Death, Probate, Taxes, Foreclosure
Posted 21 June 2012 - 09:36 AM
At this early stage, there are soooo many unknowns. Not the least of which is the tax consequences of selling the house.
Quick history: Mom & dad bought the place in '76 for about $45K. They divorced in '87, so my dad refi'd for $105K to give mom her half of the value of the house.
Several cash-out refis later and the mortgage now stands at $187K plus the bank tacked on $5K because, apparently, the foreclosure process got underway. A local Realtor thinks the house value is maybe about $225K.
So we're wondering if the bank and the tax man are going to leave anything for us once the property sells? If not, (1) we're not seeing the point in fixing up and sprucing up the place since we'd never recoup the time and money; (2) might we be obligated to sell off all of dad's possessions if the tax man demands more than what the proceeds of the property sale can provide? and (3) maybe we're better off just emptying the house and letting the bank foreclose (a 2-3 year process)?
If we need to seek out a lawyer, then which kind? Estate? Tax? Probate?
Separately, dad had no credit card debt and there's no car loan. But he has an outstanding $21K personal loan from me and it'd be kinda nice if us kids could recoup the funeral expenses.
Posted 21 June 2012 - 03:01 PM
You might want to post the state of residence.
Posted 22 June 2012 - 09:50 AM
As noted, this is all in Maryland.
Posted 22 June 2012 - 10:13 AM
Posted 29 June 2012 - 11:57 AM
First, despite what that lawyer said, I'd most definitely use a lawyer (might be called an estate lawyer, or maybe just a generic lawyer will do). Maybe you talked to a lawyer who's used to dealing with high rollers and doesn't see any money in you. But there are lots of picky little things that need to be done in conformance with state law. For exapmle, you undoubtedely need to submit a letter to the mortgage holder properly notifying them of the death and how to make their claim. And you probably need to post a public notice to allow unknown creditors to make a claim. (Even if you're sure there aren't any, this has to be done, in Arkansas anyway.) There needs to be documentation, specific things to include in the text, specific deadlines, etc ... you can't just make phone calls. There are proper legal procedures for all these things, what to write in the letters and notice, varying by state law.
And definitely notify the mortgage lender of the death and be sure to start making payments yourself. Mortgage payments must continue to be made (and address all the utilities too, lest they be shut off for nonpayment. And the homeowners insurance: get on it and it'll probably stay in force. But if you let it lapse, it'll be harder to get new coverage on an unoccupied house)
All those unknowns ... a lawyer has or should have all the answers. Though with regard to tax quesitons, I'd consult a CPA, because the lawyer may not actually know the current relevant tax laws.
Go to IRS.gov, download and read the following pubs:
(Search on IRS.gov for those terms, and you can download PDF's).
Reading tax pubs might drive you crazy but that is the stuff you are obligated to know and do (or get help with). These pubs provide guidance about what to do when you're handling an estate and selling a house. Note: Dead people pay taxes. For example, an income tax form will have to be filed on behalf of your dad for 2012 (assuming he had sufficient income to have to file under normal circumstances). There may wind up having to be a separate income tax form filed later for the *estate*. (And I'm NOT talking about the estate taxes that millionaires owe). That's fed tax law ... I have no idea about Maryland tax law on top of that.
You'll need to open a bank account for the estate, and to do that you need a Tax ID number for the estate (see pub 559). Any monies coming in, including from selling the house, should go into this account.
The house issue is fairly simple though. All the history of loans doesn't matter. All that matters is you owe ~ $192 K apparently. And you might be able to sell if for $225, or whatever. So that difference is potentially the cash you'll get from settling the estate. As to whether it's worth the investment to make the house more marketable, maybe the realtor can advise you.
You probably need to submit a death certificate to the county tax office. Go there and check into it.
Not sure what your reference to taxes implies. By current tax law, the cost basis of the house is reset to its value upon the time of death. That's what you and any heirs notionally "paid" for it. When you sell it, you will experience a profit or loss compared with that value -- which will have tax implication for you and siblings individually on your own taxes, for the tax year in which you sell the house and collect proceeds. The original cost of the house years ago doesn't matter.
That means you need an appraisal of the house value as soon as possible by an appraiser with state-approved credentials (IRS tax law actually requires this. Do it, if the real estate agency has not already). Another reason you need a lawyer ... as part of the probate process there probably would be a letter to the court including a copy of such appriasal, with a lawyer's imprimatur that the appraisal is sufficient to meet legal requirements.
Wow that's what comes to mind right now. Let me know if you have any questions. Of course, I know nothing specifically about Maryland state law.
Edited by Kevin20, 29 June 2012 - 12:01 PM.
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