoff of the HELOC. Does anyone think I would have any luck with that? From my understanding, if the house goes to foreclosure the HELOC is the last thing to be paid. The house could sell for almost the exact amount of the first mortgage, so after the expenses that the first mortgage lender would tack on, there wouldn't be any money to pay the HELOC (even with an estate sale of all her stuff).

I could then keep the house, assume the first loan, and pay off the HELOC for the negotiated amount. The HELOC lender would get some of its' money which is better than it would do in a foreclosure.

[TD2K]

The estate has already been set up and in all honesty it has been run very poorly by the executor. There has been a lot of mixing of funds and running expenses through the estate that shouldn't have been.

The executor is going to have fun cleaning up this mess.

One last thing I might try before letting the house go to foreclosure is negotiating down the payoff of the HELOC.

They might well. At the start of the housing crisis banks from what I've heard didn't seem very willing to negoiate. Now, with all the houses that have gone into foreclosure the last thing they likely want is another house that they know they are going to lose money on it and have to market it. The HELOC is essentially a second mortgage so they get paid only after the first mortgage holder has been paid in full.