What happens to a balloon note when the lender dies?
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Anonymous
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Hi,
I am looking at getting a balloon note mortgage from my mother for 300K that I am paying interest only on. The note is due in 2035. Baring some amazing medical feat my mother will be passed away by then. Does anyone know what happens to that note? My understanding would be that it would be absorbed into the estate and would be part of my inheritance. So in my mind, she passes away, lets say has 500K in assets that she leaves to me. That 300K gets absorbed as part of the 500K she leaves and I get 200K inheritance? Does anyone know how this scenario would play out? |
Anonymous
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The 300K loan is an asset that is held by the estate. If you had 2 sisters and the three of you split the estate equally, you would then continue to make payments on the loan and each of your sisters would get 1/3rd of the interest payment. In 2035, you would pay 300K to the estate, you would get 100K, and each of your sisters would get 100K.
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Anonymous
Op here, thank you for the info. So I would have to pay the 300K to the estate in cash correct? Is there any scenario where I don't give 300K in cash at the end of the term? |
Anonymous
| Are there other heirs? Siblings? Presumably an arrangement could be worked out amongst you. Will she likely have a large estate where your share would be 300k or more? |
Anonymous
| I suppose much like a traditional mortgage it could be sold by your mother to some other person and you would owe them the $300k. |
Anonymous
OP here, I do have 1 sibling. He also has a note from her, not for as much, not entirely sure but 100K plus for sure. She will have a large estate, but most of it will not be liquid. She owns a home with a mortgage to a non family member and has other fully owned real estate property. In terms of cash I don't think it will be more than 300K but I assume total assets would be around 1 million. |
Anonymous
| You would probably inherit you "debt". |
Anonymous
OP here-That was my initial thought. Just wondering if the actual cash needs to go to the estate or if I would be able to inherit the debt? |
Anonymous
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If it's just you and a sibling, presumably you'd be able to cancel the debt with what you'll be getting as an inheritance. And be careful if she's in a state with a low threshold for estate taxes. NY for example taxes estates worth over $1mil, which isn't hard to reach if there's real estate involved.
Who will be the executor? You or your sibling, or someone else? Do you have a good relationship with your sibling? |
Anonymous
| The estate can certainly set off the debt against any inheritance. Hopefully, since the estate is illiquid, there won't be an issue amongst the heirs about timing and liquidity, etc. but theoretically set off is fine. |
Anonymous
| it sounds so bad OP. your mum is worth more dead than alive? |
Anonymous
| I'm unclear what you are asking. If there is a mortgage then "the estate - you" either pays the bank directly, or sells the house to pay off what is owed to the bank, of the bank takes the house.... This is how mortgages work.... |
Anonymous
I'm unclear what you are asking. If there is a mortgage then "the estate - you" either pays the bank directly, or sells the house to pay off what is owed to the bank, or the bank takes the house.... This is how mortgages work.... |
Anonymous
OP-Haha, No, not the case at all. But I kind of need to know what I am getting into 20 or 30 years down the line if we set up this kind of agreement. |
Anonymous
The "Bank" would by my mother. There would be no mortgage owed to a bank, this would be borrowing directly from her with a balloon note repayment. |