What happens to a mortgage after death of one party?

Moglet

Hope this is the right forum and someone might know the answer to this or where to find it.

When a house is held jointly between husband and wife and one party dies, I know the house passes automatically outside of the estate. What happens to the outstanding mortgage on the property? Who becomes liable for it?

If there is a life insurance policy but due the type it is, its proceeds are paid into the deceased estate, Wording from insurance company below.

“This policy was taken out as a joint Life Flexible Mortgage ISA plan under Inland Revenue Regulations the PEP/ISA holdings cannot be placed in trust or assigned to a third party. Therefore the death claim is payable to the deceased’s estate.”

What should happen to those funds?

dunstonh

Who becomes liable for it?

the spouse.

If there is a life insurance policy but due the type it is, its proceeds are paid into the deceased estate,

thats fine as the money in the estate can be used to clear the mortgage. As long as the will doesnt divert it. Although most mortgage life assurance plans would be joint life, joint owner, first death so the proceeds would not go to the estate but to the surviving owner.

Senior_Paper_Monitor

Firstly - the house only passes directly 'between husband and wife' (in fact they can be two friends, business associates, 'common law' couple and/or civil partnership i.e any two or more people part owning the property) if it is owned 'joint tenants' - however the majority are, so don't worry for now.

If it is owned 'tennants in common' then the share owned by the deceased will pass to their estate for distribution.

The funds from the insurance will become assets of the estate and distributed in accordance with the will (please tell me there is a will !) or in accordance with the Rules of Succession if not. **

The mortgage and its ongoing payment/settlement will be the responsibility of surviving parties to the mortgage.

** - Dunstonh's comment about the normal way for such policies to be written is 100% correct, so have that checked (my comment above assumes your statement is correct)

Moglet

It was husband and wife and owned as joint tenants. There was a very simple will that left money in bank account to husband, a policy long since cashed in to one daughter and reminder of estate equally to both daughters which consisted of a death in service benefit, pension contributions refund, her car and her personal belongings.

This was 6 years ago in May and in the Sept 05 I paid the insurance policy proceeds to the mortgage company. I am now thinking I was stupid!

Legal and General confirmed a year ago that the mortgage company had no claim on the policy and a new policy had been set up for my Step Dad as his *half* had also paid out on her death. I was advised (verbally) at the time by the mortage company, my Step Dad and a solictor that I saw in a free initial appointment that it was the mortgage companies money and the estate would be liable if I didn't pay it over.

Senior_Paper_Monitor

I assume that you were the executor ?

As the husband benefited you have done nothing wrong - would the husband have preferrred the cash and continued the mortgage - possibly / Is he better off as a result of yoru actions - maybe, maybe not - was his future made more secure - yes ... and he could always then raise funding on the unencumbered property if he wished.

If you feel that followed the deceased's wishes/objectives (and it would appear you did) then you can sleep at night.

Moglet

I was yes and one of the daughters.

Mum wanted us to have the house after both their deaths. He refused to make a will to that effect. She took legal advise and was told she could sever and leave her half to us. She discussed that with him, he hit roof and said he'd stop paying the mortgage etc. She left things as they were in the hope he would pass first. He didn't. She left her pension to my sister and the trustees carried out her wishes.

I had nothing to do with the mortgage as my Step Dad wouldn't allow me to and said he was taking care of it and as I knew the house was his, I accepted that and left him to it. It was only when L&G wrote to me and said we have to pay this into the estate that I was made aware of it and advised as above.

If I didn't legally have to pay that money to the mortgage company then I wouldn't have. L&G say I didn't, it belonged to the estate. The question I could never seem to get an straight answer to was what happened to the debt. If the estate was liable then I might as well just pay it over which is what I did.

ILW

If the policy had not been paid to the BS, the mortgage would have needed to have been paid one way or another or the house would have been repossed.

noh

ILW wrote: »

If the policy had not been paid to the BS, the mortgage would have needed to have been paid one way or another or the house would have been repossed.

Yes but if the policy had been paid into the estate the money would have been distributed by the will to the daughters as the mother wished.
The debt (mortgage) would have become soley the responsibility of the survivor, the Father.

Moglet

ILW wrote: »

If the policy had not been paid to the BS, the mortgage would have needed to have been paid one way or another or the house would have been repossed.

Yes but if that is the liability of the surviving owner then it's not my concern. He's got the house.

And the mortgage still has to be paid because he didn't discharge the remainder of the mortgage with the policy that paid out directly to him.

Moglet

noh wrote: »

Yes but if the policy had been paid into the estate the money would have been distributed by the will to the daughters as the mother wished.
The debt (mortgage) would have become soley the responsibility of the survivor, the Father.

So if I made a mistake at the time, is there anything I can do about it now? If the outstanding mortgage was and is not a liability of the estate then I mistakenly gifted half my Step Dad's mortgage value to him.

ILW

If you have in effect gifted away part of the estate that was due to other benficiaries, you could find yourself personally liable for making good to them for their losses.