What happens a mortgage when a person dies?

Brendan Burgess

Brendan Burgess

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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
 
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.
 
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.
 
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.
 
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
 
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.
 
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
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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?
 
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.
 
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.
.
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What year would be 'back in the day'? It was a very good idea and should have continued.
 
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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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.
 
44brendan said:
It could never be taken directly from the mortgage account.
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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.
 
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.
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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
 
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.
 
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
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Just curious where this comes from (not doubting you, just wondering which bit of legislation..)
 
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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Thirsty said:
Just curious where this comes from (not doubting you, just wondering which bit of legislation..)
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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.
 
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.
 
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.
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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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