Inheriting a Mortgaged Property in British Columbia

Inheriting a property can be a bittersweet experience, filled with emotions and legal complexities. One such complexity arises when the inherited property has an active mortgage. This situation can lead to a host of questions: What are your responsibilities as an heir? What kind of liability do you face? What are your options moving forward? In this article, we’ll provide a clear understanding of what it means to inherit a mortgaged property in British Columbia.

Inheritance and Estate Debt

It is increasingly common for testators to die with some form of personal debt, no matter the total value of their estate. One of the most common types of debt is mortgage debt on a family home or investment property. When a person dies with debt, their estate must pay back their creditors before beneficiaries can receive their inheritance. For more on inheritance and estate debt, see our recent article here.

Mortgages are a type of debt called secured debt. This means that the loan is tied to an asset the borrowed money was used to purchase. In the case of a mortgage, the creditor is the lending bank. They retain the right to seize the asset to recoup unpaid debt owed by the estate. 

Rights and Responsibilities of the Beneficiary

In British Columbia, the beneficiary who inherits a mortgaged property assumes responsibility for maintaining payments to the mortgage lender. They must handle other ownership costs such as property taxes and Strata fees. This applies even if the heir is ultimately going to sell the property. They may have to rearrange the details of the mortgage with the lending bank, but this may only happen when the mortgage is up for renewal. The lending bank will only exercise their rights to seize the asset tied to the secured debt if payments are not made. 

Importantly, the executor of the estate must maintain payments on the property from the estate until the transfer of the property to its beneficiary.

First Steps for Beneficiaries of a Mortgaged Property

Inheriting a house with a mortgage can be a complex and challenging situation. Depending on the circumstances, there are different options and consequences to consider.  The first thing to do is to contact the mortgage lender as soon as possible and inform them of the death of the previous owner. They may have a grace period for mortgage payments in these circumstances, but they will need to verify your identity and ownership of the property.

Next, beneficiaries must decide what to do with the property. Some options include:

• Paying off the mortgage balance with other cash and assets from the estate. This may be possible if you have enough funds or if the estate has other valuable properties or investments which you are entitled to.
• Taking out a new mortgage in your name. This may be an option if you want to keep living in the property or rent it out, but you will need to qualify for a new loan based on your income and credit history.. You may also need to pay fees and charges for setting up a new mortgage.
• Selling the property and using the proceeds to pay off the mortgage. This may be an option if you want to cash out quickly or if you don’t want to deal with maintaining or managing the property. However, you will need to factor in selling costs, taxes, and potential capital gains or losses when calculating your net profit.

Seeking Advice for Beneficiaries of Mortgaged Properties

Inheriting a house with a mortgage can have significant financial implications and responsibilities for yourself and your family. It is important to understand your rights and obligations as an heir, as well as the potential risks and benefits of each option. You should consult a professional estate planner or financial advisor before making any decisions. They can help you assess your situation, explore your options, and advise you on the best course of action for your goals and needs.

If you’re passing down a mortgaged property through your estate or expect to inherit a mortgaged property, contact an experienced estate lawyer today.

Have a question about this topic or a different legal topic? Contact us for a free consultation. Reach us via phone at 250-888-0002, or via email at info@leaguelaw.com.