Who Pays the Mortgage on Inherited Real Estate?

When property gets passed down to an heir, and a mortgage comes with it, does the heir pick up this debt along with their inheritance, or does an executor or trustee have some responsibility for the mortgage? Essentially both can be true. The mortgage bill goes to whoever has the real estate. In brief, the mortgage can be handed down to the inheritor along with the property, but before the property is actually transferred to that heir, the executor may have to make arrangements for staying on top of the mortgage. Keep reading to get a more in-depth understanding of how this would actually play out, and what your choices are as an executor or inheritor.

Trustees & Executors

If you are the executor or trustee, and if real estate is still being held in a trust or estate, waiting to be transferred to the inheritor, then you need to pay the mortgage. You can draw on the funds that are held in the trust or estate. Otherwise, you run the risk of late fees, defaulting, or even foreclosure. Your responsibility is particularly clear cut if the decedent's trust or will actually tell you to pay for the mortgage with trust or estate funds. Such directions are rarely in these documents though. Any directions about paying debt are not usually not considered as referring to a mortgage or car loan.


If you are inheriting real estate with a mortgage, the mortgage will probably be coming with it. If the real estate consists of no more than four dwelling units, then under federal law, you can start paying the mortgage without having to modify any of its terms (thanks to the Garn-St. Germain Depository Institutions Act of 1982). This means that the "due-on-sale" term in the mortgage cannot apply when property is transferred:

  • On the death of a tenant or joint tenant, or
  • To a family member because a borrower passed away

This means that if you don't want to, you don't have to apply for a new mortgage, which could save you time and money. But what if the mortgage payments (or the property taxes, costs of upkeep, etc.) are too high? You may have to look into refinancing, or renting the place out. Of course, selling the property might be a good option. If you do go ahead and sell the inherited real estate within a year of prior owner's passing away, then you can probable evade the capital gains tax.

Legal Help You Need for Complex Estate and Trust Decisions

Further regulations might govern the transfer of real estate and its accompanying mortgage, depending on your state. If you need legal advice or representation to handle matters of estate planning or probate, be sure to contact an experienced probate attorney from our directory today!