Can a house be forced out of estate ownership by foreclosure?

Apex North Carolina

This is mentioned in an answer on another site:

"You are correct that where there are no assets in his name, there is nothing to administer and administration proceedings are not necessary."

Could this apply where an asset is foreclosed, forcing it out of the estate?

I'm trying to help my cousin with his situation. His dad died in 2004 without a will and my cousin's been living in the Dad's house ever since.

The Dad borrowed money years ago from a friend. The Dad agreed to let the friend put a lien on the house to secure the loan. Now the Dad's friend is foreclosing to get paid back. According to my cousin, his Dad died with no debts.

There's still a mortgage on the house, but the Dad's friend says he'll pay that and sell the house to get his loan repaid.

I was reading where it says assets in an estate can't be sold without getting permission, but I also read a foreclosure is a legally forced sale.

Can the foreclosure be blocked because the house is still owned by an estate that hasn't been closed yet?

I was advised to consult and attorney. My cousin can't afford to hire an attorney. I'm not asking for advice. Just some key information to determine if helping my cousin will involve lots of complexity and time.

Could this apply where an asset is foreclosed, forcing it out of the estate?

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once the foreclosure is complete, it will no longer be owned by the estate. Until that time, it is still owned by the estate but the legal action is simply pending.

The Dad borrowed money years ago from a friend. The Dad agreed to let the friend put a lien on the house to secure the loan.

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that is going to be secondary to the mortgage.

Now the Dad's friend is foreclosing to get paid back.

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Ya, best of luck with that.

According to my cousin, his Dad died with no debts.

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I guess your cousin is lying. The father apparently owed this "friend" as well as owing for the mortgage loan.

There's still a mortgage on the house, but the Dad's friend says he'll pay that and sell the house to get his loan repaid.

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It's not up to the friend. The bank or whomever owns the mortgage is going to have primary claim to the house.

I was reading where it says assets in an estate can't be sold without getting permission, but I also read a foreclosure is a legally forced sale.

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Correct. If the friend files for foreclosure of the property, then it will be brought into the probate actions and dealt with. Until that point, it is merely a lein against the house. If there is no probate, then the "friend" will still have problems with the first leinholder (the mortgage holder) but ultimately the leinholders are going to get their money. Whether your cousin ends up with any part of the house is up to him and the amount of equity there is in the house.

Can the foreclosure be blocked because the house is still owned by an estate that hasn't been closed yet?

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The estate can pay off the money so the lein will be removed. Other than that, the laws require assets be liquidated so the debts of the estate can be paid. If this is the only asset, then somebody needs to pay the leinholder or sell the house so the leinholder can be paid. He does have a right to be paid from the assets of the estate.

I was advised to consult and attorney. My cousin can't afford to hire an attorney.

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Sounds like he can't afford to not consult an attorney.

I'm not asking for advice. Just some key information to determine if helping my cousin will involve lots of complexity and time.

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It may; it may not. It all depends on many other things not related here.

Why does your cousin believe he has the right to keep the house while the fathers friend gets screwed out of his money?

NeedToKnowMore said:

"You are correct that where there are no assets in his name, there is nothing to administer and administration proceedings are not necessary."

Could this apply where an asset is foreclosed, forcing it out of the estate?

I'm trying to help my cousin with his situation. His dad died in 2004 without a will and my cousin's been living in the Dad's house ever since.

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If dad had a HOUSE how can you state that he had "no assets"?

A house is a BIG asset!

The debts of the decedent should be paid off using assets of the estate. Not just the assets of the estate that your friend doesn't want.

The estate executor (once appointed) had two options: He should have probated the estate and either sold the home and paid off dad's debt to his friend. Or the home be transferred to whomever had rights to inherit, under intestate probate, if the recipient financed enough to pay off the existing debt.

Friend has had four YEARS to do the proper thing and has failed to do so. He simply moved himself into dad's home and made no attempt to pay off dad's creditors using his assets. And yes, a house in probate can be foreclosed if the loan is in default of any provision in the loan.

Thanks for all the feedback.

"According to my cousin, his Dad died with no debts."

Rewrite: "his Dad died with no debts OTHER THAN the first mortgage and the debt to the foreclosing friend". Sorry this wasn't more clearly stated.

Is closing the estate required if foreclosure removes the asset? True or false: When foreclosure removes the only estate asset, does the estate still exist? Or do probate rules block the foreclosure until the estate is processed and closed?

The cousin accepts the house will be lost to foreclosure. Is the family required to "close" an estate that has no assets.

"Correct. If the friend files for foreclosure of the property, then it will be brought into the probate actions and dealt with."

Not sure what this means. "brought into the probate actions and dealt with".... sounds like the Dad's foreclosing friend needs to close the estate himself before the foreclosure can be applied. Also, my cousin didn't know about the lien on the house. Apparently the Dad never told anyone.... or never told my cousin.

Thanks.

NeedToKnowMore said:

Not sure what this means. "brought into the probate actions and dealt with".... sounds like the Dad's foreclosing friend needs to close the estate himself before the foreclosure can be applied. Also, my cousin didn't know about the lien on the house. Apparently the Dad never told anyone.... or never told my cousin.

.

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Has probate even been opened?

We HAVE given suggestions:

NeedToKnowMore said:

if he opens probate, he can sell the house, pay off the mortgages and PRESERVE ANY LEFTOVER EQUITY.

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or
If friend wants the house, and no other party exists besides friend who has any rights to inherit, and no other estate debts, friend can get probate opened, arrange a purchase money mortgage and buy the house from the estate at the payoff balance.

And one does NOT need to pay an attorney to resaerch online WHAT happens to estate assets such as a house, and if probate needs to be filed.

All good suggestions about things that could have/should have been done in the past. Thank you.

Has probate even been opened?

No.

1. cousin wasn't aware until recently the loan to his Dad's friend existed. 2. also didn't realize a second mortgage holder could foreclose and pay off the first mortgage and take the house 3. was unaware/lazy to find out about what happens with estates and probate. Friend of my uncle's promissory note calls for full repayment by January 2008. Cousin is now at the 11th hour and realizes things may be too late. If the foreclosure moves house ownership out of estate, is foreclosure that simple or must the house first pass through some sort of probate process before foreclosure can transfer house ownership? My cousin is trying to figure out how complex it will be for friend of his Dad to foreclose and own the house. He needs to find somewhere else to live and unsure how much longer he can stay in house. Don't think cousin is terribly upset if house is lost. Think he's kinda been expecting it all along. Thanks again for input. All very helpful.

Q: If the foreclosure moves house ownership out of estate, is foreclosure that simple or must the house first pass through some sort of probate process before foreclosure can transfer house ownership?

A: You are confused (and lawyers like to make confusing laws) about ownership. Look at it this way: John Doe owns a house. He borrows money. He puts the house up for collateral. John Doe dies. No one pays on the loan. The creditor forecloses and now owns the house, regardless of what has happened subsequent to the loan. In other words, all interests after the loan was made are junior to the loan and get wiped out in the foreclosure. (IRS rules may be slightly different but I won't go into that one.)

Ask more if you are still not clear.

OK, think I understand.

"In other words, all interests after the loan was made are junior to the loan and get wiped out in the foreclosure."

The loan to my uncle's friend - the creditor - came after the first mortgage, which bank still holds.
First mortgage not in foreclosure. Cousin keeps all payment current. First mortgage still in Dad's name.
How can second mortgage wipe out the first mortgage if first mortgage not paid off?
Isn't second mortgage "junior to" the first mortgage?

Some previous responses are confusing.
"that (loan to Uncle's friend) is going to be secondary to the mortgage."
(but the Uncle's friend says he's paying off first mortgage... So what's secondary to what?)

"The bank or whomever owns the mortgage is going to have primary claim to the house."
Seems to say if the creditor owns second mortgage and pays first mortgage, then creditor has primary claim to the house. Not sure what "primary claim" means. How does the ownership of the house transfer to the creditor if deed still in my uncle's name?

Another reply says:
"if the friend files for foreclosure of the property, then it will be brought into the probate actions and dealt with."

What is involved, what are the steps when foreclosure is "brought into the probate actions and dealt with"?

Again thanks for further clarification.

"if the friend files for foreclosure of the property, then it will be brought into the probate actions and dealt with."

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I am the one that posted that.

There are several different things going on and at the time I posted that, not much was all that clear. Some things still are not clear.

I did not know if the cousing wanted to keep the house and was speaking as he would. In a foreclosure, the leinholder can be paid cash and as a result the lein would be released. Since the estate was either in probate or needed to be probated, paying the lein would take place through the probate process since it is part of the estate.

Since it appears the cousin does not want the house or it is not financially feasible to keep the house, probate would not be required to allow the foreclosure to be completed. The 2nd leinholder can forclose but the 1st leinholder could purchase his lein and take possession of the house. The friend may still not end up with the house but that is irrlevent to the cousin.

How does the ownership of the house transfer to the creditor if deed still in my uncle's name?

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foreclosure

"that (loan to Uncle's friend) is going to be secondary to the mortgage."
(but the Uncle's friend says he's paying off first mortgage... So what's secondary to what?)

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has the friend even spoken to the 1st leinholder (mortgage holder)? If not, it may not be up to him to make this deal. It is up to the 1st leinholder to allow it, if they want. If there is a large equity, the mortgage holder may want the title themselves and the friend has nothing to say about it.

So, ultimately, you need to know what the cousin wants to do and base any actions on that. If he doesn;t want the house, then he just sets back and lets the foreclosure take place and his eventual eviction makes him find a new place to hang his hat.

If he wants to keep the house, he needs to open probate and deal with the leins through that process and pay them off.

IF there is equity in the house, he may not want to simply allow the foreclosure but go through the process of probate so he can inherit his fathers assets.

If there is more owed on the house than it is worth, then it would be senseless to open probate.

If there is equity, a second lienholder can FC and pay off the 1st lienholder. Or sometimes they negotiate a purchase of their loan at a discount.

Now I'm learning my cousin's got other relatives helping him too. He was told that without a will, all the assets of an estate go directly to the heirs of the estate. That's partly why he (mistakenly) believed he'd inherit the house. He's the sole heir to his dad's estate.

A relative told him when a foreclosure goes to auction, any mortgage or lien holder only gets paid from the auction sale what's owed to each creditor what they are owed, nothing more. If an auction is won at $50,000 higher than any and all liens, that $50,000 goes back to the estate, not to the creditors.

I said if that's true he probably has to "close" the estate to enable him the right to inherit the $50,000. He's the sole heir of the estate.

But that may not happen.

My cousin says he was told lienholders can foreclose only if the terms of their repayment agreement are violated. Since my cousin kept the first mortgage payments current, the first mortgage holder can't foreclose. The second mortgage agreement didn't require payments, but called for full payment in January 2008.

His Dad's friend - the creditor - says he just wants to get his money back. But his Dad's creditor told him when he forecloses on the second mortgage, if the first mortgage isn't overdue, he can just keep paying the first mortgage and take over the first mortgage. Banks don't restict who can make payments on a mortgage. If his dad's friend pays off the first mortgage, the dad's creditor gets the house, including any equity. The dad's friend says he can even renegotiate the first mortgage with the bank, since the dad is dead, and take over the first mortgage.

This goes back to my original inquiry

Can a house be forced out of estate ownership by foreclosure?

Seems like the answer is yes.

Forum member comment:

"The 2nd leinholder can forclose but the 1st leinholder could purchase his lein and take possession of the house. The friend may still not end up with the house but that is irrlevent to the cousin."

Relatives are telling him that banks don't want to own foreclosed houses. Banks, especially in this current market, just want to get the loans paid off or have the payments continue to be paid in full on time. Seems to me banks are glad to get the mortgages fully paid off. Foreclosure is an expensive, time consuming process - and these days, risk business. Seems my cousin's Dad's creditor is "banking" on that too.

Ironically, it seems my cousin keeping up the regular payments was a mistake. If he let the bank foreclose then any extra funds from an auction sale goes back to the estate which my cousin could access as sole heir. Now, with a surprise second mortgage holder appearing, and no means to pay off the second or first mortgage, my cousin losses the house lock, stock and barrel. Fair observation?

Forum member comment:

"If he wants to keep the house, he needs to open probate and deal with the leins through that process and pay them off."

But if my cousin can't pay off either mortgage, what's the point? If he "opens probate" does that, by itself, block the second mortgage foreclosure from happening? If he got a loan from relatives, maybe he could pay off the second mortgage, but his dad's friend want's his money back - and I suspect wants whatever equity there is in the house too.

Can a house be forced out of estate ownership by foreclosure?

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I don't know why you keep referring to "estate ownership." Earlier you stated:

Has probate even been opened?

No.

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There is no estate. Your cousin has been taking the path of least resistance for 4 years and now it is coming back to bite him. Now, he's going to listen to a "friend of his dad's"? And listening to various relatives?

NeedToKnowMore said:

Now I'm learning my cousin's got other relatives helping him too. He was told that without a will, all the assets of an estate go directly to the heirs of the estate. That's partly why he (mistakenly) believed he'd inherit the house. He's the sole heir to his dad's estate.

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The question of who might inherit is different than WHETHER they inherit anything without probate occurring! Ownership transfer is not "automatic", a LEGAL proceedure still needs to occur.

NeedToKnowMore said:

A relative told him when a foreclosure goes to auction, any mortgage or lien holder only gets paid from the auction sale what's owed to each creditor what they are owed, nothing more. If an auction is won at $50,000 higher than any and all liens, that $50,000 goes back to the estate, not to the creditors.

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So, he should stop acting on accord of "Someone TOLD me" and start doing his own research. Dad had a mortgage on his property to the friend. Had the PROPER research been done at the time (like maybe a Title report?) the mortgage would have been known. Sounds like the only action your cousin was interested in taking was moving into/living in the house, but not doing any work that would make certain all dad's creditors had an opportunity to be paid what they were owed out of dad's assets.

NeedToKnowMore said:

But if my cousin can't pay off either mortgage, what's the point? If he "opens probate" does that, by itself, block the second mortgage foreclosure from happening? If he got a loan from relatives, maybe he could pay off the second mortgage, but his dad's friend want's his money back - and I suspect wants whatever equity there is in the house too.

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Umm, because if he opens probate, he can sell the house, pay off the mortgages and PRESERVE ANY LEFTOVER EQUITY.

Of COURSE dad's friend wants HIS money back- he's waited four YEARS!