So, first off this is in Tennessee. My dad filed for reaffirmation on his house several years back. Turns out the lawyer did not submit the paper work correctly and the reaffirmation was never filed (Lawyer is also dead now, he was older).
My dad had to file a chapter 7 bankruptcy on the home. He continues to make payment on the house because he lives there. He’s afraid if he was to pass tomorrow, the bank or loan company would acquire the house and it would not go to me, his heir. I’m his only child.
How should one navigate a situation like this?
Acquiring my dad’s home if he passes with a bankruptcy.
byu/iamzoho inpersonalfinance
Posted by iamzoho
4 Comments
Does your dad have any other assets?
The bankruptcy does not automatically mean the bank gets the house when he dies. If your dad still owns the property and has continued making the mortgage payments, the house is part of his estate and can pass to his heir, subject to the existing mortgage.
Under federal law, lenders generally cannot call the loan due solely because the property transfers to a child after the borrower’s death, as long as the child inherits the home and continues making the payments. In other words, you would typically inherit the house and either keep paying the mortgage or refinance it into your own name if needed.
The bigger issue is estate planning. Your dad should make sure he has a valid will (or a transfer-on-death deed if Tennessee allows and it makes sense in his situation) and should consult a local estate planning attorney to confirm there are no lingering issues from the bankruptcy or reaffirmation problem.
This is very much worth a consultation with a Tennessee bankruptcy or estate attorney, but based on what you described, the house does not simply revert to the bank because he filed Chapter 7.
Bankruptcy discharged your dads personal liability (in personem) meaning if the real estate market tanked and the house was worth $5000 but he still owed $100,000, the bank could only take the house and your dad would never be required to pay the difference in value and debt, he would not have to pay the deficiency.
Bankruptcy did not discharge the liability against the real property (in rem), meaning the bank can collect its debt against the proceeds of the house, meaning if your dad stopped paying, the bank can still start foreclosure proceedings, and again, like above if the bank forecloses on its lien, they would only be able to collect against the house and your dad would never have to pay the deficiency.
Now if your dad passes, the lien remains on the real property. So then the heirs can continue paying the ongoing mortgage monthly until the lien is extinguished or if the property is sold, the mortgage company gets its loan paid off before proceeds are distributed to heirs.
Some districts actually do not allow mortgages to be reaffirmed, like the judge will not sign the reaffirmation order, I dont know if TN is one of those districts.
You will have to pay that debt to get title