Notes; death of borrower ....what needs to be done?

Question

Hi. So here is the situation - note @$20k, home @ $100k value ;

California

Unmarried borrower on note isextremely ill in ICU, unlikely to live much longer.

No will found (yet), thus no designated executor. Overwhelmed brother is acting as decision maker, (MIA gambling-addict) son would be sole heir if borrower dies intestate.

The owners of the note have had contact with borrower's brother. They have no particular wish to foreclose but DO wish to protect their interest. It is likely that there is not enough cash in the estate to carry the note payments for more than a month or two at most. Insurance and taxes are due soon.

The Lenders COULD foreclose if no payments are, but have no wish to take advantage of the situation or cause ill-will. Their sole concern is protecting their interest. Deferred payments wouldn't cause a hardship as long as they get paid eventually. Other than "contact a lawyer" (their next move), are there any other actions they should take? Again, they merely wish to protect their interest, not take advantage of the situation.

Suggestions?

.

Deanna O. · Answer

Update. Owner did pass away. After some uncertainty the family of deceased decided to deal with the hassle of probate and keep the property. My parents were relieved, since rightly or wrongly the family members would probably regret it later if they had just let the property go in a foreclosure, since there was some modest amount of equity due to the recent market upticks.

Andrew S. · Answer

@Deanna Opgenort I don't think there is anything to worry about then. Deed properly recorded, plenty of equity in the property. Just proceed as @Wei Xie suggests above

Deanna O. · Answer

Thank you. Theirs is the first (and only) position. Title is clear, no liens against the property, no one else on the title.More just wondering if there are standard prudent actions that veteran note-investors take when this kind of thing happens. I am a little bit concerned that the "unknown" might be spook them into spending excess $ on lawyers. Given that so far there has so far been no ill-will among the parties, and that the chance of a default is small on such a tiny note ($18k), a few $ hundred for some hand-holding and sound advice is reasonable, while spending $ thousands for no-holds-barred pre-emptive legal defense maneuvers would be excessive. I believe the original note was either written or reviewed by a competent attorney when it was created.

Victor N. · Answer

Obviously, you need to consult a local attorney to review the note and security instrument (mortgage or deed of trust). The default section should spell out whether the death of the borrower is a default allowing your parents to declare a default and insist on payment in full upon the son inheriting the property.

Andrew S. · Answer

As @Rick H. asked, are there other notes on the property and is yours in first position?

Deanna O. · Answer

My parents originated and own the note. The borrower is, per her doctors, dying (she has been ill for awhile, so this is not entirely unexpected).My parents aren't interested in selling the note, buying out the heir apparent or foreclosing - they simply want to safeguard their investment while the estate trundles through probate. They are fine waiting until the estate is settled as long as they get their cash & interest. Their two concerns are that the insurance be paid, and dealing with the son if he inherits (compulsive gambling addict - do they have the right to insist the note be paid off if he inherits?).My only possible interest is that if it were going dirt-cheap in the probate sale I might consider buying & asking my parents to allow me to assume the note.

Rick H. · Answer

This has been my business for the last 25+ years. I'm not clear what your role is. If the note is sufficiently secured by deed of trust in 1st lien position on CA real estate, note holder should be pretty safe.You have not given us any clue as to what your position is: agent, property buyer, note buyer, etc.If you use my A.D.E. Model to analyze the opportunity, decide if better to buy the asset, the debt or the (heir's) equity.Buying the Asset requires some level of probate. Since value under $150,000 a summary probate is likely sufficientBuying the Debt means buying the trust deed note with the hope of getting a return on the equity that is carved out of the collateral's equity. A secured creditor does not need to notice for claim to survive unless challenged or initiation foreclosure, whether judicial or non-judicial under CC 2924(a-k).Buying Equity from heir(s) is a tricky thing. You can probably get the alleged heir (Son of decedent) to assign his beneficial interest in decedents estate (pursuant to PC 7001). However, there are many, many potential pitfalls, such as other heirs (?), unknown creditors (DHCS Medi-Cal frequently has claims exceeding the entire equity of an estate.After nearly 2,000 probate deals (and counting) over several decades I've stepped in a lot of poop. If you do, scrape your shoes (or throw them away) and move on.

Wei Xie · Answer

It seems that a probate is very likely, which could last a few months at least. If so then you need to submit your secured claim to the court and wait it to be paid out. It is likely that the judge will order the house to be liquidated to pay back the obligations. I am not an attorney and therefore you probably need to consult a local attorney before taking action.