My grandmother bought the home we lived in the 90s for 90k at a 8% interest rate. I found out she refinanced the house several times from what seems like predatory practices and malicious advice and now owes 250k at 6%. Basically the house I thought was paid off now has 30 mortgage and she is 90. Her grandkids are in the will to inherent the house but do we inherent this mortgage?
In the US:
When you pass away, your mortgage doesn’t suddenly disappear. Your mortgage lender still needs to be repaid and could foreclose on your home if that doesn’t happen. In most cases, the responsibility of the mortgage will be passed to the beneficiary of the home if there is a will.
https://www.bankrate.com/mortgages/what-happens-to-mortgage-when-you-die/
This partially depends on how much the house is worth now. If it’s somehow a million dollar house today, and the amount owed is $250K, then you could refinance that and make payments. This would be a reasonable transaction.
But if you have negative equity - if you owe more than the house is worth - the best thing to do right now is stop paying that mortgage. In the short term, you’re just throwing money away, because that mortgage is never going to be paid off. In the longer term, see the above. Stop paying the mortgage.
Yes, this will end in foreclosure. Yes, you’ll “lose the house,” but honestly, it was lost a long time ago, you just didn’t know it. Once the foreclosure has happened, your grandmother will be relieved of that debt, because the home was collateral. Foreclosure is highly likely to happen anyway after your grandmother passes, but then it becomes infintely more complicated, especially if there are multiple beneficiaries of the property.
My in-laws were in a similar situation long ago. They had gotten a now-illegal “reverse amoritization mortgage,” which basically guaranteed that their mortgage payments would always be less than the interest accrued. Same kind of result: they owed way more on the house than it was worth, way more than they had originally borrowed, and were essentially never going to get out from under it. The advice they took was exactly as above. Stop paying the mortgage.
I think you hit the nail on the head. She lost it and we just didn’t know. My siblings want to put higher payments in to pay off faster but I just want to sell. I’m so burnt out over this. So many Year of paying rent just to start over.
If the house is not paid off, the bank owns it and allows you to live there.
This is something people seem to understand. Peaople seem to think the american dream is buying a home but it is actually about eventually paying it off and actually owning it.
It sounds like maybe you have more context to the situation, but I just want to say that cash-out refinancing on its own isn’t necessarily predatory or malicious.
I just can’t fathom why she would need to do this. She was getting rent from mutiple people. “This came up because we’re all like sooo the house is paid off this year right? So rent can go down?” I was planning write her a check for w/e balance is left just to wrap it up this year. Like I can only believe she was scammed somehow. She’s An old lady with 2nd grade education (no joke) and not a good speaker.
Her estate is responsible for the mortgage. You have to pay the mortgage out of whatever resources her estate has or “sell” the house to the grandkids at which point they are responsible for the mortgage. The bank has to get their money somehow. If the grandkids don’t want to assume the mortgage and the estate doesn’t have the money to pay the mortgage then you will default and the bank will foreclose and take the house to auction.
Would there be any advantage to convincing her to sell before her passing? Im assuming the remaining balance of the sale would go to us anyway?
Massively depends where you are in the world.
Best guess would be the house will be sold off by the estate to close the mortgage. So unless you want the house+mortgage I doubt you will get the house.
Which means basically we take on what was agreed on the balance with probably a different interest rate?
It has a lien attached and that’ll basically ‘stick’ to the house. You can sell the house to pay off the mortgage, or get a mortgage to buy the house and pay off that other mortgage, that kind of thing, but the creditor is gonna be one of the first people in line, in terms of receiving money from any sort of sale or transfer. The creditor has the right to forgive the debt but that almost never happens even in a scenario like this
She couldn’t like sell us the house for less than it’s owed? And she takes a loss?
You sure do if you want to keep the house. It also sounds like she leveraged the house for some extra cash when she refinanced.
The location cannot be beat. My brothers don’t want to sell because of it. The main issue is while the older grandkids like myself were already looking for a new place the younger ones like my sister (20 years younger) than me have no place to go. I can’t afford to bring them with me even if they wanted to. I dk why she needed more cash. I literally paid for a new roof and add ons over the years.
That’s not necessarily a bad strategy, either. Most people, their home is their major asset, but you can’t really access that value to buy groceries in retirement. Take money out on a new mortgage on the inflated value of the house, buy groceries and pay mortgage with that money, and move in with the kids when/if the money runs out. The bank will take the house in the end, but leaving nothing to the heirs may be better than spending your last years living in your kid’s basement. The whole ‘reverse mortgage’ industry has grown up around just that plan.
Though she didn’t needed to do that. her daughter and adult grand kids live with her. I dk why she did this. We all have jobs. There wasn’t a time she wasn’t getting rent from multiple people.