Reverse Mortgage and Probate in Tacoma, WA

Getting a house with a reverse mortgage left on it can be confusing, especially when dealing with probate in Tacoma, Washington. Does having a reverse mortgage automatically mean the house has to go through probate? No. 

Probate is a court process that decides how a person’s belongings are given to their heirs. A reverse mortgage is a loan secured by the deceased’s house, but it doesn’t always mean the house will go through probate.

Short Summary

  • Having a reverse mortgage does not automatically mean the house has to go through probate.
  • Probate in Washington involves identifying assets, paying debts and taxes, and distributing remaining assets to beneficiaries named in a will or according to state laws.
  • A reverse mortgage allows homeowners 62 or older to borrow against home equity with no monthly payments. Interest accrues and the loan is repaid upon death, moving, or selling the home.
  • Reverse mortgages offer cash without moving, no monthly payments, and tax-free money.  However, interest accumulation may decrease equity and complicate inheritance.
  • Usually, inheriting a property with a reverse mortgage does not require probate, but deciding its fate may involve options like selling, refinancing, keeping, or returning the property.

An Overview of Probate in Washington

Probate in Washington State simplifies handling someone’s affairs after they pass away. It’s a court-supervised process that involves:

  • Finding and Collecting Assets: This means finding everything the person who passed away owned, like their house, money in the bank, and any investments they had.
  • Paying Off Bills and Taxes: The money and things the person owned are used to pay any money they still owed, like bills and taxes.
  • Distributing Inherited Property to the Right People: After all the bills are paid, whatever’s left is given to the people mentioned in the person’s will or decided by Washington’s laws if there isn’t a will.

Do I Always Need to Probate?

No, you don’t always need to probate in Washington. It depends on how much belongings the person who passed away had and how it’s owned.

  • Small Estates:  If the total value is under $100,000, it can be distributed without probate.
  • Beneficiaries: Assets with designated beneficiaries can bypass the probate process.

Why Might Probate Be Helpful for Me?

Even though you don’t always have to do probate, sometimes it’s a good idea. Here’s why:

  • Court Help: During probate, the court can help solve any arguments between family members about who gets what.
  • Protecting Money Owed: Probate makes sure that anyone the person owes money to gets paid before the rest of it gets given out.
  • Making Sure Everything’s Legal: Probate clarifies ownership of items left by a deceased person, facilitating their sale or preservation by new owners.

What is Reverse Mortgage? 

A reverse mortgage is a special loan for homeowners who are at least 62 years old and own their home. Unlike a regular mortgage where you pay every month to own your home, with a reverse mortgage, you can borrow money against the value of your home. You can get the money all at once, in monthly payments, or as a line of credit. What’s more is that there is no need to make any monthly payments back.

Who is Eligible?

You have to be at least 62 and own your home with a good amount of value built up.

How Much You Can Borrow?

It depends on how old you are, how much your home is worth, and the current interest rates.

Interest Adds Up

Instead of paying each month, the interest on the loan gets added to what you owe, making the total amount go up over time.

Paying It Back

You or your family will need to pay back the loan when you pass away, move out for good, or sell the house. That includes the money you borrowed plus all the interest. If the loan is more than what your home sells for, your family usually doesn’t have to pay the extra.

What are the Benefits of a Reverse Mortgage? 

A reverse mortgage can be a useful money tool for homeowners who are 62 or older, but it’s not for everyone. Here are some good things to think about:

Get Cash without Moving

A reverse mortgage allows you to access the money you’ve invested in your home without having to sell it. 

Keep Your Home 

With a reverse mortgage, you can keep living in your home, which is a good idea if you like it there or it’s hard to find a new place.

No Monthly Payments

Reverse mortgages do not require monthly payments, allowing you to use your funds for other financial needs.

Tax-Free Money

The money you get from a reverse mortgage usually isn’t taxed by the government.

What are the Disadvantages of Having a Reverse Mortgage? 

Even though reverse mortgages might seem like a good idea for older folks who own a house but don’t have much money, it’s essential to know about the downside of it too. Here are the following:

  • Less Money Over Time: Money owed increases over time due to interest, potentially leaving you with less from selling the house later on
  • Owing More Than Your Home’s Worth: If your house becomes worthless and you owe more because of interest, you might end up owing more than the house is actually worth when it’s sold.
  • Less Freedom: Selling or moving can be complicated with a reverse mortgage. Some may restrict renting, and full repayment might be due if you leave permanently.
  • Taxes and Fees: Reverse mortgages often have closing fees, and while the loan itself isn’t typically taxed, selling the house later might trigger capital gains taxes (extra costs).

Does A Reverse Mortgage Go Through Probate? 

Usually, you don’t have to go through probate with a reverse mortgage. When someone with a reverse mortgage passes away, their family just needs to tell the mortgage company and they take back the house.

But sometimes, if the house is worth more than what’s owed on the mortgage, the family might want to sell it, pay off the mortgage, and keep the extra money. In that case, they might need to do probate.

Just remember, reverse mortgages come with big fees that need to be paid too.

What Can I Do When A Property with A Reverse Mortgage Goes through Probate?

Inheriting a house is great, unless there’s a surprise like a reverse mortgage. If the person who left you the house (the grantor) left you his house with a reverse mortgage, the bank may want it back. Here’s your options:

  • Sell it: This is most common. You sell it, pay off the reverse mortgage, and keep any leftover money (shared with other inheritors if any). 
  • Refinance: If the house value is high, you can get a regular mortgage. Use that money to pay off the reverse mortgage, then make monthly payments on the new loan. You keep the house, but there are monthly payments involved.
  • Pay it Off Yourself: You can use your own money or funds from other inheritances to pay off the loan and keep the house. This option requires a large sum upfront.
  • Give it back: Can’t afford to sell or pay off the loan? You can give the house back to the bank (deed in lieu). You won’t get any money, but you won’t owe anything either.

The lender usually asks the family to decide within 30 days what they want to do, or else the lender might start the foreclosure process.

Could Probate Still Happen?

Even after choosing an option, probate might still be needed. This depends on the grantor’s other belongings and how they planned for the house. Think of probate like sorting through the grantor’s things – sometimes it’s simple, but sometimes a judge needs to help.

Should I Go Through Probate When Inheriting a House with a Reverse Mortgage in Tacoma?

Let’s say you inherit a house in Tacoma with a reverse mortgage on it. Now you have to decide if you want to go through probate. Here’s what to consider:

Advantages of Probate

  • Clear Ownership: Probate establishes legal title for the house, simplifying sale or ownership without disputes.
  • Debt Protection: Probate ensures creditors are paid first, protecting you from inherited debts (excluding reverse mortgages)
  • Court Oversees Things: A judge manages probate, aiding in resolving heir disagreements over property decisions.

Disadvantages of Probate

  • Time and Money: Probate can take months (or even a year!) and cost some cash in court fees and lawyer bills.
  • Public Process: Probate records are public, so everyone can see what’s going on with the estate (including the value of the house).

Don’t Let Probate Add Confusion to the Process of Reverse Mortgage

Inheriting a loved one’s home with a reverse mortgage in Tacoma, Washington can be overwhelming. At James A. Jones Attorney At Law, we understand the complexities of reverse mortgages and probate law. Our experienced estate planning attorneys offer clear explanations, strategic guidance, and probate competence to help you navigate the challenging situation, considering the Tacoma housing market.

Don’t let confusion and uncertainty cloud this important time.  Contact James A. Jones Attorney At Law today for a free consultation. We’ll help you understand your rights and explore your options so you can make informed decisions about your inherited property.

Aside from providing solution and legal services on estate planning, we also provide legal help on special need planning and probate cases in Tacoma, Washington.

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