What happens to an insolvent estate with a home and mortgage?

alrightali23

alrightali23

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Hello, I am looking for some advice as I have no idea what can happen in the following situation.
My father passed away recently without a will. He was in arrears on his mortgage and I believe the mortgage company spent the last year trying to get him to surrender the house. On legal advice, I have no intention of applying for administration rights to the estate since it’s insolvent. The mortgage company are ignoring me after I reported his death. I understand i am not authorised to know anything about his account. But there are tenants in the house who were renting it from my father and I don’t know what to tell them. My Dad’s bank account was frozen so they have nowhere to pay the rent into.
What can / will the mortgage company do? Do they have to apply for a grant of administration themselves in order to sell it? I know these things take time, but I need to know what will happen. I don’t want anything, just to be able to grieve my father without this added stress.
Thanks in advance.
 
I am sorry to hear about your father's death.

Are you certain that your father's estate is insolvent? The fact that he was in arrears with his mortgage payments does not necessarily mean that his estage is insolvent.

If your father's estate really is insolvent — i.e. if all of his assets, including the house, would not cover his debts — then the situation is very messy. Your best course may be just to abandon the estate; there's nothing in it for you. You'll have to pay for his funeral yourself, but you've probably already done that. But don't do this unless you are absolutely sure about the insolvency; it may pay you to look very closely at your father's affairs, and to consider whether there might be any possibility of challenging any of the claims against his estate, or of negotiating a settlement of them for a lower amount than is due.

If you do decide you have to walk away, then any of your father's creditors can apply for a grant of administration so that they can collect his assets, sell them, and pay his debts at least in part. The lender who has a mortgage over the house will probably do this, since it's the only way they can recover any money.

You should tell the tenants what the situation is. They should not pay the rent to you (and if they offer to you should not accept). If a creditor does take out a grant of probate they can (and will) start collecting the rent and will look for arrears; it would be wise for the tenants to set the rent payments aside so they can meet this demand when it comes. The creditor who takes out a grant will also serve notice to terminate the tenancy so they can sell the house.

If no creditor applies to take out a grant of probate, the tenants can stay in the house indefinitely (since nobody has a right to evict them) without paying rent over to anybody (since nobody has a right to demand it). If this state of affairs continues for 12 years the tenants can then set in train the steps needed to assert title to the house on the basis of adverse possession.
 
Where is the added stress coming from?

Just walk away from it if that is what you want to do.

Most people would want to wind up their father's estate in an orderly fashion.
Sell the house.
Pay off the mortgage.
If there is anything left over, pay the debts.

But you have had legal advice to do nothing. So do nothing.

And I suppose, there is some risk attaching to it in that a creditor might hassle you.

The lender will have to go to court to get an order for possession or as it's let out, they may be able to appoint a Receiver. But that is their problem and not yours.
 
You need to check all of your late father's affairs.

There may well have been a mortgage protection policy in place, which should pay off any outstanding amounts due on the mortgage.

His estate would then more than likely have the market value of the house to pay off any other debts, with the balance left to be distributed under intestacy rules.
 
Thanks all for the responses. The estate is definitely insolvent. He had no life assurance policy and only credit card debt with his bank. I do think walking away is the best option for us. We had to borrow money to pay for the funeral and I know there’s little hope of getting any of that back.
 
Sorry for your loss. Just to clarify when you say insolvent are you saying he owed more on the mortgage than the house is presently worth?
 
Yes, insolvent meaning he owes more on the mortgage than the house is worth, as well as being in arrears for about 2 years. We’re 100% sure it’s insolvent. He kept every single document he ever got, including his communion certificate from the 50s. We’ve been through everything.
I guess I just want to know what the bank will do now since they won’t tell me anything. And from what Ive understood… they have to apply for a grant of administration to have the right to sell the house and try recoup their losses.
 
I thought banks always insisted on a life assurance policy to cover them?

I admit it’s been a few years since I applied for one.

Anyway I’m sorry for your loss but don’t stress yourself over the banks loss.
 
It is a condition of mortgage draw down that a MP policy is in place, not required by law though for a buy to let or someone over 50. Nevertheless many policies lapse especially if the financial situation is such that someone is in arrears, mortgage comes before mortgage protection so not at all unusual to see them lapsed. Bank only have to ensure it is in place, if applicable, on drawdown.

Walk away does seem best advice in this case so.
 
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