Must mortgage be paid off by estate?

[tecate]

11462 looks promising. Note that it uses the verb "provide."

 

[tranquility]

This thread has many problems related to different issues being co-mingled into one. Then there is a discussion on the poster's opinion on what is being asked and then a response on the next poster's different question. What a lender will do is not the same as what can be accomplished in probate. All debts are not the same.

Let's say we have an estate with two assets. A $100,000 dollar house with $40,000 left on the mortgage and $60,000 in cash and $20,000 in credit card debt. There are two children and no wife and the will/trust says, "To my daughter I leave the house and to my son I leave the residual of my estate." Who gets what?

The unsecured debts must be paid. The $60k will be reduced by $20k leaving $40k. The house will go to the daughter subject to the mortgage and the money will go to the son.

The bank may or may not call the loan on the house. That is not the estate's problem, but the daughter's. In fact, if the executor were to pay off the loan, he would be in breach of his fiduciary duties to treat the beneficiaries fairly and could be subject to damages.

 

[non-ditzyblonde]

Thanks all for staying with this thread.

tecate,

yes, "provided for" seems to be the operative phrase here. Still not sure exactly what that means though.

tranquility,

I agree that this discussion has been rambling and that my confusion has further muddied up the mix.

I understand what you're saying about paying off the unsecured debt. I don't understand the part about the mortgage not being the estate's problem.

There seems to be a general requirement that all debts of the estate be paid off before probate can be closed. Furthermore it would seem to be the executor's responsibility to see that all debts were paid. I don't understand how this would be a breach of fiduciary duty. This makes it sound as if the mortgage cannot be paid off by the estate.

Unless... UNLESS... all debts do not in fact have to be paid off. If that's the case, then what does "provided for" mean?

Let's take a more extreme example: a million-dollar house with $600,000 left on the mortgage. The owner dies, and a daughter inherits. Is her only option to pay the $600,000, whether by selling the house or getting funds elsewhere, in order to close probate?

If not, why isn't this a simple question? You can either pay it off or, if the bank allows, assume the loan? I guess I'm just baffled as to why this isn't more straightforward.

 

[tranquility]

I find it hard you don't understand. I find it more likely you don't like the answer. However, the court is the one to decide the response to the question and the executor must ask the court for guidance.

See Chapter 4 of the probate code which tecate started listing. He should have continued to Section 11464.

 

[non-ditzyblonde]

tranquility,

Thank you for the reply and the suggestion to look up 11464. In fact, I like the answer very much (assuming I'm understanding it correctly):

Our concern was that the loan would have to be paid off prior to close of probate. It appears that it may not have to be, depending on whether or not the court approves the assumption of liability of this particular debt.

I appreciate your help.

 

[seniorjudge]

It is okay in a decedent's probate estate for heirs (or anyone else) to take an asset together with the liens on it.

 

[tecate]

Does 11464 apply to a "not due" debt?

 

[non-ditzyblonde]

seniorjudge,

This is good to know. Thanks for the input.

tecate,

11464 seems to address contingent or disputed debts. Your prior reference to 11462 seems more appropriate here. Thanks again.

Here's 11462:

11462. Notwithstanding any other provision of this chapter, if the
court determines that all interested persons agree to the manner of
providing for a debt that is contingent, disputed, or not due and
that the agreement reasonably protects all interested persons and
will not extend administration of the estate unreasonably, the court
shall approve the agreement.


And 11464:

(a) The court may order property in the estate distributed to a person entitled to it under the final order for distribution, if the person files with the court an assumption of liability for a contingent or disputed debt as provided in subdivision (b). The court may impose any other conditions the court in its discretion determines are just, including that the distributee give a security interest in all or part of the property distributed or that the distributee give a bond in an amount determined by the court.

(b) As a condition for an order under subdivision (a), each distributee shall file with the court a signed and acknowledged agreement assuming personal liability for the contingent or disputed debt and consenting to jurisdiction within this state for the enforcement of the debt if it becomes absolute or established. The personal liability of each distributee shall not exceed the fair market value on the date of distribution of the property received by the distributee, less the amount of liens and encumbrances. If there is more than one distributee, the personal liability of the distributees is joint and several.

(c) If the debt becomes absolute or established, it may be enforced against each distributee in the same manner as it could have been enforced against the decedent if the decedent had not died. In an action based on the debt, the distributee may assert any defense, cross-complaint, or setoff that would have been available to the decedent if the decedent had not died.

(d) The statute of limitations applicable to a contingent debt is tolled from the time the creditor's claim is filed until 30 days after the order for distribution becomes final. The signing of an agreement under subdivision (b) neither extends nor revives any limitation period.