If your parents die after paying all the outstanding mortgages on their property but without having a will, then you, the heir, own the property free and clear. In that case what you have to do is to continue paying homeowners insurance and property taxes until you sell the property. However, if there are outstanding balances on the property and your parents die in the meanwhile, then the responsibility to pay off the mortgages lies on you. If you make defaults in paying off the mortgages, then the lenders can initiate foreclosure proceedings.
Here it is to be noted that one important aspect of estate planning is to avoid probate so that the property can be transferred to you and other heirs in a smooth and relatively less costly way. Probate is a legal process of administering and processing the property in case the property owner dies. Generally it takes 9 months to 1 year for the transfer of the property to the heirs. Again, probate is a very costly process. It costs around 6% or more of the current market value of the home. So, it would be wise for you to try to avoid the costly legal process of probate. Here we discuss about some options available before you to better manage the property of your aging parents before they die.
1. Keep the property in a trust
You can keep the property of your aging parents in a trust. After the death of your parents, the property then goes to the beneficiaries in a smooth way without going through the costly probate process. One advantage of keeping the real estate in a trust is that your parents still enjoy the ownership rights and have all the rights to sell the property at any time. Moreover, trust ensures orderly transfer of the property among the beneficiaries.
2. Parents can deed the property to you and other siblings when alive
In order to avoid the costly probate, parents can actually transfer the property among the kids in the form of a quit claim deed or a warranty deed. It however has its own down sides. Since here the parents no longer own the property, chances of elder abuses are there.
3. Place a will for the property
Your parents can prepare a will for their properties. A will unquestionably establishes the beneficiaries of the property. It is certainly a better option that having no document at all. A will however does not avert the property going through the probate process. As told earlier, probate delays the property transfer process and it is very costly too.
As an heir, you have also the right of not to inherit the property. It makes sense to do so in case the property is underwater or have very little equity in it. In that case, the bank actually repossesses the property and sells it off so as to pay off the outstanding mortgage balance.