What happens a mortgage when a person dies?

"I'm sure I'm missing something but I don't see why Mary would make any payments to the bank out of her own assets - she doesn't owe the bank anything."


Mary wants to stay/keep/live in the house.

mf
 
From what has been posted.

1. Mortgage is tied to the property
Where a testator is disposing of property which is the subject of a charge or mortgage, then, unless the will says otherwise, the property bequeathed will bear the mortgage. I reckon that includes the arrears.
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2. Mary is the beneficiary of the property, and by default, the mortgage. So making payments on the mortgage reduces her debt.

3.
If a testator dies with liabilities outstanding then surely they are discharged out of the assets of the estate as a whole?
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Not in this case it would seem... see Item 1.

4.
But does Paddy not get the residue
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He did.
 
I don't think that's quite right.

Section 47 of the Succession Act basically says that there is a presumption that any sums charged on a property are primarily payable out of that property. However, Mary doesn't inherit the mortgage debt - she is simply primarily liable for discharging that debt out of the inherited property. So, as executor, she can either sell the property and clear the loan or she can raise the money elsewhere to do so and take the benefit of the property free of any encumbrance.

In any event, the assets of the estate cannot be distributed until the liabilities of the estate have been settled. If Mary is not in a position to raise the necessary funds to clear the mortgage and the proceeds of the sale of the property are insufficient to do so, then presumably the bank can look to the balance of the estate in settlement of the outstanding debt. That's why it seems to me that Mary can't determine the residue of the estate, which Paddy is due to inherit, until the property and liabilities of the estate have been dealt with.

As things stand, it appears that Mary is discharging the liabilities of be estate (plus interest) out of her own assets. However, the bank is still perfectly entitled to enforce its security interest and seek possession of the property and it will almost certainly do so. If the sales proceeds are insufficient to discharge the loan then Mary's mortgage payments on behalf of the estate will be irrecoverable.

I may well be missing something here but that's how I see the situation.
 
Again, based on what has already been posted...

..the assets of the estate cannot be distributed until the liabilities of the estate have been settled
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Mortgage is not a liability on the estate, it's attached to the property.

the proceeds of the sale of the property are insufficient to do so
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on the information given, the property value is well in excess of the mortgage.

as executor, she can either sell the property and clear the loan
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Also has the option of putting it into her name via Deed of Assent.

...the bank is still perfectly entitled to enforce its security interest and seek possession of the property and it will almost certainly do so...
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Just curious now... how long do you think that would that take?
 
No, the loan is a liability of the estate that is secured on the property by way of a mortgage and is primarily payable out of the secured property. The debt will still exist regardless of what happens to the property.

I appreciate that we are told that the property currently has a value well in excess of the mortgage - this may or may not turn out to be case on the sale of the property. For example, the house might be burnt to the ground and in such circumstances the value of the property might drop significantly. However, the debt will remain.

No, the executor cannot disburse the assets of the estate until all liabilities are settled. If Mary did execute a deed as suggested, this would not nullify or disturb the bank's charge over the property.

Does it matter how long it would take the bank to enforce their security? I'm not sure I follow your point here.
 
Sarenco, the executrix can do as she wishes. She can distribute without paying any creditor if she wants.
 
The debt will still exist regardless of what happens to the property.
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No one is saying the debt doesn't exist or that the money isn't owed to the bank. What is being said is that other assets of the estate are not used to clear the debt.

If Mary did execute a deed as suggested, this would not nullify or disturb the bank's charge over the property
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Again, I don't think anyone is suggesting that the debt 'disappears'.

the value of the property might drop significantly
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For the sake of simplicity let's just accept at face value what we are told, that the property is valued at twice the outstanding mortgage.

Does it matter how long it would take the bank to enforce their security
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Well, yes I think it does...I'm wondering how a court would look at the case where the mortgage has been regularly paid for x no. of years and now a judge is being asked to grant a repossession order?
 
Fair enough but any such distribution will presumably be void as against the estate's creditors and in any event that won't affect the bank's security. If the assets are subsequently dissipated, personal liability may also become an issue.
 
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Thirsty said:
No one is saying the debt doesn't exist or that the money isn't owed to the bank. What is being said is that other assets of the estate are not used to clear the debt.

Again, I don't think anyone is suggesting that the debt 'disappears'.

For the sake of simplicity let's just accept at face value what we are told, that the property is valued at twice the outstanding mortgage.

Well, yes I think it does...I'm wondering how a court would look at the case where the mortgage has been regularly paid for x no. of years and now a judge is being asked to grant a repossession order?
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I think your first point is essentially where we are in disagreement. You seem to be implying that the debt is only payable out of the sales proceeds of the property and if this is insufficient the balance of the debt is extinguished and is not payable out of the remaining assets of be estate. That's not how I read Section 47.

I'm not saying that Mary can't meet the liabilities of the estate from her own resources, I'm simply saying she is taking on unnecessary risk in doing so.

I'm not doubting what we are told in terms of the fact pattern - I'm simply making the point that circumstances can change.

I take your point that a judge is unlikely to be in a hurry to grant a possession order in these circumstances but while Mary may not have to vacate the property in short order she still won't acquire title to the property until the mortgage is discharged.
 
debt is only payable out of the sales proceeds of the property
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that's not me 'implying' it ... that's from mf1's post and since that person is qualified in this area I'm inclined to accept it.

..if this is insufficient..
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again, lets not make assumptions, we are told that the value of the property exceeds the mortgage, lets take it that that is the case.
I'm simply saying she is taking on unnecessary risk in doing so.
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What risk? again, leaving out assumptions about the value of property. Mary is the beneficiary, the property is hers, subject to the mortgage which is being paid and from what you say, it appears to be worth doing so as "a judge is unlikely to be in a hurry to grant a possession order"
she still won't acquire title to the property until the mortgage is discharged.
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But if the property is put into her name via a deed of assent, then she's in no worse a position than every other mortgage holder in the country?
 
I don't think that is actually what mf1 said but perhaps s/he will clarify his/her view.

In any event, I don't agree that the effect of Section 47 is that the mortgage debt is only payable out of the sales proceeds of the secured property. It is certainly primarily payable out of that property but if this is insufficient to discharge the debt, the balance of the estate's assets come into play.

Fair enough, if the property could somehow be guaranteed to always have a value in excess of the outstanding loan amount then I wouldn't see any risk with Mary making ongoing mortgage repayments on behalf of the estate or transferring the property into her own name.
 
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Having considered the position more fully (and being in the office rather than stuck in traffic on a Bank Holiday Friday but getting bored because everyone else has gone home!)……

I think that because this is a solvent, rather than insolvent, estate that Section 47 means that the debt attaches to the property solely. The residue is untouched. I think it would be different if the estate was insolvent.

Mary is the executor. Her function and obligation is to deal with the estate – part of which involves paying off the deceased’s debts.


The mortgage debt essentially crystallised on the death of the mortgagor and the Bank are entitled to issue proceedings against Mary, as executor of the estate. The Statute of Limitations imposes a dead line of, I think, the two years that 44brendan refers to, within which the bank must bring proceedings or risk having the debt statute barred.


Ideally, for Mary, the bank would agree to allow her to assume the responsibilities of the deceased under the mortgage, by formal deed and then they, the bank, would not have a time pressure. Their contract would be with Mary. But because it is Danske and they want out, and they want to recover their funds, they very likely will issue proceedings against the estate. I think, not sure, that this would bring the matter into the Probate Court rather than repossession court so a lot less sympathy .


And we don’t know if Mary is living in the house. I think myself it is a bit fanciful for Mary to think she can just pay the mortgage and it will all be grand! She should be considering if she wants to pay the bank’s costs before deciding not to sell the house to discharge the mortgage.

mf
 
Hi mf

Thanks for the follow up.

This is probably all a bit academic, but Section 47(3) provides as follows:

"Nothing in this section affects the right of a person entitled to the charge to obtain payment or satisfaction thereof either out of the other assets of the deceased or otherwise."

As such, if it turns out that the proceeds from the sale of the house are insufficient to discharge the mortgage, perhaps because of a title or planning issue, it seems pretty clear to me that Danske could seek recovery from the balance of the estate's assets. If this was not the case, the effect of Section 47 would be to effectively turn a mortgage into a non-recourse loan on the demise of a person who has left a valid will but not a person who dies intestate.

In any event, I agree with your conclusion that it is a bit fanciful for Mary to think she can just pay the mortgage of the deceased and all will be grand. This could prove to be a very expensive decision.
 
they very likely will issue proceedings against the estate. I think, not sure, that this would bring the matter into the Probate Court rather than repossession court
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Thanks mf - again from curiosity how long is it likely to take to get to a court hearing?
 
Thirsty said:
Thanks mf - again from curiosity how long is it likely to take to get to a court hearing?
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Umm. I have no experience in this - I'd be taking Counsel's advice!

In broad terms,

If I was acting for the bank, I'd be encouraging them to get moving on it so that they don't run out of time. I would certainly expect to be in Court in October this year.

I suspect it would be a Probate action, against the Estate. Probably in the High Court.

If I was acting for the executor , I'd be saying, be clear about this, you stand to be made personally responsible for any costs incurred - mind you, given that she is the major beneficiary, it would be her own money she'd be spending.

I don't think Mary has any legal defence to the bank's application so, frankly, if the bank do proceed, she is on a hiding to nothing.

It would be interesting to hear Mary's take on all of this - is it just, oh , this is a good idea, or, my only chance to own a house, or, someone said I should or, actually, no idea why I'm doing this?

mf
 
mf1 said:
Umm. I have no experience in this - I'd be taking Counsel's advice!

If I was acting for the executor , I'd be saying, be clear about this, you stand to be made personally responsible for any costs incurred - mind you, given that she is the major beneficiary, it would be her own money she'd be spending.
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Yikedy yikes. Mary would want to cop on and sort it out !
 
hm... if it was any other bank would they have a problem transferring the mortgage to Mary? Is there any thing legally preventing that from happening? (For the sake of argument lets assume Mary has the ability to repay).
 
Thirsty said:
hm... if it was any other bank would they have a problem transferring the mortgage to Mary? Is there any thing legally preventing that from happening? (For the sake of argument lets assume Mary has the ability to repay).
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Well, if Mary has the ability to repay the mortgage then she presumably should have no problem getting a mortgage from another lender for the same amount and term. No?
 
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