[WSBAPT] probate question - single spouse on mortgage

Sun May 24 15:06:28 PDT 2015

Hello Sharon,

My response is based upon my experience and is not intended to be a complete legal analysis of your client’s situation. Others may have a more detailed legal opinion. The starting point is as MK pointed out.

In my experience, as long as the lender (beneficiary) is getting paid they are happy and do nothing. If H wants to keep the house, then he can either continue to make payments or he can refinance if that is more beneficial for him based on interest rates today (and points and closing costs) versus whatever interest rate is on the loan now. 

Whether you give probate notice to creditors to the lender or not is really immaterial since the deed of trust will remain in first position anyway as it is secured debt. In other words, you can’t get rid of the debt by giving them notice and hoping they don’t file a creditor’s claim; from a practical standpoint that really only applies to non-secured debt of the decedent or other secured debt that is not covered by any equity in the home and H is thinking about selling for less than the total secured debts owed – in that case the second or third position lender may elect to collect in a non-judicial proceeding. If you have given notice to them and they don’t file their creditor’s claim timely, then any subsequent attempt to collect may be time barred if it is only against the decedent’s estate. If H is also on the second or third debt (if there is additional secured debt), then any bar to a later claim by that lender will not arise as to his community portion of the debt since his estate is not part of the probate.

As a side note, if the home is “underwater” from an equity standpoint and H does not want to keep the home, then when H is appointed PR with Letters Testamentary, he can try to work out a short sale of deed in lieu with the lender and move out after that all is done. In that case, you should consider if it is advisable for H to sink additional funds into the loan payments or discontinue making loan payments since most of the payment is interest and not reducing principal very much. When and if that decision is made is fairly strategic and should be made based upon a number of considerations that are very dynamic depending upon the totality of circumstances that I won’t go into with this response. 

Sincerely,

Tom

Thomas J. Westbrook

Attorney at Law

Rodgers, Kee & Card

324 West Bay Drive NW, Suite 201

Olympia, Washington  98502

Phone: 360-352-8311

Facsimile: 360-352-8501

Email: tjw at buddbaylaw.com

Skype: thomas.westbrook

www.buddbaylaw.com

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From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Sharon Rutberg
Sent: Sunday, May 24, 2015 2:08 PM
To: 'WSBA Probate & Trust Listserv'
Subject: Re: [WSBAPT] probate question - single spouse on mortgage

Thank you – this is very helpful, and it makes sense. I wonder if anyone has seen any problems arise in practice. 

Sharon C. Rutberg

Attorney at Law

1718 NW 56th Street, Suite 304

Seattle, WA 98107

Website: www.sharonrutberglaw.com <http://www.sharonrutberglaw.com>  

206-409-2604

email at sharonrutberglaw.com <mailto:email at sharonrutberglaw.com> 

Washington State Bar #47055
D.C. Bar #420576

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From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of MK Henderson
Sent: Sunday, May 24, 2015 11:50 AM
To: WSBA Probate & Trust Listserv
Subject: Re: [WSBAPT] probate question - single spouse on mortgage

Look at the Garn-St Germain Act following.

12 U.S. Code § 1701j–3 - Preemption of due-on-sale prohibitions

(d) Exemption of specified transfers or dispositions

With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon—

(1) the creation of a lien or other encumbrance subordinate to the lender’s security instrument which does not relate to a transfer of rights of occupancy in the property;

(2) the creation of a purchase money security interest for household appliances;

(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;

(4) the granting of a leasehold interest of three years or less not containing an option to purchase;

(5) a transfer to a relative resulting from the death of a borrower;

(6) a transfer where the spouse or children of the borrower become an owner of the property;

(7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;

(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; or

(9) any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.

Under 6 if the spouse takes by inheritance the spouse can continue paying on the note. There is a question in your scenario whether the couple own the home as joint with right of survivorship but if the spouse were to die then the transfer of the remaining spouse could continue to pay on the note.  

On Sun, May 24, 2015 at 10:12 AM, Sharon Rutberg <email at sharonrutberglaw.com> wrote:

Hello, Listmates –

Anybody out there this holiday weekend?  

Married couple owns a home as “husband and wife” on the deed, but mortgage is in wife’s name alone (she had the better credit).  They want to know whether, if she dies, he can “just keep making payments” on the existing mortgage. That sounds doubtful to me, and I’d like to understand what will happen. If she dies, will notice have to go to the mortgage company as her creditor? Will the husband (as PR) have to pay off the mortgage using estate funds, or could he refinance it in his own name? 

Thanks very much for your thoughts, and happy holiday. 

Best,

Sharon

Sharon C. Rutberg

Attorney at Law

1718 NW 56th Street, Suite 304

Seattle, WA 98107

Website: www.sharonrutberglaw.com 

206-409-2604

email at sharonrutberglaw.com

Washington State Bar #47055
D.C. Bar #420576

NOTICES
The contents of this message and any attachments may be protected by the attorney-client privilege, work product doctrine, and/or other applicable protections. If you are not the intended recipient or have received this message in error, please notify the sender and promptly delete the message. Thank you for your assistance.

IRS Circular 230 Disclaimer: To ensure compliance with requirements imposed by the IRS, we inform you that to the extent this communication contains advice relating to a Federal tax issue, it is not intended or written to be used, and it may not be used, for (i) the purpose of avoiding any penalties that may be imposed on you or any other person or entity under the Internal Revenue Code or (ii) promoting or marketing to another party any transaction or matter addressed herein.

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-- 

Mary K. Henderson

Henderson Law Office PLLC
1123 Maple Ave SW, Suite 225

Renton, WA 98057

206-650-2472

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