Paying Off the Debts

Once you've paid any tax due and obtained grant of probate or letters of administration, it's time to meet the deceased's debts.

The biggest debt due on an estate is usually the mortgage. The mortgage lender usually insists on one of three things:

Paying Off the DebtsThe person who inherits the property pays off the mortgage in full immediately.

Paying Off the DebtsThe person who inherits the property takes on the mortgage on the same terms as the deceased.

Paying Off the DebtsThe property is sold to repay the lender. This action is usually a last resort.

Which one of these three options gets the green light depends on a combination of factors such as the size of the loan, the attitude of the mortgage company, the value of the property relative to the mortgage, and the financial position of the person inheriting the home. Call the mortgage lender to discuss the options.

Paying Off the Debts

If the will states that the property should pass to the beneficiary 'free from any mortgage debt outstanding on the property', then you must do your best to ensure that the mortgage debt is paid off from the residuary estate.

Paying Off the Debts

The deceased may have more than one mortgage, perhaps from separate lenders. The first lender has first charge on the property, which means they get their money, you guessed it, first. Once the first lender is satisfied, you have to see to the second mortgage. If the second mortgage can't be met in full, the second mortgage lender may insist that the property is sold.

Other debts such as credit cards, loans, and household bills should be paid out of the residuary estate. The estate residue is whatever remains after factoring in gifts made in the will. If the residue isn't large enough to cover the debts, you have no option but to use some of the assets gifted through the will to meet the debts (I cover this in 'Selling the Assets to Pay the Debts' later in this chapter).

Paying Off the Debts

Ask creditors for a receipt when you repay them; this is important for when you draw up your final accounts.

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