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Foreclosure is Definite Risk if Probate Not Handled Properly

Dear Mr. Premack: We have a very dear friend who recently passed away. She had three adult children, one who preceded her in death by two weeks and two who live out of state. Her husband preceded her in death several years ago. She never probated his will, so the house is still in both names. The home was not paid off by the time she passed. My husband and I were named as executors but, because of her debt, no clear title on the real estate and poor condition of the home, we were advised by our attorney to decline to serve. If no one submits her will for probate, what will happen with the real estate? Will the bank have to wait to foreclose until the four years during which time someone can probate the will? When they foreclose, what will happen to the contents of the house? – SST

If your friend named you and your husband as Coexecutors in her Will, you always have the right to decline to serve. When you decline you should inform the next named Executor, who can then decide whether to offer the Will for probate and ask the court for letters testamentary. If there are no named alternate executors, inform her surviving children. They can decide whether one of them will ask the court to be appointed “administrator” of the Will. Once power is authorized by the court, that executor/administrator can notify the mortgage company to submit its claim, and can control the claim and foreclosure process under the rules in the probate code.

You ask “if no one submits her will for probate” what happens to the house, which has a mortgage? When your friend purchased her house and borrowed the money to pay for it, she would have signed a promissory note and a deed of trust. The deed of trust is a security instrument signed by your friend which gives the mortgage holder certain rights. Those rights generally include the right to foreclose if the borrower defaults, without a court proceeding.

If the lender does not know that the borrower has died — just that the payments have stopped – then the lender will proceed to give the legally required notices. When no reply is received, the lender may exercise its authority under the deed of trust and proceed with a non-judicial foreclosure. Does it make sense for your friend’s children to allow this? No. They should take control, notify the lender of their mother’s death, and probate her will. They can then arrange for payment of the loan without foreclosure.

If the lender knows that she has died but that there is no probate on record, then the lender may choose, using its rights under the Deed of Trust (and under the probate code as a creditor) to initiate probate of the estate.

Two items are of interest if the creditor initiates probate. First, the costs incurred can be added to the debt secured by the Deed of Trust. The lender will not lose money; it will come from the sale of the house at foreclosure. Second, the lender does not have your friend’s Will and does not know who the Executor or heirs are supposed to be. Thus, the lender may initiate a “dependent administration” along with a “determination of Heirship”. Her children will be drawn into the process at this stage one way or the other.

If the children want the process to go faster and be less expensive, they would be well advised to intervene by filing the Will for independent probate. That act would cut-off the lender’s action, simplify the probate, cut costs, and still preserve the lender’s right to submit a claim (and to move forward with foreclosure if the claim is unpaid under the rules laid out in the probate code).

You also ask what will happen to the contents of the house if the lender takes over. Would your friend’s children really abandon their mother’s possessions, photographs, jewelry and other valuables? I would think this alone would be enough to motivate them to offer the Will for probate. At the very least, they can go to her home and empty the contents (the lender has no lien over the contents).

The final complicating factor is that your friend’s husband died several years ago, and his will was not probated. Thus, there is no record of clear title in her name. Action must be taken regarding her husband’s share of the house as well as her share. If he died more than four years ago, it is too late to have an executor appointed for his estate (though it may be possible to have his will probated as a Muniment of Title). If probate is not possible, the family may have to fall back to an Affidavit of Heirship under the state’s laws on intestacy to clear the title.

Paul Premack is a Certified Elder Law Attorney practicing estate planning and probate law in San Antonio.

Original Publication: San Antonio Express News, November 11, 2011


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