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Inherited House: A Total Guide

Do you find yourself with an inherited house? With an inherited house you need to understand the basics about 1) how you inherited the home; and 2) how to manage all of the issues associated with an inherited property.

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Inherited house: How did you get it?

There are three ways to inherit a house 1) by deed, 2) by will, and 3) by trust. Each way will determine your next steps.

Inherited House by Deed

Many times, a house is inherited via a Life Estate or “Lady Bird” deed.  The deceased reserved a life estate, and you are the “remainderman” or you jointly own the house with your parent or family member. Inherited houses by deed only require a death certificate and the recording of an affidavit to officially transfer title and get a new deed to the property. It does not require a trip to the probate court. A sale is easy if you decide to sell the property.

Inherited House by Will

If the deceased was the sole owner and there was no Life Estate you will need to go through Probate in order to get control of the property. You will need to be named the Personal Representative, Administrator or Executor depending on which state you reside in and the size of the estate.  In many cases, the house cannot be sold until 4-6 months after you file for probate because you have to wait to clear the legal title to the home and identify any creditors that are owed money by the estate.

Inherited House by Trust

You inherit a house by trust if the trust agreement states that you, or you with others, are entitled to the house as successor beneficiaries. If the deceased had a living spouse or minor children, you will still need probate to clear title because of the homestead rules. If the deceased did not have a spouse or minor, then the process to clear title for a real estate sale should be fairly easy.

Inherited house that needs probate

Probate can be fast, or really slow.  Let’s start with the fast probate.  If you probate an estate and the person has been deceased for more than 2 years, then the probate can go pretty fast.  As a matter of fact, probate can take less than a week if you have all your family in order and you have a good probate attorney.  This is because creditors have no claim to the estate after two years.

But if they recently died and you want to sell the property, then you may have to go through the slower probate.  Probate is slow because you have to publish notice to creditors in the newspaper and wait at least 4 months before you can sell the house you inherited. Most of the four months is taken up with the “90 Notice To Creditors”, where you need to identify anyone the estate owes money.  Probate allows creditors to dispute homestead status or allows them to collect on real estate that is not homestead.  Probate is needed because there needs to be a clear ”chain of title” in order to take possession or sell the house. Because the last owner died, that person cannot sign a deed over to you. Instead, you need the probate judge to enter an order that declares you as the new owner. In the case of homestead property, you can only sell the property after the probate judge enters the “order determining homestead status of real property.”

Inherited House with a mortgage

The key thing to know about inheriting a house with a mortgage is the mortgage needs to be paid off. If the mortgage is not paid off the bank can foreclose. Mortgage companies will accept payment from you if you are paying the deceased person’s mortgage. If you tell the mortgage company that your family member died, then you will deal with that specific mortgage company’s procedures and guidelines when someone dies. This generally means they will need a copy of the death certificate and at a minimum an affidavit stating your relation to the deceased.

Under federal law, the mortgage company cannot call in the entire mortgage if your parent died and you inherit your parent’s primary residence. It would be a safe move to hire a probate attorney to get an order abandoning homestead real property if you chose to walk away from an inherited property with a mortgage.

Inherited House Mangement

Inherited property with more than one person can be tricky. Co-owners are equally responsible for debts, liabilities, and income.  Rent, property taxes, property insurance, property management fees, maintenance expenses and so forth, will need to be split equally among the co-owners.  Of course, it is logical to deduct expenses from all rent before net rent proceeds are ultimately paid out.  This situation can be an administrative nightmare.  Typically one child will do all the work while the others sit back. If the “property manager” child does this, he or she should be paid in order to prevent resentment and fighting. It is work. 

Alternatively, you can hire a property manager.  Once a house with multiple owners is sold, the proceeds should be split equally among beneficiaries according to the deed, will or trust document.  Do be warned.  If a sibling moves into a house that his or her other siblings co-own, there can be big problems if expenses are not paid by the sibling living in the house.  It happens.  Also, problems can arise if the live-in-child wants the house and the other heirs want to sell.

If you inherit a home you have to make a decision: (1) sell the house; (2) rent the house; (3) deal with co-owner family members living in the house; or (4) let the mortgage company foreclose after you walk away. Delay on this decision will ultimately cost you money because title issues can delay the sale of the house or management issues can cause fights and headaches.

Inherited House Taxes

First, the property taxes will go up if you inherited the person’s homestead.  Homestead property gets exemptions for certain amounts of assessed value for the purpose of taxes. These exemptions go away once the person dies.  If your parent owned the house for a very long time, then the property taxes will go up a lot.  Second, the income taxes from the sale of the house will not be too bad. You inherit the property at the value of the property at the time the owner passed.  For taxes this value becomes your “Basis.”  If you sell the house immediately there should be little difference between the basis and what you sell the house for minimizing the taxes due.

Want more information on Probate and the Probate process?

Check out these blog posts:

Two Things Forcing A Probate

What Does A Probate Judge Do?

What Is A Notice To Creditors In Probate?

What Is Summary Administration in Probate?

How Soon Can I Sell My Probate House?

How Costly Are Probate Lawyers?

Who Can Sell An Inherited Home

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