Inheriting Real Estate – Do I Refinance the House?

Here’s a good question I caught on Clark Howard show recently while Ilyce Glink was hosting:

“Do you have to refinance the loan on a house you have inherited?”

I think it all depends …..on whether the bank wants to proceed with any action.

There is normally a “Due on Sale” clause where the loan may get called in once the property changes hands/ownership.  Typically, the filing of the Death Notice in public records may trigger notification to the lender that a death occurred.

My gut reaction is that if there is alot of equity in a property, or it has the potential for higher and better use resulting in a great price, then the lender may take action to demand full payment (where you would have to sell, refinance or lose the house) or they take the property.

I suggest you consult with a real estate attorney since there may be other local, state, or federal rules of property transfer and notice (not to mention homeowner’s insurance and property taxes) that may be affected.

Overall, if taxes and insurance are escrowed by the lender and you can continue to make the payments, I guess it’s up to the bank.

Here is a link to a North Carolina Real Estate planning blog that mentions a Federal law (12 USC § 1701j-3(d)) that outlines exemptions from lenders invoking the Due on Sale clause for inheritance.

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