Spousal mortgage, underwater property - what to do?

Question

Hi all! Here I go again, reaching out for communal wisdom. Asking for a friend, who is in a tough spot: her husband passed away unexpectedly, leaving behind a rental property that is under water. It's rented and just about pays for itself, but doesn't cashflow. Mortgage balance is 120k, value is 80-90k. She does not want to keep it, partly because it's under water, partly because she doesn't have the time to manage it (husband was in charge of PM). A few questions:

1. Husband bought the property before they got married (it was his primary residence initially) and everything is still in his name: title, mortgage. Is this mortgage automatically hers now?

2. In her situation, what would foreclosure look like? What would a short sale look like? Does she need to worry about the usual ramifications of going through foreclosure?

3. Are there any arguments in favor of keeping the property?

4. What's the easiest/best/recommended way for her to disassociate herself from the property without risking financial/credit jeopardy?

I've reached out to a couple of estate planning attorneys, but wanted to post this here as well, since BP has provided invaluable advice in the past. Thank you!

Leonid Sapronov · Answer

@Ron S. Thank you!

Ron S. · Answer

Not an attorney or CPA but, premarital asset in his name only? Let it foreclose. Should have not an impact on her.

1) Mortgage isn't "automatically hers" now but, she is a legitimate successor in interest and does have all the rights the borrower had without any of the liability (Barring any legitimate documents that may exist to the contrary, like a will or trust with someone else listed as beneficiary).

2) A non judicial foreclosure, forecloses on the power of sale clause in the note. Quasi judicial is mostly non judicial but a ratified sale occurs with the courts. Judicial is a lawsuit and judgment. Maryland is a deficiency state so, the lender might be able to come back after the estate for any deficiency (might). See a lawyer.

3) Doesn't sound like there are any unless she sees a tax benefit see a CPA.

4) She doesn't have any "credit" jeopardy as she never applied for, nor was there ever any extension of credit to her. Financial jeopardy might just be if there are claims against the estate for monies owed (See a lawyer and CPA!). Quit paying is the easiest way to start a foreclosure but, i'm sure not making any recommendation to do so. A deed in lieu might work too if there are no other liens. Again, i'm not giving legal or financial advice here, just opinion.

Spousal mortgage, underwater property - what to do?

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