Death

Is There Anyway I Can Negotiate Down the HELOC I Inherited?

Written by Steve Rhode

Question:

Dear Steve,

My parents are deceased and my mother transferred the house into mine and my sister’s name. My sister is disabled so she is on a very limited income and scads of medical bills all of the time.

I am a single parent with $45,000.00 in student loan debt plus all of the household debt/insurance and car payment. My parents have paid on their HELOC for over 25 years and the balance is 43,363.99. the balance in their probate after settling 2 other debts is around $3,500.00.

Is there a way that I can negotiate that debt down? Any payment that I can make barely touches the principal balance of the HELOC.

Sandy

Answer:

Dear Sandy,

What seems like a somewhat simple situation has all sorts of side issues. Before you do anything, you need some more information.

Inheriting an asset like real estate can be both good and bad. The downside is, depending on the laws in your state, the house may be able to be attached by a judgment if either of you is sued.

This gets into some technical legal issues and you’d need to discuss how the home was titled with an attorney licensed in your state. Preferably a real estate attorney.

The three primary forms of ownership are:

  • Joint Tenancy with Rights of Survivorship
  • Tennents in Common
  • Tenancy by the Entirity

What I don’t know is if in your state a legal judgment against your sister, over unpaid medical bills, can create the opportunity for a lien to be applied against the house. If you own the home in the first two options but tenancy by the entirety can protect the property from creditors. Typically this is only available to married couples.

Regarding the HELOC, again, it would be worth it to have the same real estate attorney take a look at the paperwork. It is possible the HELOC has a clause that would allow the lender to call the loan due upon the death of the borrower. The lender may alternatively ask you to show you have the capacity to repay the loan.

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The laws of your state may require you to satisfy the balance of the HELOC before probate can be completed. The same real estate attorney can advise you on how this is typically handled in your state.

What you have not shared is what the value of their property is. Knowing the difference between the value of the home and the debts owed on it can tell you how much value is left in the property.

While it is a horribly emotional decision, selling the property and using the equity to resolve your joint financial problems might be a real solution. The fact that your current income does not sound sufficient to allow you to maintain and/or improve the property is a worry.

I would suggest you discuss the numbers and see if it makes sense by talking to my friend and debt coach, Damon Day before you do anything. Alternatively, feel free to talk this over with any other financial professional you can make an appointment with who can give you experienced advice.

Your situation is sufficiently complex that I would not make any decisions based solely on what you read online. There are enough differences between state law that specific legal advice is going to be the most beneficial in your situation.

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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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