What Happens To A Mortgage With Inherited Real Estate?
When it comes to inheriting real estate, is the mortgage also included? Or does the trustee or executor pay the mortgage off before the property is transferred to the new owner? Well, simply put, the mortgage stays with the property.
If the property is in a trust or estate, the executors should keep making the mortgage payments before the title is transferred to the person inheriting it, using the trust or estate funds. This will help to prevent incurring late fees, or even lead to the default on the mortgage, and even trigger a foreclosure proceeding.
Refer to the Will or Trust for Guidance
The trust or will document should always be used for guidance. This means that if the document stipulates that the estate or trust funds be used to pay off the mortgage, then the path is clear. Nonetheless, most wills do not contain such information, and will probably use general terms on debt repayment. In general, that doesn’t always mean paying off a debt secured by or attached to a certain real estate or other assets.
The Rights of the Inheritor
As mentioned earlier, someone inheriting property that is under a mortgage will also inherit the mortgage as well. As such, the new owner can take over the old mortgage and resume repaying without any change in the terms. This was made possible by the Federal Law referred to as the Garn-St. Germain Depository Institutions Act of 1982.
Set out in the Act are a number of provisions that prohibit lenders from enforcing a “due-on-sale” clauses in mortgages, called acceleration clauses. Acceleration clauses allow the lenders to demand a mortgage to be fully paid off when real estate is sold. But under the Act, the lender is not allowed to demand mortgage payments when the transfer:
• Is due to the death of a tenant by entirety or a joint tenant
• Is being made to a relative after the death of a borrower
This law is applicable to residential property with four or fewer dwelling units, and includes residential manufactured homes. It’s also applicable to a lien on the stock that’s allocated to any unit with a cooperative housing corporation.
What Options Does the Inheritor Have?
The new owner can keep making the mortgage payment if the law covers the inherited property, based on the existing terms of the mortgage. This is often ideal if the new owner can afford making these payments, since they don’t need to apply for a mortgage considering all the expenses and hassles it entails.
What Happens When the Beneficiary Can’t Afford the Property?
If the new owner can’t afford making the mortgage payments and/or the other expenses of home ownership like repairs, taxes, and maintenance, they must consider using other strategies, just as any homeowner in such a situation would.
When affordable refinancing isn’t available, or when the new owner doesn’t intend to live in the house or rent it out, selling it might be the best option. Keep in mind that when the property is sold within the first year after the death of the previous owner, the inheritor will most likely not owe any capital gains tax.
Thanks to our friend, trusts and estate planning attorney in Carpinteria, Neal Bartlett, for his insight on what happens to a mortgage with inherited real estate. Neal is the founding attorney at Bartlett & Herrington, PC. He helps families in Carpinteria, Montecito, Ventura and Santa Barbara create estate plans and elder law plans to protect their families and assets. Visit the website to learn more about the law firm.
Hawaii County (Big Island) Property Taxes Explained
Most people think of Hawaii as a beautiful place to live where taxes are high. In some areas, they're right. But, when it comes to property taxes, Hawaii has some of the lowest rates in the country.
Each Island in the Hawaiian chain is it's own county. The Island of Hawaii, also known as the Big Island is Hawaii County. Each Hawaiian county sets their own property tax rates. In Hawaii County there are tax rates for the different property classes, ie. Residential, Commercial, Hotel/Resort, etc. There are are also tax rates for owner occupied properties and investor owned properties.
Hawaii County tax rates are very favorable to owner occupant residents of Hawaii. The county determines an assessed value for each property. There are two exemptions for owner occupants. The first exemption is determined by the oldest owners age. Owners younger than 60 receive a $40,000 exemption off of the assessed value. Owners between 60 and 70 receive an $80,000 exemption and owners 70 + receive a $100,000 exemption.
The second exemption for owner occupants is 20% of the assessed value up to a maximum of $80,000. This amount is also taken off of the assessed value. Another benefit of being an owner occupant is the 3% cap yearly on assessed value increases.
Once Hawaii homeowners add up their two exemptions and deduct it from the assessed value they calculate their property tax by multiplying the reduced assessed value by .615% (.00615). That is just over 6/10th's of 1% of a discounted assessed value. These are some of the lowest tax rates in the country!
Residential tax rates on investment properties in Hawaii County are just over 1% of the assessed value. Which is also very reasonable.
So, if you are thinking about living in Hawaii, I just gave you another reason. If I can be of assistance in your search for real estate in Hawaii, don't hesitate to contact me.
Rich Bosselmann R(S)
Koa Realty Inc.
If you are looking for a condo in Kailua-Kona that accepts dogs and cats, you are in luck. There are many pet friendly complexes in Kona, but finding them can be a challenge. Owners and residents of condominium complexes agree to follow rules that are spelled out in the development's CC&R's or Covenants, Conditions and Restrictions. Some Kona condominiums have CC&R's that do not allow dogs or cats. Others, welcome our four legged friends with open arms and aloha.
Many Kona condominiums have a weight limit on the dogs allowed to live in the complex, I have seen quite a few that cap it at 25 lbs. In most cases, there is some flexibility when it comes to the size of the pet. Larger dogs are often allowed with Board of Director approval. So, if you find that perfect Kona condominium but your little friend is a little too heavy, there is hope.
As a long time dog lover and owner in Kona, Hawaii; I must say, finding places to let your dog exercise and play can be challenging, but not impossible. There currently are no designated dog parks and I don't know of any beaches that allow them off leash. However, the Humane Society is building a dog park right above town. The little beach at Honokohau Harbor is one of the only dog beach areas we have and it's a great place for dog's that love to swim. With the limited options out there it's a good idea for dog owners interested in condominium living to find a complex that has good access to great trails, sidewalks and other places to walk their pets near home. Some complexes are better located than others.
If you would like me to email a list of active condominium listings in complexes that allow dogs and cats I would be happy to. I can also point out some complexes that are walking distance to great trails and scenic sidewalks.
Don't hesitate to call or email with any other questions that you may have about the Kona real estate market or real estate in general.
Rich Bosselmann R(S)
Take a look at my great new listing! This 3 bedroom 3.5 bath beauty is very successful vacation rental. Families love it, and you will too. Located in the exclusive Ho'omalu on Alii Drive, just a short walk to popular White Sands Beach where the swimming is great and lifeguards are on duty daily.
This neighborhood consists of mostly 5 AG zoned acre parcels right in town. This particular home is on a 14,000 sq. ft lot. with great privacy.
This home is built with high end finishes including, solid wood doors throughout, 10' ceilings, granite counters, stainless appliances, quality cabinets and much more.
If you are looking for a high end vacation rental, luxury second home or beautiful primary residence in Kailua-Kona, take a look at this gem.
Contact Rich Bosselmann R(S) for a private showing (808) 785-4664.
New Listing! 75-634 N. Lanikila Place, Kailua-kona, HI 96740
Beautiful, very well maintained single level 3/2 in popular Pualani Estates. Looks like new, built in 2010. Central air conditioning, stainless steel appliances, tile surround in bath/showers, covered lanai off the great room and much more. Located at 600 feet elevation with lovely ocean and mountain breezes. The back yard has a vinyl fence and the entire property has irrigation. Excellent location on a quiet cul-de-sac street. Sold furnished. Asking $549,900.
Contact Rich Bosselmann R(S) (808) 785-4664 for a private showing.