Foreclosure on Deceased's Property in NYC

Knowing How to Handle Your Loved One’s Mortgage is Important

With almost every mortgage lasting several decades, having a mortgage last longer than one’s lifespan is all too common, meaning that there may be money due to the mortgage company after a loved one passes away. Knowing what your rights and responsibilities are when it comes to real property that is subject to a mortgage is important and having a New York City estate attorney advocating for you is the best way to make sure that your ownership interest is protected from foreclosure.

Mortgages don’t work like other types of debt in New York City. With most types of debt, beneficiaries are not required to pay a decedent’s debts outside of some restricted situations such as being a cosigner. With mortgages, there are different types of issues that come up, meaning that the normal rules regarding estate debts do not apply. This is because mortgages are secured by real estate, rather being unsecured, such as is the case with credit card and other bills.

If the decedent held the mortgage on real property jointly with someone else, such as a spouse, business partner or children, the surviving parties will still be responsible for keeping up to date on the payments to the mortgage company since the surviving parties would be considered to be the owners. This works similarly to other types of debt where there is a cosigner or where the debt was otherwise jointly held.

Where the issue of foreclosure after the death of a mortgagor becomes more complex is when the property in question is being bequeathed to those who are heirs of the decedent but are not co-borrowers on the loan. If that is the case, the executor or administrator of the estate needs to contact the mortgage company and make sure that the mortgage is kept up to date or risk that mortgage being foreclosed on. If this is not done, the bank could foreclose for the missing payments, just as it would have if the original mortgagor was alive. This would have to be done until either the real property is sold or an heir to the property assumes the remainder of the loan.

Also complicated is what kinds of liens there may be against the property in question at the time of death, along with if there are foreclosure actions that began before the death of the mortgage holder. Things such as estate taxes or real estate taxes could all present a lien on the property and make it subject to foreclosure, the same as a mortgage would. Also, if there is a pending foreclosure on the real property, the mortgage company or another party would need to make sure that the estate’s personal representative is given proper service for any foreclosure proceedings if there has not been a judgment issued before the decedent passed away.

One of the best ways to prevent foreclosure is to work with a New York City estate attorney to set up a great estate plan so that any real property that you wish to leave to your heirs is in place. This could involve setting up things such as insurance to pay the remainder of your mortgage and other expenses after you pass on so that you leave your family on the most secure footing.

The Garn-St Germain Act

The federal Garn-St Germain Depository Institutions Act of 1982 includes important protections for surviving family members who inherit residential property subject to a mortgage. Under the Act, a lender cannot enforce a due-on-sale clause when the transfer is to a relative resulting from the death of the borrower, when the transfer is to a spouse or child of the borrower, or when the transfer is to a relative resulting from divorce. This means that a surviving spouse, child, or other relative who inherits the property typically has the right to continue paying the mortgage on the existing terms without the lender demanding payment in full. The protection does not, however, relieve the heir of the obligation to keep current on payments — it only prevents acceleration based solely on the transfer.

Reverse Mortgages After Death

A growing number of elderly homeowners take out reverse mortgages, also called Home Equity Conversion Mortgages (HECMs). Reverse mortgages have particular rules when the borrower dies. The loan typically becomes due and payable upon the death of the last surviving borrower or upon the borrower no longer occupying the property as a principal residence. Heirs have a limited window — typically 30 days after a "due and payable" notice — to decide whether to repay the loan (or 95 percent of the appraised value, whichever is less), sell the property, or surrender the property to the lender. The Department of Housing and Urban Development has specific procedures that govern HECM payoffs and short sales. Acting within the timeline is critical to preserving equity for the heirs.

The Pre-Foreclosure Notice Requirements

Before a lender can commence foreclosure on residential property in New York, the borrower must receive a 90-day pre-foreclosure notice under Real Property Actions and Proceedings Law (RPAPL) Section 1304. The notice must be in a specific form, mailed to the borrower at the property and at any other known address, and must include certain disclosures about available housing counseling resources. The same notice must generally be sent to the executor or administrator of the estate when the borrower has died. Failure to provide the notice in compliance with the statute is grounds for dismissal of the foreclosure action.

Foreclosure Settlement Conferences

Once a foreclosure action is commenced on residential property, the court orders a settlement conference under CPLR 3408. The settlement conference is mandatory for owner-occupied residential property, and the lender's representative must attend with authority to settle. The borrower (or the executor of the estate) has the opportunity to discuss loan modification, forbearance, short sale, deed in lieu, and other alternatives to foreclosure. The settlement conference can extend the foreclosure timeline by months or longer, providing breathing room for the estate to evaluate options.

Loan Modification and Assumption

An heir who wishes to keep the property may be able to assume the mortgage and continue payments. Under federal regulations implementing the Real Estate Settlement Procedures Act (RESPA), a "successor in interest" — defined to include heirs of a deceased borrower — has the right to receive loan information and to apply for loan modification. The CFPB has clarified that successors in interest must be treated as borrowers for purposes of the mortgage servicing rules. We help heirs assert these rights when servicers refuse to communicate with them.

Selling the Property

If the estate decides to sell the property rather than hold it, the personal representative typically must obtain a court order authorizing the sale unless the will expressly grants the power of sale. The sale proceeds go to the estate, with the mortgage paid off at closing from the gross proceeds. The estate's net proceeds (after the mortgage, transfer taxes, broker commissions, and other costs) are then available for distribution to the beneficiaries. If the property is worth less than the mortgage balance, the estate may need to pursue a short sale with the lender's consent.

Deed in Lieu of Foreclosure

Where the property has little or no equity and the family does not want to keep it, a deed in lieu of foreclosure can sometimes be a clean exit. The estate conveys title to the lender in exchange for the lender's release of the mortgage debt. Lenders typically require the property to be in reasonable condition and free of junior liens. Deed in lieu transactions can be faster and less expensive than going through formal foreclosure, but they are not always available, and the borrower or estate should make sure the lender's release is broad enough to cover all aspects of the debt.

Liens Beyond the Mortgage

Beyond the mortgage, the property may be subject to other liens that affect any sale or transfer:

• Real estate tax liens. Unpaid property taxes are a first lien on the property. The city or county can ultimately foreclose for unpaid taxes.
• Water and sewer charges. These often become liens that follow the property.
• HOA or condo arrears. Common charges arrears can become liens.
• Judgment liens. Money judgments against the decedent may be recorded as liens against real property.
• Estate tax lien. A federal estate tax lien automatically attaches to the decedent's assets, including real property, although the lien can be released for properties that need to be sold.
• Medicaid lien. Where the decedent received Medicaid long-term care benefits, the state may assert a recovery claim against the estate, including real property.

Identifying and prioritizing these liens is part of administering the estate's real property.

Coordinating Probate With Foreclosure

The interplay between the probate proceedings in Surrogate's Court and the foreclosure action in Supreme Court can be complicated. The personal representative typically appears in the foreclosure case on behalf of the estate. Major decisions about the property — whether to fight the foreclosure, settle, sell, or surrender — should be made with input from the beneficiaries and, where appropriate, with court approval. We coordinate the probate side with the foreclosure side so the family makes informed, consistent decisions.

Time Limits and Acting Quickly

Foreclosure on a decedent's property moves on a defined timeline. Missing court dates, failing to respond to motions, or letting the property go uncared-for can produce outcomes that would have been avoidable with prompt action. We work with executors, administrators, surviving spouses, and heirs to act quickly when foreclosure threatens a family property.

Call a New York City Estate Attorney

If you are an executor dealing with a mortgage or are planning for your estate, call the Law Offices of Albert Goodwin at (212) 233-1233 or email [email protected] and schedule a consultation with a New York City estate attorney.