Willing A House With Negative Equity

[eirman]

Person A wills their principal residence to Person B
Person A is in negative equity on the principal residence in question.
(No legal action has yet been taken against Person A by the Bank).

What happens if Person A dies?

Does the bank have to go to court to gain posession of the property?

 

[Leo]

Does person A have life insurance in place that will cover all or most of the outstanding total?

 

[eirman]

Does person A have life insurance?

> No

(This whole question is a hypothetical scenario)

 

[RedOnion]

Hi, start by having a look here
http://www.citizensinformation.ie/en/money_and_tax/personal_finance/debt/debts_after_death.html

 

[eirman]

Thanks RedOnion, but that link was of no help with my specific question, which was ....
Does the bank have to go to court to gain posession of the property?

 

[RedOnion]

Thanks RedOnion, but that link was of no help with my specific question, which was ....
Does the bank have to go to court to gain posession of the property?

No. It's doesn't matter if there is equity or not. It's secured debt. Assuming person B is not a spouse, the bank has priority in the estate.

 

[Joe_90]

The property will go into the estate and the executor will have to discharge the liabilities before distributing the assets.

So if a potential beneficiary wishes to retain the property they may have to get a loan to discharge the outstanding debt to secure the property.

 

[Vanessa]

The property will go into the estate and the executor will have to discharge the liabilities before distributing the assets.

So if a potential beneficiary wishes to retain the property they may have to get a loan to discharge the outstanding debt to secure the property.

Exactly. The executor is liable to make sure the estates debtors are paid before any beneficiary

 

[eirman]

Thank you Joe & Vanessa.

I'm a bit puzzled about how the ownership of the house is actually transferred to the bank.

Could Person A make things awkward for the bank by making the beneficiary a charity?
Could the bank be forced to go to court by the actions an uncooperative/incompetent executor?

 

[Brendan Burgess]

Hi eirman

I can rob your house and force you to go to court to get your stuff back.

This is not complicated.

On a person's death, the executor collects the assets, pays the creditors and passes the surplus onto the beneficiaries.

So in the case you mentioned, the executor must pay off the mortgage before doing anything else.

He can delay things, of course. But he can't sell the house to someone else without discharging the mortgage first.

He can't dispose of assets to other beneficiaries without paying the creditors first.

It does not matter who the beneficiary is.

Executors are often incompetent and uncooperative. But the only thing that they can do is to delay the sale. They can't sell the house to someone else as no solicitor would allow it.

Brendan

 

[RedOnion]

I'm a bit puzzled about how the ownership of the house is actually transferred to the bank.

In practicality it's not. The executor has legal duties to pay debts of the deceased before transferring any residual assets to any beneficiary (charity or otherwise).
If there are no other funds in the estate, and the beneficiary is not willing to takeout a Mortgage to pay the debt, then the executor has a legal obligation to realise the assets for the bank. In this scenario the house would usually be sold and the funds paid to the bank, with any shortfall coming from other assets in the estate.
If an executor fails in his legal obligations, it's more likely that the bank would sue the executor (or seek to have an administrator to the estate appointed) than to seek possession of the house.

 

[Thirsty]

The property will go into the estate

The executor is liable to make sure the estates debtors are paid before any beneficiary

Not necessarily - if the property is left in the will to Mary, subject to the mortgage, then the debt is tied to the property and not to the estate.

 

[RedOnion]

Not necessarily - if the property is left in the will to Mary, subject to the mortgage, then the debt is tied to the property and not to the estate.

Just trying to increase my understanding here, so I'm open to correction.
My simple understanding is this is true where the beneficiary is able to refinance the mortgage or otherwise satisfy the debt, and the rest of the estate is solvent (i.e the majority of cases).
In the OPs hypothetical scenario there is negative equity, so the beneficiary might decline their inheritance, even where it's subject to the Mortgage.
Again my understanding is that adding the above words to a will can't reduce any creditors legal rights.