# What happens  a mortgage when a person dies?



## Brendan Burgess (4 Dec 2014)

The deceased has a house worth €200k
The mortgage is €100k 
There are arrears of €10k included in the arrears 
The deceased has investments worth €20k 

Mary, the Executor,  is left the house 
Paddy is left the residue 

Mary is taking legal advice on the following issues, but I am not sure that she is getting the correct advice or maybe she is not explaining it correctly to me. 

1) Should the €20k be paid off the mortgage leaving no residue?  Or, should the €10k arrears be paid off leaving a €10k residue? 

2) The investments are frozen until probate is granted, so nothing is being paid on the mortgage.  Can the lender do anything about this? I presume not. 

3) The interest on the mortgage is 4.5% so Mary would like to pay this amount from her own resources. I have advised her not to do so until it's clear how the €20k is to be used. 

4) Mary would like to keep the house when probate is granted, but may or may not be able to get a €100k mortgage.  I have told her that if she cannot get the mortgage, she must sell the house and repay it.   The existing mortgage lender is Danske, so presumably they will want the loan repaid as quickly as possible.  If it were AIB or BoI, they might be happy to leave it if they continued to get the the interest paid. 

Brendan


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## 44brendan (4 Dec 2014)

Brendan I'll deal with the issues raised as I understand them:
1) Client is deceased. Arrears are irrelevant. The bank should be informed by the executor that the client is deceased and that she either intends selling the house or paying off the mortgage from another source. 
2). No need for any further payments. As the client is now dec'd the loan becomes fully a liability upon the estate. In the event that the executor wishes to hold on to the property she must clear the mortgage in full. The Bank will need to be advised of this.
3) Interest will continue to accrue at the standard rate until the loan is cleared. There is no requirement on the estate to cover accruing interest. 

The 20k is irrelevant to the mortgage as it is part of the residue which will go to Paddy. Any expenses will be taken from the residue first unless they are specific to the house/mortgage. 
No Bank will be happy or even can leave a mortgage unchanged when the borrower is deceased. If Mary wants to keep the house she will need to take out a seperate mortgage in her own name. Danske will not approve a new loan in her name as they are exiting this market.


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## G7979 (4 Dec 2014)

Is there a Life Insurance policy on the house/mortgage -  should the insurance company not settle the mortgage outstanding with the bank, assuming there is no reason the insurance policy wont pay out and that there is a policy in place and premiums were up to date at the time of death.

I thought life policies were a condition of any mortgage, but perhaps I am wrong on this.

The terms of the insurance policy surely would dictate what happens in the case of arrears and how this should be handled.


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## 44brendan (4 Dec 2014)

Good point on insurance policy. Bank will check this out as it would be assigned to them. Sometimes policies are left lapse but as you state it would normally be a condition of the mortgage!
Insurance company has nothing to do with arrears.


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## mf1 (4 Dec 2014)

As G7979 says above, it would be unusual for there not to be a life policy - but it does happen.   

As far as the original query goes, it is covered under Section 47 of the Succession Act 1965

Where a testator is disposing of property which is the subject of a charge or mortgage, then, unless the will says otherwise, the property bequeathed will bear the mortgage. I reckon that includes the arrears. 

mf


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## Monbretia (4 Dec 2014)

In theory there should have been insurance, most family home mortgages have this as a condition when taken out originally but given that there are arrears then it could easily happen that any insurance would have lapsed due to non payment or cancellation.


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## Brendan Burgess (4 Dec 2014)

There was no insurance in place.


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## Brendan Burgess (4 Dec 2014)

mf1 said:


> As far as the original query goes, it is covered under Section 47 of the Succession Act 1965
> 
> Where a testator is disposing of property which is the subject of a charge or mortgage, then, unless the will says otherwise, the property bequeathed will bear the mortgage. I reckon that includes the arrears.
> 
> mf



Thanks mf 

Just so that I am absolutely clear on that. 

So the investments are the residue and the Executor should cash them, pay off the expenses, and then distribute them to Paddy?


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## Tintagel (5 Dec 2014)

Back in the day where there were arrears on the mortgage and the borrower didn't pay the mortgage protection insurance we, the bank paid the mortgage premium and debited the mortgage account with the premium. This would have added to the arrears but at least the bank's interest in the property was protected.  It may well be that this is the case here and the policy sits with the bank unknown to the borrower. No harm in asking the bank was this the case here. If so the mortgage protection will clear the mortgage but not the arrears.
Mary, depending on her relationship with the deceased may have a CAT liability to be paid also.


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## Bronte (5 Dec 2014)

Tintagel said:


> Back in the day where there were arrears on the mortgage and the borrower didn't pay the mortgage protection insurance we, the bank paid the mortgage premium and debited the mortgage account with the premium. This would have added to the arrears but at least the bank's interest in the property was protected.
> .


 

What year would be 'back in the day'? It was a very good idea and should have continued.


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## 44brendan (5 Dec 2014)

> Back in the day where there were arrears on the mortgage and the borrower didn't pay the mortgage protection insurance we, the bank paid the mortgage premium and debited the mortgage account with the premium. This would have added to the arrears but at least the bank's interest in the property was protected. It may well be that this is the case here and the policy sits with the bank unknown to the borrower. No harm in asking the bank was this the case here. If so the mortgage protection will clear the mortgage but not the arrears.
> Mary, depending on her relationship with the deceased may have a CAT liability to be paid also.


 
This was a practise where a CA was on occasion allowed to overdraw in order to pay the life cover debit. It could never be taken directly from the mortgage account. However, it wasnever used as a long term solution and clients were always written to advise that they were liable to clear the amount of the OD created by these payments. In this instance BB is quite clear that no mortgage protection policy exists.


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## Tintagel (5 Dec 2014)

44brendan said:


> It could never be taken directly from the mortgage account.


 It was a condition of the mortgage that there was a mortgage protection policy in place. When a person went in to arrears and his bank bounced the DD for his mortgage protection insurance, we, in the Building Society debited the borrowers account and paid it. The customer would have been notified about this.


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## Brendan Burgess (28 May 2015)

Update on this... 



44brendan said:


> No Bank will be happy or even can leave a mortgage unchanged when the borrower is deceased. If Mary wants to keep the house she will need to take out a seperate mortgage in her own name. Danske will not approve a new loan in her name as they are exiting this market.



Update on this. Probate has been granted and the €20k paid off to Paddy.

The Executor is now left with a house worth €200k and a mortgage of €100k. 

Danske has asked the Executor to confirm that the house will be sold and the mortgage will be paid off. 

The Executor is not in a position to get a mortgage but wants to hold onto the house. She is making the repayments on the mortgage in full. 

While Danske wants to exit the market, this is a very profitable loan for them. They are charging 4.95% SVR.  

If it were AIB, would they be happy to let things lie. After all, they are getting their repayments in full.  There is plenty of equity. So what if it's in an estate? 

If Danske decides to bring this to a conclusion, what can they do? Issue proceedings in the Circuit Court to get an order for possession? 

Brendan


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## 44brendan (28 May 2015)

They can't let things lie! The loan should be "ruled" when the bank are advised of the death of the borrower. Continuity of the loan facility in the name of the deceased is not an option for the bank (any bank).
Mary is largely irrelevant to this issue, other than the fact that she is the executor. While she inherits the property, this bequest is subject to the prior interest of Danske in the property. I.e. They effectively own the property (through the mortgage deed) and repayment of their loan must be given priority. Obviously the preferred option here would be for Mary to obtain funds by re-mortgaging/other means in order to pay off Danske. If she fails to do this Danske will progress to legal action. They have no option here as they have a 2 year timeframe from date of death within which they must take proceedings against the Estate or risk losing the ability to reposess the property.
If Mary ignores this it is likely to lead to proceedings which will be expensive and effect her net interest in the property. If I were advising her I would ask her to appoint a solicitor to Act for the estate and deal directly with the bank. If she is unable to re-finance or agree a settlement with the Bank then she will need to sell the property on behalf of the estate and clear the loan.


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## Thirsty (28 May 2015)

> They have no option here as they have a 2 year timeframe from date of death within which they must take proceedings against the Estate or risk losing the ability to reposess the property


Just curious where this comes from (not doubting you, just wondering which bit of legislation..)


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## Sarenco (28 May 2015)

Is Mary making the mortgage payments out of the assets of the estate or from her own resources?

If it's the former, Paddy must be getting grumpy - she's spending his inheritance!

If it's the later, Mary is effectively paying the debts of somebody else for no apparent reason.

Bizarre story.


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## 44brendan (28 May 2015)

Thirsty said:


> Just curious where this comes from (not doubting you, just wondering which bit of legislation..)


Can't quote the legislation, but have a case going at the moment where our solicitors had to rush through the procedure in order to meet the time limit. Google search will probably establish the exact legislation.


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## Thirsty (28 May 2015)

If I read the OP correctly....

Mary is the sole beneficiary of the property and is making payments from own resources.  

Paddy has his inheritance so he's done & out of the picture now.


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## Brendan Burgess (28 May 2015)

Thirsty said:


> If I read the OP correctly....
> 
> Mary is the sole beneficiary of the property and is making payments from own resources.
> 
> Paddy has his inheritance so he's done & out of the picture now.



Correct.


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## Sarenco (28 May 2015)

Thirsty said:


> If I read the OP correctly....
> 
> Mary is the sole beneficiary of the property and is making payments from own resources.
> 
> Paddy has his inheritance so he's done & out of the picture now.


 
But does Paddy not get the residue?  Not sure how you could determine the residue until the property and liabilities of the estate are dealt with.

If a testator dies with liabilities outstanding then surely they are discharged out of the assets of the estate as a whole? 

I'm sure I'm missing something but I don't see why Mary would make any payments to the bank out of her own assets - she doesn't owe the bank anything.


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## mf1 (28 May 2015)

"I'm sure I'm missing something but I don't see why Mary would make any payments to the bank out of her own assets - she doesn't owe the bank anything."


Mary wants to stay/keep/live in the house.

mf


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## Thirsty (28 May 2015)

From what has been posted.

1. Mortgage is tied to the property


> Where a testator is disposing of property which is the subject of a charge or mortgage, then, unless the will says otherwise, the property bequeathed will bear the mortgage. I reckon that includes the arrears.



2. Mary is the beneficiary of the property, and by default, the mortgage.  So making payments on the mortgage reduces her debt.

3.





> If a testator dies with liabilities outstanding then surely they are discharged out of the assets of the estate as a whole?


Not in this case it would seem... see Item 1.

4.





> But does Paddy not get the residue


He did.


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## Sarenco (28 May 2015)

I don't think that's quite right.

Section 47 of the Succession Act basically says that there is a presumption that any sums charged on a property are primarily payable out of that property.  However, Mary doesn't inherit the mortgage debt - she is simply primarily liable for discharging that debt out of the inherited property.  So, as executor, she can either sell the property and clear the loan or she can raise the money elsewhere to do so and take the benefit of the property free of any encumbrance.  

In any event, the assets of the estate cannot be distributed until the liabilities of the estate have been settled.  If Mary is not in a position to raise the necessary funds to clear the mortgage and the proceeds of the sale of the property are insufficient to do so, then presumably the bank can look to the balance of the estate in settlement of the outstanding debt.  That's why it seems to me that Mary can't determine the residue of the estate, which Paddy is due to inherit, until the property and liabilities of the estate have been dealt with.

As things stand, it appears that Mary is discharging the liabilities of be estate (plus interest) out of her own assets.  However, the bank is still perfectly entitled to enforce its security interest and seek possession of the property and it will almost certainly do so.  If the sales proceeds are insufficient to discharge the loan then Mary's mortgage payments on behalf of the estate will be irrecoverable.

I may well be missing something here but that's how I see the situation.


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## Thirsty (28 May 2015)

Again, based on what has already been posted...



> ..the assets of the estate cannot be distributed until the liabilities of the estate have been settled


Mortgage is not a liability on the estate, it's attached to the property.  



> the proceeds of the sale of the property are insufficient to do so


on the information given, the property value is well in excess of the mortgage.



> as executor, she can either sell the property and clear the loan


Also has the option of putting it into her name via Deed of Assent.



> ...the bank is still perfectly entitled to enforce its security interest and seek possession of the property and it will almost certainly do so...


Just curious now... how long do you think that would that take?


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## Sarenco (28 May 2015)

No, the loan is a liability of the estate that is secured on the property by way of a mortgage and is primarily payable out of the secured property.  The debt will still exist regardless of what happens to the property.

I appreciate that we are told that the property currently has a value well in excess of the mortgage - this may or may not turn out to be case on the sale of the property.  For example, the house might be burnt to the ground and in such circumstances the value of the property might drop significantly.   However, the debt will remain.

No, the executor cannot disburse the assets of the estate until all liabilities are settled.  If Mary did execute a deed as suggested, this would not nullify or disturb the bank's charge over the property.

Does it matter how long it would take the bank to enforce their security?  I'm not sure I follow your point here.


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## Vanilla (28 May 2015)

Sarenco, the executrix can do as she wishes. She can distribute without paying any creditor if she wants.


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## Thirsty (28 May 2015)

> The debt will still exist regardless of what happens to the property.


No one is saying the debt doesn't exist or that the money isn't owed to the bank.  What is being said is that other assets of the estate are not used to clear the debt.  



> If Mary did execute a deed as suggested, this would not nullify or disturb the bank's charge over the property


Again, I don't think anyone is suggesting that the debt 'disappears'.



> the value of the property might drop significantly


For the sake of simplicity let's just accept at face value what we are told, that the property is valued at twice the outstanding mortgage.



> Does it matter how long it would take the bank to enforce their security


Well, yes I think it does...I'm wondering how a court would look at the case where the mortgage has been regularly paid for x no. of years and now a judge is being asked to grant a repossession order?


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## Thirsty (28 May 2015)

> She can distribute without paying any creditor if she wants.


Really? I thought Executor had to clear all the bills/funeral expenses etc.,?


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## Sarenco (28 May 2015)

Fair enough but any such distribution will presumably be void as against the estate's creditors and in any event that won't affect the bank's security.  If the assets are subsequently dissipated, personal liability may also become an issue.


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## Sarenco (29 May 2015)

Thirsty said:


> No one is saying the debt doesn't exist or that the money isn't owed to the bank.  What is being said is that other assets of the estate are not used to clear the debt.
> 
> Again, I don't think anyone is suggesting that the debt 'disappears'.
> 
> ...




I think your first point is essentially where we are in disagreement. You seem to be implying that the debt is only payable out of the sales proceeds of the property and if this is insufficient the balance of the debt is extinguished and is not payable out of the remaining assets of be estate. That's not how I read Section 47.

I'm not saying that Mary can't meet the liabilities of the estate from her own resources, I'm simply saying she is taking on unnecessary risk in doing so.

I'm not doubting what we are told in terms of the fact pattern - I'm simply making the point that circumstances can change.

I take your point that a judge is unlikely to be in a hurry to grant a possession order in these circumstances but while Mary may not have to vacate the property in short order she still won't acquire title to the property until the mortgage is discharged.


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## Thirsty (29 May 2015)

> debt is only payable out of the sales proceeds of the property


that's not me 'implying' it ... that's from mf1's post and since that person is qualified in this area I'm inclined to accept it.



> ..if this is insufficient..


again, lets not make assumptions, we are told that the value of the property exceeds the mortgage, lets take it that that is the case.





> I'm simply saying she is taking on unnecessary risk in doing so.


What risk?  again, leaving out assumptions about the value of property.  Mary is the beneficiary, the property is hers, subject to the mortgage which is being paid and from what you say, it appears to be worth doing so as "a judge is unlikely to be in a hurry to grant a possession order"





> she still won't acquire title to the property until the mortgage is discharged.


But if the property is put into her name via a deed of assent, then she's in no worse a position than every other mortgage holder in the country?


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## Sarenco (29 May 2015)

I don't think that is actually what mf1 said but perhaps s/he will clarify his/her view. 

In any event, I don't agree that the effect of Section 47 is that the mortgage debt is only payable out of the sales proceeds of the secured property.  It is certainly primarily payable out of that property but if this is insufficient to discharge the debt, the balance of the estate's assets come into play.

Fair enough, if the property could somehow be guaranteed to always have a value in excess of the outstanding loan amount then I wouldn't see any risk with Mary making ongoing mortgage repayments on behalf of the estate or transferring the property into her own name.


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## mf1 (29 May 2015)

Having considered the position more fully (and being in the office rather than stuck in traffic on a Bank Holiday Friday but getting bored because everyone else has gone home!)……

I think that because this is a solvent, rather than insolvent, estate that Section 47 means that the debt attaches to the property solely. The residue is untouched. I think it would be different if the estate was insolvent.

Mary is the executor. Her function and obligation is to deal with the estate – part of which involves paying off the deceased’s debts.


The mortgage debt essentially crystallised on the death of the mortgagor and the Bank are entitled to issue proceedings against Mary, as executor of the estate. The Statute of Limitations imposes a dead line of, I think, the two years that 44brendan refers to, within which the bank must bring proceedings or risk having the debt statute barred.  


Ideally, for Mary, the bank would agree to allow her to assume the responsibilities of the deceased under the mortgage, by formal deed and then they, the bank,  would not have a time pressure. Their contract would be with Mary. But because it is Danske and they want out, and they want to recover their funds, they very likely will issue proceedings against the estate. I think, not sure, that this would bring the matter into the Probate Court rather than repossession court so a lot less sympathy .


And we don’t know if Mary is living in the house. I think myself it is a bit fanciful for Mary to think she can just pay the mortgage and it will all be grand! She should be considering if she wants to pay the bank’s costs before deciding not to sell the house to discharge the mortgage. 

mf


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## Sarenco (29 May 2015)

Hi mf

Thanks for the follow up.

This is probably all a bit academic, but Section 47(3) provides as follows:

_"Nothing in this section affects the right of a person entitled to the charge to obtain payment or satisfaction thereof either out of the other assets of the deceased or otherwise."_

As such, if it turns out that the proceeds from the sale of the house are insufficient to discharge the mortgage, perhaps because of a title or planning issue, it seems pretty clear to me that Danske could seek recovery from the balance of the estate's assets.  If this was not the case, the effect of Section 47 would be to effectively turn a mortgage into a non-recourse loan on the demise of a person who has left a valid will but not a person who dies intestate.

In any event, I agree with your conclusion that it is a bit fanciful for Mary to think she can just pay the mortgage of the deceased and all will be grand.  This could prove to be a very expensive decision.


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## Thirsty (2 Jun 2015)

> they very likely will issue proceedings against the estate. I think, not sure, that this would bring the matter into the Probate Court rather than repossession court


Thanks mf - again from curiosity how long is it likely to take to get to a court hearing?


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## mf1 (3 Jun 2015)

Thirsty said:


> Thanks mf - again from curiosity how long is it likely to take to get to a court hearing?



Umm. I have no experience in this - I'd be taking Counsel's advice!

In broad terms, 

If I was acting for the bank, I'd be encouraging them to get moving on it so that they don't run out of time. I would certainly expect to be in Court in October this year.  

I suspect it would be a Probate action, against the Estate. Probably in the High Court.

If I was acting for the executor , I'd be saying, be clear about this, you stand to be made personally  responsible for any costs incurred - mind you, given that she is the major beneficiary, it would be her own money she'd be spending. 

I don't think Mary has any legal defence to the bank's application so, frankly, if the bank do proceed, she is on a hiding to nothing. 

It would be interesting to hear Mary's take on all of this - is it just, oh , this is a good idea, or, my only chance to own a house, or, someone said I should or, actually, no idea why I'm doing this?

mf


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## Bronte (4 Jun 2015)

mf1 said:


> Umm. I have no experience in this - I'd be taking Counsel's advice!
> 
> If I was acting for the executor , I'd be saying, be clear about this, you stand to be made personally  responsible for any costs incurred - mind you, given that she is the major beneficiary, it would be her own money she'd be spending.


 
Yikedy yikes.  Mary would want to cop on and sort it out !


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## Thirsty (4 Jun 2015)

hm... if it was any other bank would they have a problem transferring the mortgage to Mary?  Is there any thing legally preventing that from happening? (For the sake of argument lets assume Mary has the ability to repay).


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## Sarenco (4 Jun 2015)

Thirsty said:


> hm... if it was any other bank would they have a problem transferring the mortgage to Mary?  Is there any thing legally preventing that from happening? (For the sake of argument lets assume Mary has the ability to repay).


 
Well, if Mary has the ability to repay the mortgage then she presumably should have no problem getting a mortgage from another lender for the same amount and term.  No?


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## mf1 (4 Jun 2015)

What happens  a mortgage when a person dies?

Post 13 above

She can't get a mortgage - maybe age, income? 

mf


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## Sarenco (4 Jun 2015)

mf1 said:


> What happens  a mortgage when a person dies?
> 
> Post 13 above
> 
> ...



Fair enough but I suppose it was really a rhetorical question - if another lender will not advance the required amount to Mary (due to her age, income or any other factor) then it seems illogical to assume that she can afford to take on the deceased's mortgage (due to any of the same factors).

In any event, it is not legally possible to simply assume the liabilities of a deceased person.  The original debt would be deemed to crystallise on the demise of the original borrower.  For Mary to occupy the same economic position of the deceased, the lender would have to agree to treat the original loan as having been discharged and agree to Mary taking the place of the original borrower in what would, legally, constitute a new loan arrangement with a new mortgage, etc.  This would be the case with any lender.


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## Sophrosyne (19 Jun 2015)

In relation to whether the mortgage is a charge on the residue …

Liabilities connected with non-residuary gifts are only deductible as a charge on the residue if they fall exclusively or primarily on the residue.

Mary inherited the property as a specific disposition and as a non-residuary beneficiary. The mortgage is, therefore, not a charge on the residue.

If instead, she had inherited the residue _including _the property, then the mortgage would be deductible from the residue – TCA 1997 s 799.


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## Sarenco (19 Jun 2015)

I don't think anybody suggested that the bank has a charge on the residue but rather that it is entitled to pursue any outstanding loan balance (having realised its security on the charged property) from the residue of the estate.  The bank's security interest is not enhanced (or diminished) by the death of the borrower.


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## Thirsty (19 Jun 2015)

> ..it is entitled to pursue any outstanding loan balance (having realised its security on the charged property) from the residue of the estate..


 On the information given, in this case, the value of the property far exceeds the mortgage.  Based on mf1's earlier post as this is a solvent estate the mortgage attaches to the property.


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## Sarenco (20 Jun 2015)

Thirsty said:


> On the information given, in this case, the value of the property far exceeds the mortgage.  Based on mf1's earlier post as this is a solvent estate the mortgage attaches to the property.



The statute is absolutely clear that the lender can pursue the balance (if any) of the outstanding loan from the residue of the estate.  If the realised value of the property, less all relevant costs, is sufficient to discharge the loan then the issue is moot.  Nobody is arguing that the mortgage does not attach the property.


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## john luc (20 Jun 2015)

Just on the issue of having insurance on a mortgage. My sister got a mortgage and because she was over 50 years old she was given the choice. Your not forced to have one.


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