In this probate estate. Debts exceed liquid assets. The decedent left
behind a house and the son of the decedent lives there. The son of the
decedent has lived there all the way back to July of 1999 when the
decedent originally purchased the house. This son and one other
brother are the sole heirs equally by will. The house has a value of
about $400,000 and a mortgage with about $82,000 as the payoff. The
son is paying the monthly mortgage payments and is in good current
status. The son is also executor and administrator of the estate.

The debts of the estate are greater than the liquid assets. The son
and his brother do NOT desire to sell the house, they desire to keep
the house and make the monthly mortgage payments. They have read that
when a home in a probate estate has a mortgage on it, the mortgage
goes with the property, but the property is NOT liable for the other
debts of the estate.

So the question is - Can the sons keep the house despite the estate
being insolvent if it is not sold, or must the house be sold?

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Clarification of Question by rainbowwarrior-ga on 22 Nov 2006 16:47 PST

Probate Estate Is in San Diego California. None of the debts are to a
government agency or tax autority or obligation, all debts are private
debt.

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Request for Question Clarification by denco-ga on 22 Nov 2006 18:57 PST

Howdy rainbowwarrior-ga,

A reminder of the "Important Disclaimer: Answers and comments provided on
Google Answers are general information, and are not intended to substitute
for informed professional medical, psychiatric, psychological, tax, legal,
investment, accounting, or other professional advice."

Do you have any idea where it might been read that the property is not liable
for the other debts of the estate?

From the research I have done to this point, the first part of the referenced
statement appears correct, that is, the mortgage is against the house, and not
against the estate itself, but the reverse does not appear to be true.

In other words, if the debts against the estate are not met, then the house
would need to be sold, the mortgage paid as a secured debt, then the rest of
the proceeds would be used towards the remaining debt owed by the estate.

The above is based on what has been stated so far, and might differ if there
was a "tenants in common" relationship, or if the two heirs could work out a
deal with debtors, such as assuming the debts, then getting a second mortgage
or refinancing the first on the house, etc.

As well, was there no mortgage insurance in place?  This would, at least, pay
towards the remainder of the mortgage of the house, but it would not be that
much of a surprise if the mortgage insurance had been removed before now.

Please advise.  Thanks!

Looking Forward, denco-ga - Google Answers Researcher

Dear rainbowwarrior-ga,

Essentially, here's how it works, if the lenders want 
to actively pursue collections, they can take sufficiently 
aggressive action to force the sale of the house.

It takes a LOT to accomplish that, so that's never their first choice.

They usually just wait until the house is sold and then collect
the balance due, plus interest and any collections fees. 

Here's your best option. Get in touch with each lender and negotiate
a reduced payoff. Make it clear that there's not enough money in the
estate to pay off everyone. 

It will probably be necessary to get a second trust deed on the house,
or a line of credit to pay off all the debts, even if reduced. 

You may consider finding an attorney who is experienced in this area
to negotiate the reduced payoffs, if the debts are high enough. 

I have seen widows or children who have called the credit card companies
and told them about the parent/spouse's death who have been convincing
enough to get the credit card companies to cancel the debt entirely.

Bear in mind, though. Canceled debt is taxable. So if the companies
do cancel the debt, they will issue 1099-MISC forms in the name and
Social Security number of the deceased. 

You will have to prepare tax returns to report the income from the 
canceled debt - both for IRS and California's Franchise Tax Board. 

Back to the debt question again for a minute. While the unsecured debt
is not tied to the property, it is tied to the estate. And as the executor
or administrator of the estate, the son can be held personally responsible
if he does not use the assets of the estate to pay off the estate's debt. 

As long as there is equity in the overall estate, the executor has to make
sure all debts are paid - or negotiated down and paid. 

So, sorry, there's no totally free ride!

But, it's well worth the effort to negotiate those reductions. 
You can easily cut 50% or more from the debt.
 
Best wishes,

Your TaxMama-ga

It seems odd that a house should be protected.

Possibly you've got things muddled up with insolvency laws.

Personally I would increase the mortgage.