Owner Finance - What if owner/seller passes away?

Question

Hi BP,

I'm working out an owner finance deal and I'm curious what would happen if the seller passes away while our agreement is still in place.   Would I just start making payments to the heirs of their estate?

Zach Lemaster · Answer

@Greg Larson It all depends how the note is set up along with the will.  You may or may not be required to.  Highly recommend speaking with an attorney.

Caroline Gerardo · Answer

@JD Martin answered this perfect. Assuming subject is free and clear, you use an escrow and pay for owner's title insurance: you will pay to the heirs. If in a Living Trust, payments go to beneficiaries but make them in the same Trust Name until they notify you. If not in a trust and exceeds probate floor if the estate is more than $50000 for TN,  the probate court takes over. Heirs can DIY through the courts and may take two years or hire an attorney and hope to settle in 12 months. Probate court is slow. You make your check to the court appointed person. Probate records are available in county superior court some counties are free some are three dollars to print a page.

If you are talking about a wrap around or some such- the existing lender may find out they are deceased and accelerate if checks change (checking accounts get frozen) or if insurance changes.  Pray the note is not a HECM that's another novel.

Tom Gimer · Answer

The seller is the bank. All banks have a successor.

Don’t overthink things… just keep sending payment per the original agreement until instructed to do otherwise by the confirmed successor.

Account Closed · Answer

I love owner finance deals. Make sure you get title insurance and have insurance.But, you don't mention if it's one person or two or three people or a Trust or an LLC owning the property and are selling and becoming the lender(s). Or if they are even in the same state as the property. That all matters.So, it depends. How do you know who the "heirs" are or if they are entitled to the payments? You can do several things. The owner can designate what to do in the event "the seller is unable to receive payment". ie, incapacitated, hospitalized, deceased, etc. Get it in writing and notarized. Also, get a limited power of attorney to talk to their lender in the event of one of those things occurring. You will need to be able to talk to the bank about tax payments, insurance issues, payoffs etc in the future.You can technically, with their permission, take out and pay for an isurance policy that pays off the loan in the event they pass. You make the payments, they go on with life knowing the underlying loan will be paid off.

You need a clear agreement for financing (usually a Note & Mortgage) & that takes care of most things. You will have to prove to the "heirs" what the agreement is so you don't get bounced out of the property as a "squatter".

You want the Warranty Deed recorded.

Out west a Title & Escrow company can do all of that for you. On the east coast it's usally an attorney. I don't know your choices in TN, it may be both options.

Khari F. · Answer

@Chris Seveney Hi is there a LSC that works nationally?

Richard Bechtol · Answer

In an owner financed deal like you are referring to the actual interest that the owner maintains is considered personal property. This means that it would juts pass to the heirs in whatever form the remainder of personal property would or in the manner specifically laid out for that particular piece of property. There is a minimal risk of anything other than it taking forever to get through the courts occurring. However, this does not really have an impact on you because you will continue making payments until payment is complete regardless.

Chris Seveney · Answer

@Greg Larson

This is just another of about 10,000 reasons why there should be a loan servicing company involved in the deal to manage the payments on the loan

Eliott Elias · Answer

Goes to their heirs

JD Martin · Answer

Assuming you do this the right way - with a purchase contract, title search and deed of trust with the owner having a first lien on the property, yes you would simply continue making payments to the estate of the owner. If the owner doesn't hold their assets in trust but has a will, then you would make payment to the probate court while the will was being probated. You're in my state (TN) and probate can take a while here. I once bought a house out of probate and it took 7 months before the court released the asset so I could close on it. You would get in contact with the executor of the will while it was in probate and S/he would direct you how to continue payments - either directly to the court, into an escrow account, or something similar - until the will was finalized and assets dispossessed.

Bottom line is the debt doesn't just go away. If it's not in a trust, everything the decedent owned is part of the estate and subject to claims by anyone challenging the validity of the will or having a debt claim against the estate here, and it takes months before the period of making a claim is closed and can take even longer if someone makes a claim even if it is dismissed.

Owner Finance - What if owner/seller passes away?

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