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    The following articles were written by former Probate Judge Merri Rudd.

    Use the categories or search to find information on what you are looking for. If you have additional questions, don't hesitate to contact us.

    Inheriting a House with a Mortgage

    09/30/2004
    11:20 AM
    Merri Rudd

    Editor's note: This column may not be quoted or reproduced in whole or part without express written permission of the author.


    Q: My aunt has left me her house in her will, but she has obtained a second mortgage on it recently that eats up most of the property's value. She does have other assets and cash, but there are other beneficiaries in her will too. If she dies leaving a large loan balance, will I need to prepare for that, or will the loan be paid off by the personal representative from her other assets? I do not believe she has any heirs or POD beneficiaries listed on her cash accounts, so I wonder if that money is available to pay the loan? F.H., Santa Fe

    You are what the law calls a "specific devisee," someone named in a will to receive a particular asset of a decedent.

    Although one law in the creditor's section of New Mexico's Probate Code allows a personal representative to pay off encumbered assets "for the best interest of the estate," another New Mexico law contains a specific section relevant to your question. The law reads, "A specific devise passes subject to any mortgage interest existing at the date of death without right of exoneration regardless of a general directive in the will to pay debts."

    Many wills contain general language that directs the personal representative of the estate to pay all of the decedent's legally enforceable debts. The second law quoted above prevents the personal representative from paying off a house mortgage before passing it to the specific devisee named in the will.

    Applying this rule to your fact pattern, you would probably inherit your aunt's house subject to her mortgages.

    My answer could be different if your aunt's will included instructions that you should receive the house "free and clear." But most wills I have seen do not provide for that result. 

    One interesting exception to the general rule comes from a different section of New Mexico's law. Section 45-2-606(B) states, "If specifically devised property is sold or mortgaged by a conservator or by an agent acting within the authority of a durable power of attorney for an incapacitated principal…, the specific devisee has the right to a general pecuniary devise equal to the net sale price…."

    This means that if your aunt were to become incapacitated and her house were sold by a court-appointed conservator or agent appointed in her power of attorney, you would be entitled to receive the monetary value of the house. "Net sale price," however, would entitle the specific devisee only to the amount after the mortgages were paid off.

    Finally, in researching the Uniform Probate Code to answer your question, I learned something new. I found another New Mexico law that says, "A specific devisee has a right to the specifically devised property in the testator's estate at death and…real or tangible personal property owned by the testator at death that the testator acquired as a replacement for specifically devised real or tangible personal property." This means if your aunt sold her current house and bought another house, you should still be entitled to receive the new house under the terms of her will.

    © 2004, Merri Rudd & Albuquerque Journal, All Rights Reserved 

    Appeared September 30, 2004, Albuquerque Journal, Business Outlook Reprinted with permission

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