What to do with underwater house as part of an estate?
August 7, 2012 12:58 PM   Subscribe

Possible inherited underwater house in New York, what to do? Walkaway? Advice?

My relative is the executor for their parent's estate. The estate is basically a small amount of cash and a house with a $500,000 mortgage. It's possibly underwater though it's a little unclear after talking to multiple real estate agents.

Besides the house related expenses (mortgage, property tax, ongoing maintenance) there are no other bills or debts )

The house has been refinanced multiple times in the last decade and there is a chance that the dead relative was taken advantage of. The relative believes they have most of the refinance paperwork. The mortgage is now held by OCWEN. There is about 500k left and the interest rate is 6.something %. Paperwork that they have shows some sleazy behavior on the side of the outside person who did the refinance.

They have had some advice by one of the realtors to have the estate "walk away" from the house but they are unclear about what they should do. They have an basic estate lawyer but he is not qualified for this type of question.

Their questions:

1) Who should they talk to in New York (eastern Suffolk county) regarding possible loan modifications or possibly a law suit involving the refinance company?

2) What would be involved in "walking away" as an executor of a estate.

3) Any other advice?

They wish to do the ethical thing as well as possible get value out of the estate if any is possible. They would rather not spend years of their life dealing with the estate.

Thank you.
posted by bottlebrushtree to Work & Money (10 answers total) 1 user marked this as a favorite
Your relative needs a lawyer. One who deals in estate planning (the lack of which has caused this situation), or real estate.

The lawyers fees should be able to be paid for from the estate (said lawyer should be able to tell for sure whether that is the case in a free/cheap consultation session).
posted by sparklemotion at 1:04 PM on August 7, 2012 [4 favorites]

A good lawyer would be helpful.
You might also talk to a realtor that specializes in Short Sales.
posted by Flood at 1:25 PM on August 7, 2012

What are houses renting for in the area? Any chance you can rent for more than the mortgage payment+upkeep+taxes, enough to justify rental hassles?
posted by de void at 1:40 PM on August 7, 2012

See if it is possible to disclaim the inheritance.
posted by thrasher at 1:48 PM on August 7, 2012

Your friend will need to involve a more qualified lawyer, one who is versed in real estate.

Also, talk to the bank and let them know that the person who had the loan is deceased. You never know, in all of that argle-bargle that occured, it's possible that someone tacked on an insurance policy for the mortgage. I'd sure want to know if that was the case.

The living are not responsible for the debts of the deceased, so one doesn't need to take possession of a house that's underwater.

Again, and I can't stress this enough, get a freaking lawyer, a really, really good one.
posted by Ruthless Bunny at 2:12 PM on August 7, 2012

When we dealt with my Aunt's estate, we abandoned some similar assets in the probate process. The estate lawyer (and dear Heavens you need one) can walk you through the abandonment. It wasn't a big deal, but we had to be extremely careful about never taking those assets into an heir's name.

Estate lawyer. They are worth their weight in gold.
posted by 26.2 at 2:22 PM on August 7, 2012 [1 favorite]

Sadly, yeah, lawyer. If nothing else, they'll save untold hours. One thing a lawyer can do for them is to talk to the lender about something like a deed in lieu of foreclosure -- if you just walk away the foreclosure may drag on and on, making it a problem to close out the estate. Here's hoping that Ruthless Bunny is right and that there's insurance somewhere that may pay it off.
posted by tyllwin at 3:02 PM on August 7, 2012

Another thing I remember from resolving my Aunt's estate. Once the insurer is aware that the owner has died there are some expensive insurance implications (at least there were in South Carolina). The house was no longer owner-occupied and the insurance sky rocketed.

If you are planning to hold the house for sale, then consider you'll have increased insurance costs which will be only partly off-set by lower utility costs.
posted by 26.2 at 5:14 PM on August 7, 2012

Once the insurer is aware that the owner has died there are some expensive insurance implications (at least there were in South Carolina). The house was no longer owner-occupied and the insurance sky rocketed.

This definitely varies by state. In Arizona, my wife and I inherited a (not underwater) house that we immediately put on the market and sold. We were told by the estate's insurance agent that the existing homeowners insurance covered the vacant property as owner-occupied, as long as there was still furniture in it. Had we emptied it, we'd have needed to change the policy to a significantly more expensive one that is usually sold to landlords.

Nthing estate lawyer. You don't have to accept this debt if you don't want it, but it's easier than you think to accidentally accept it. Only a lawyer can tell you how to walk away properly, and advise you on whether you want to.
posted by toxic at 7:12 PM on August 7, 2012

Yes, get a lawyer, but I would also make sure that a family member actually physically sees the property. East end of Long Island (where real estate can be very valuable), multiple confused realtors, murky (no pun intended) history? Someone needs to go.
posted by thinkpiece at 4:21 AM on August 8, 2012

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