What happens if a deceased's property is still under loan and there are no specifications how it should be paid off?
Unless otherwise specified, the outstanding mortgage on the property is not to be settled using other assets from the estate. Instead, the outstanding mortgage is to be paid by the beneficiaries of the property or to have the property liquidated to pay off the mortgage loan. In cases where the property's value is less than the outstanding mortgage, the creditor (mortgage lender) may claim from the deceased's entire estate, which includes assets other than the property.
This is why it is important to speak with a Certified Estate Planner to review your assets and liabilities for a more holistic estate planning approach. If you have existing insurance, you can specify that the policy be used to cover the mortgage of a particular property. Alternatively, if your insurance is insufficient, you may want to consider obtaining separate coverage, such as mortgage insurance, to specifically address the debt associated with the property. Taking these steps ensures your intentions are clearly laid out and provides peace of mind for your beneficiaries.
Section 58 of the Probate and Administration Act 1934 specifies how debts or charges on a deceased person’s property should be handled. This section clarifies the responsibility for settling such charges and ensures a fair distribution among heirs unless the deceased explicitly expressed a different intention in their will or another document.
Primary Responsibility of the Charged Property
Under subsection (1), if a deceased person owned or was entitled to a property that had a debt or charge (e.g., a legal mortgage, equitable charge, or lien for unpaid purchase money), that property is primarily responsible for repaying the debt. This applies unless the deceased had explicitly indicated otherwise in their will, deed, or another document.
Proportionate Sharing of the Debt
Subsection (2) states that if the charged property is divided among different beneficiaries, each beneficiary’s portion must contribute to the repayment of the debt in proportion to the value of their share of the property. This ensures that no single beneficiary bears an unequal burden of the debt.
Applications to the Rule
Subsection (3) explains that a general direction in the will, such as "pay all my debts from my estate," does not automatically override the rule that the charged property is responsible for its own debt. To change this default arrangement, the deceased must clearly express in the will or other legal document that the debt should be paid from another part of the estate or by other means.
Rights of the Lender
Finally, subsection (4) preserves the rights of the lender or creditor. If the property’s value is insufficient to cover the debt, the creditor can still seek repayment from other assets in the deceased’s estate or through other legal means.