Do Heirs Inherit the Mortgage on My Property?

Full question:

Hello. I anticipate taking out a mortgage on a property I own wholly, through my mother who named me sole owner in a Life Estate. My mother deceased in 2006. This property is and would continue to be my legal residence. I'm concerned about taking out a fixed-rate mortgage at my age of 67 to gift my only sibling, aged 69, half of the property's value. She is already named in my will to receive half its value upon my death. But I wish to gift her half of the property's value now. My four children are named in my will as the other half-inheritors. If I now remove my sister's name from my will, how would my children's inheritance be affected should I decease prior to the satisfaction of a 15-year mortgage?

• Category: Real Property
• Subcategory: Mortgage Satisfaction
• Date: 04/07/2025
• State: New York

Answer:

By removing a sister as half beneficiary in a will, the remaining heirs would become sole heirs of the estate. The answer would then depend on how the will specifies that the house is to be devised or whether there is a joint owner of the property who inherits through survivorship rights in the deed, so that the property passes outside of probate. A mortgage typically contains a security intererst in the underlying property, and the property carries a lien which may be enforced against the current owner. How a mortgage will affect your heirs depends on whether there is a joint owner or if the will leaves the house to an heir. The bank will want their money, come what may. The executors of the will have the responsibility of dealing with the deceased's assets and liabilities, that is they must sell the assets and pay the liabilities.

If the beneficiaries (the people named in the will) want to keep the house then they will need to pay off the deceased's mortgage. They may get their own mortgage instead to pay off the deceased's mortgage. The bank may be prepared to transfer the mortgage to the beneficiaries, but effectively this will be the same as taking out a new mortgage just with the same bank the deceased use - the bank will cancel the old mortgage and set up a new one.

A deceased's debts should be paid with the property in their estate (the property left at their death). Children don't personally inherit their parent's debts unless they created a co-signor/guarantor/surety/joint account relationship to the debt so that the child's name is on the debt also, and it isn't a separate debt. Spouses will generally only be liable for a separate debt of the deceased if they live in a community property state. However, state laws vary about which marriage partner is responsible for certain debts, depending upon when the debt was incurred, the identity of the debtor, or the purpose of the debt .

Only after the debts are paid will the remaining assets be distributed among the beneficiaries of the will. Be advised that when a child inherits property that is collateral for a debt -- for example, a car that is not paid for or a house with a mortgage -- the debt comes with the property. If there is insufficient money or assets to pay all creditors, then the estate must be divided up as equally as possible, with secured creditors receiving priority. This means that if the deceased parent died with little or no money in their accounts and didn't own a home, unsecured debt such as credit card debt will not be paid to the creditors.