With 61.1 percent of Nevada homes underwater and many of those homes located in Las Vegas, many homeowners are still wrestling with what to do about their negative equity, including consulting with a Las Vegas bankruptcy lawyer. Despite the recent settlement between the banks and the federal government, the problem will remain for many more years. One unusual situation that arises occasionally is what will happen to older Americans who pass away before disposing of their underwater houses. Inheriting an underwater home is essentially inheriting a giant debt, so what should one do if this happens?
(1) Don’t panic. You can’t be forced by a relative to take on debt against your will. The specifics of the situation vary on a case-by-case basis, e.g. whether the house is a specific bequest in a will, non-specific, or if your relative died without a will (intestate). First, though the house and the mortgage (assuming there’s only one) pass to the relative’s estate, which is managed by the “executor” (probably you) from there.
(2) If you want to keep the house, do so. Maybe you want to rent it out over the long term and make money on it. At some point, the equity will turn positive and you’ll be able to sell it. Beware, though, that many of the tax benefits of home ownership do not apply to non-owner residents.
(3) If the house is a specific bequest, then you can “disclaim” it. This may require you to file a disclaimer with the court within nine-months after your relative dies. If you have any kids, they’ll have to disclaim it too, unless they want an underwater house themselves. At that point, it goes to the lender.
(4) If you owned the house with the relative, the house and the mortgage shift to your possession. Similarly, if you co-signed the mortgage note, you will be responsible for the payments going forward.
(5) The bad news is that the mortgage debt will cut into your inheritance. In other words, if you choose to sell the house, the other assets will be used to satisfy the mortgage, so you may end up with nothing. That said, once the estate closes, you will not need to take on the debt, and the bank will have to take the loss.
The loss of a loved one is rarely easy, but when their house—the most valuable asset for most Americans—loses all its value, you might be left with nothing. This is a bitter pill to swallow, and it’s one more reason filing a Las Vegas bankruptcy, which exempts some property, is a good reason to deal with an underwater home.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 702-880-5554 to set up your free consultation.