Trustee of my brothers estate (deceased), let current home foreclose?

[dannyv]

What is the name of your state (only U.S. law)? California


My brother passed away while at war just a month ago. We were left as trustees for his estate. He has 2 homes (2 notes on the primary home where we're staying and 1 note on the other home, which is a rental).

The primary home has 2 loans which total $460K (the home is only worth maybe 240-260K). The rental home has a note of $330K which is only worth about $240. The figures are based on homes in the neighborhood that a realtor checked through the MLS and say what they were going for and/or sold within the past few months.

We had more than 2 people (realtors) tell us to foreclose on the homes and just get a larger home for a lesser price. They said we're not responsible for the mortgage and money wise, it makes no sense to pay $460K on a home that's worth $200K less.

Our names are not on the title nor on the mortgage at all. The only other assets he would have is a car that's paid off, which he gave over to us in his will (worth 7000). There is a lot of money coming in from life insurance, but im not sure if that would be considered an "asset" per-sei.

There's a few thousand in the bank, which I know would be an asset (about 50K) but still nothing compared to what these house notes are left to pay on. I haven't talked to the estate lawyer regarding this question about foreclosing on the homes, something good to bring up in our next conversation after the holiday.

Are there any disadvantages of doing this? Would the bank be able to ask for the difference from the trustees at all? Of course they wouldn't know how much money there is available in the bank. Just trying to get other opinions on this matter.

 

[tranquility]

This is a complex question which will require accounting expertise as well as the advice and research of an attorney. There are some new laws which may be of value, but I'm not sure they would apply to an estate. Also, many additional facts would be needed before anything more than supposing could be done.

However, if the law allows the estate to not get a deficency judgment on what WAS the primary residence of the deceased (This is a problem only if the loan is recourse.) due to the changes last year in the law on this, then you might consider defaulting on the loans of the primary residence and use any money to pay off the rental (which will always be recourse and if default will go agaist any estate assets). Still, that's just supposing and there is a LOT of skill and advice needed from professionals before it becomes a plan.

 

[tecate]

The rental may be non recourse too, if the note is the purchase money note.

In any event, judicial foreclosures are rare.

Look at Sections 580b and 580d of the Code of Civil Procedure.

 

[msiron]

Won't the bank for property #1 LIEN property #2 especially if it's paid off and not going into foreclosure itself since it's an estate asset?

 

[tecate]

I don't understand. Other than one being the decedent's personal residence and the other being rental property, if both are "underwater," why are the two properties different.

 

[tranquility]

Because of the difficulty of the resale market, purchase money loans for business property are rarely non-recourse, while for personal residences are required to be non-recourse. While possible (There is a greater need because of the IRA/other retirement changes and the ability to invest in property and the requirement to be non-recourse and more lenders who plan on holding the paper can charge a bit extra for a negotiated non-recourse note.), I bet it is unlikely absent a specific need where the OP is aware of the issue the rental's note is non-recourse. More facts would be needed although it more likely, if so, there was fraud involved (loan based on property being personal residence) then circumstances (purchase personal residence and changed to rental).