Can an estate sell an inherited house that still has a mortgage?

A mortgage is a lien. When the house sells, the settlement agent pays the lender from the proceeds and the lender releases its lien. Pennsylvania's estate code lets the personal representative sell real property and requires reasonable expenditures to preserve it while the estate is open, which may include keeping up the loan if the estate can afford it. A mortgage does not disappear when the borrower dies. The loan stays attached to the house, and the lender expects to be paid or to be kept current. The servicer will often ask for a copy of the death certificate and proof of who is handling the estate. Call early, because interest keeps running. If the estate cannot cover the payments, tell the servicer and ask what options exist. Quiet is the worst choice, since missed payments lead to notices and fees.

The personal representative should contact the servicer with letters and a death certificate, and request a written payoff. If payments have been missed, the lender may send an Act 91 notice once the account is 60 days behind. PHFA says you then have 33 days from the notice date to meet with a counseling agency. Foreclosure actions pause while a timely HEMAP application is processed. HEMAP covers owner-occupied homes, so ask whether it fits an estate.

If the mortgage is bigger than what the house is worth, the lender may agree to accept less in a short sale, or the estate may sign a deed in lieu. Ask the lender first. PALawHELP advises asking the lender for permission to sell, and mentions a deed in lieu as a way to avoid foreclosure. An attorney can review any deal.

Here is a hypothetical. The estate sells the house for $160,000. The mortgage payoff is $110,000 and the closing costs and transfer tax come to $12,000. The estate receives about $38,000, which goes toward debts, taxes and heirs. Now change one number. If the payoff were $175,000, the sale would not cover it, and the estate would need the lender's agreement or cash from another source. Ask the servicer for a payoff good through your expected closing date, and ask for the daily interest figure in case closing moves.

Kaizen Home Buyers buys houses as-is for cash, with no repairs and no agent commission. We make an offer within 24 hours and can close in 14 to 30 days or on the date the estate chooses. A price that covers the payoff lets the estate walk away clean. Call 267-329-0084. Listing with an agent is also an option when the house is in good shape.