A Negative Inheritance

I want to make you aware of a situation I’ve run into a couple of times lately. In both cases, an heir inherited a piece of real estate and then discovered that there were loans on the property for more than it was worth. They then had to bring money into escrow in order to sell the property. In one case, the bank foreclosed on the property and now this heir has a foreclosure on his record!

Now I’m not an estate attorney, and I don’t know why these heirs took the upside down properties into their name and didn’t just leave it for the estate to handle. Perhaps they thought the house was worth one price, and then when they went to sell it 6 months later they discovered that the market had dropped below the loan amount. They weren’t my clients so I don’t know all the details.

But my point is this. We always assumed an inheritance would be a positive thing, and that if we inherited a house from a relative it would be a windfall. But these days it could be a burden instead of a gift. A number of seniors these days have put “reverse mortgages” in place that could erode any equity they had in the house, or perhaps they own rental property that has recently gone upside-down.

Now some of you might be offended that I even brought this up, but if you have good communication with your family, you might want to have an “economic summit” and see where everyone is financially. I know it used to be that talking finances with family members was taboo, but these days we all need to stick together. If a family can talk about things, then they can do better estate planning. Perhaps an over-encumbered house can be sold now rather than have it tie up the estate for 6 months to a year while the heirs deal with banks.

So please think about this. I’ve seen people get stung lately by inheriting a problem and I don’t want it to happen to you.