Mom and dad had a will, but I still don't own the property???
Presented by Cameron Lythberg, Lythberg Law, LLC
“Title” is one of the most important words in the real estate business. Having title to a piece of real estate is the most common way to denote that one has ownership of it. In your typical residential real estate transaction, the actual transaction boils down to an exchange of money for title to the property. Seller, in other words, conveys their title to the property to buyer in exchange for a sum of money. It seems simple enough, but we’ve all had times when the title wasn’t so clear. All too often, title issues come up during the passing of the title holder to their descendants. The most common issue I see is as follows: Mom and Dad own a house with a mortgage. In their will, they leave their house to one or more of their children. The children want to keep the home and realize the bank will foreclose on the mortgage if it’s not paid, so they contact the bank to put the mortgage in their name or names. The bank tells them they’re not the title holders so they can’t assume the mortgage. The children explain the original owners are dead and they’re the heirs, often times sending in a copy of the will, but the bank doesn’t listen. They then, of course, turn to a lawyer.
To answer why the bank takes this position requires a brief explanation of the different types of title one can have. The first and most common is “vested” title, meaning you’re the title holder on the most recent deed, case closed. Another form of title is “legal” title which is the position heirs find themselves in. The original title holders have passed and made it clear they want their children to own the property upon the death of the last vested title holder. The children may not know the term but they know they have a right to the property. Unfortunately, banks only want to see the first type of title, a “vested” title, so they can have the note holders and the deed holders the same. There are two ways to vest title in descendants. The first is a recorded deed commonly referred to as an “heirs at law deed” (note this is also commonly used for estate sales if no probate is opened) where each heir deeds the property to themselves. While this might seem like an unnecessary and wasteful step (after all isn’t the will enough?) it actually establishes a new deed in the chain of title that has heirs showing as the rightful title holders. The unfortunate part about an “heirs at law deed” is that it requires the cooperation of all heirs, if they don’t all agree to vest title, sell the property, etc. Then the property must go through probate to have the title changed which is a costly and prolonged endeavor. Another issue is, even if the probate is avoided, there is a two year “claims” period, that begins running on the day the descendant passed away where any potential creditor of the descendant can try to claim. Therefore, if there’s an heirs at law sale prior to the two year period running, I highly recommend having a title company do a bond in lieu of probate to keep the heirs safe. I should mention here that nearly all of these issues can be avoided with proper estate planning. Residential houses can actually be retitled automatically upon the passing of the last title holder with no further work required from the heirs if the title holders had proper estate planning done.