There are frequent instances in Florida probate cases where real property (land or a home) is encumbered by a mortgage and may go into foreclosure if the property is not sold or refinanced. In these situations, beneficiaries, heirs, and personal representatives are concerned about what may happen to the property that is encumbered by a mortgage if the property is involved in a probate proceeding. There are ways to deal with a mortgage in a Florida probate administration and a Florida probate attorney may be able to assist you. If you are a beneficiary or named personal representative in a will, and you are concerned about a mortgage on property owned by the decedent, contact an attorney right away.

What options are available if property of the probate estate is encumbered by a mortgage?

If real property that is part of the probate estate is encumbered by a mortgage, there are only two options available. The first is that the beneficiaries or heirs that are to receive the property can refinance the property once the property is transferred to them. This tactic is usually best available when real property is to be transferred to one beneficiary or heir. The person the property is transferred to must be financially able to refinance the property or pay off the mortgage. Usually if property is transferred to multiple beneficiaries or heirs, refinancing and getting another mortgage does not make sense.

The second option is to sell the property. The timing of the sale depends upon the type of probate case and whether the property is homestead of the decedent. If the property is involved in a summary administration, the property can be sold after it is transferred through the order of summary administration to the beneficiaries or heirs. Then the recipients of the property can sell it themselves. The sale of the property must wait until after it is transferred because there is no personal representative appointed in a summary administration.

In a formal administration, the personal representative may be able to sell the property encumbered by a mortgage, if the property is not homestead. Under section 733.612, Florida Statutes, a personal representative has the power to sell real property, as long as the sale of the property is not prohibited in the decedent’s will. It is important to remember that if the property was the decedent’s homestead, and if the property is being transferred to the decedent’s spouse or lineal descendants, the homestead property may not be able to be sold by the personal representative.  A Florida probate attorney will be able to advise you on options available for homestead property. 

Who makes the payments on the mortgage while the property is in probate?

Now that we know what can be happen with the real property to resolve the issue of the mortgage, what happens in the interim period? Obviously, if payments are not being made, the mortgage holder will foreclose on the property and that is to be avoided. If the property is involved in a summary administration, there is little that can be done, other than if the beneficiaries or heirs make the mortgage payments while the property is in summary administration. Usually, people are not willing to make that sacrifice and the payments are not made in a summary administration. This increases the risk of foreclosure. This is a negative aspect of a summary administration in probate if property of the estate is encumbered by a mortgage.

The alternative is a formal administration. If there are other assets of the estate, such as bank accounts, investments, or other property that can be sold (and is authorized to be sold in the will), a personal representative can make the mortgage payments. This occurs in the interim period and the personal representative will need to sell the property as soon as possible to minimize the payments required to prevent foreclosure. This is the core reason that a formal administration may be more effective when real property of the probate estate is encumbered by a mortgage. However, as with most things in probate, this is not always the case, so talking with an attorney is the best way to determine the most effective course of action for property encumbered with a mortgage.

Contact us today to schedule a free consultation.

If you have recently lost a loved one or think that there is property that needs to be probated, contact us today to schedule a free consultation. During our consultation, one of our attorneys will discuss the assets that need to be probated and methods that can be used to preserve them. If property is encumbered by a mortgage, we can discuss the options present to help preserve it and ultimately either sell or distribute the property according to Florida law or the decedent’s will. If the property is already in foreclosure, one of our attorneys will be able to review the probate case and foreclosure documents to see if there are options to probate the property while also resolving the foreclosure issue. Contact us today to schedule the free consultation.