Inheriting a home can feel like both a blessing and a burden — especially when there’s still a mortgage attached.
Many Californians assume inherited properties are paid off, but that’s not always the case. In reality, more than one in three inherited homes still has an outstanding loan.
So what happens if you inherit a house with a mortgage? Do you have to start making payments right away? Can the bank take the home back? And what if you want to sell instead?
This article breaks down exactly what to expect, your options as an heir, and how to handle an inherited property with a mortgage without losing money or damaging your credit.
(For a full overview of probate and inherited home sales, see our Selling an Inherited Home in Los Angeles Guide.)
Step 1: Understand What Type of Mortgage You’re Inheriting
Not all mortgages are created equal. Before you make any decisions, find out what kind of loan is on the property.
1. Conventional Mortgage
If the deceased had a traditional loan, the lender typically continues to expect payments. As the heir, you’re not personally responsible for the debt — but if payments stop, the lender can still foreclose on the property.
2. Reverse Mortgage
Reverse mortgages are common among older homeowners. These loans don’t require payments while the borrower is alive, but once they pass away, the loan becomes due.
Heirs must either:
- Pay off the balance (often by selling the home), or
- Deed the home back to the lender if it’s worth less than the balance.
3. Home Equity Loan or Line of Credit (HELOC)
If your loved one borrowed against their home’s equity, that balance also remains due. Lenders may require payment shortly after the estate is settled.
Knowing what type of loan you’re dealing with is crucial — it determines your options and timeline for next steps.
Step 2: Keep Making Payments to Avoid Foreclosure
Even if ownership hasn’t officially transferred yet, the mortgage company still expects payments. Skipping them can lead to late fees or foreclosure notices.
If the estate has funds, use those to keep payments current until you decide what to do with the home. Otherwise, talk to the lender immediately — they may allow temporary forbearance while probate is in progress.
Example:
A woman in Long Beach inherited her father’s home, but it had a $380,000 mortgage. She couldn’t afford the payments on her own, so the family used estate funds to keep the loan current while preparing to sell.
Step 3: Notify the Lender
Once the homeowner passes, the executor or heir should contact the mortgage servicer as soon as possible. Provide a death certificate and proof of your legal authority, such as a will or probate court document.
Federal law (specifically the Dodd-Frank Act) protects heirs by allowing them to “assume” the existing mortgage without triggering a due-on-sale clause. That means the lender can’t demand full payment just because the ownership changed due to death.
However, you’ll need to prove your inheritance rights before the lender will discuss details or allow payment arrangements.
Step 4: Decide What You Want to Do With the Property
Once you understand the mortgage status, you have a few main options.
Option 1: Keep the Home and Take Over the Loan
If you want to keep the property, you can assume the mortgage in most cases — meaning you take over payments under the same terms.
You’ll need to:
- Provide proof of inheritance.
- Continue payments or set up automatic transfers.
- Eventually refinance into your name (if required).
This option makes sense if:
- The loan balance is manageable.
- The home has sentimental value.
- You plan to live there long-term.
Option 2: Refinance the Loan
Some heirs choose to refinance the mortgage into their own name to:
- Remove the deceased borrower from the loan.
- Secure a lower interest rate.
- Access equity to pay off other estate debts.
Be aware that refinancing can take time, especially if the home is still in probate. You’ll need clear title before the lender approves a new loan.
Option 3: Sell the Home and Pay Off the Mortgage
For many families, the simplest solution is to sell the home and use the proceeds to pay off the balance.
This is especially helpful if:
- The mortgage balance is high.
- You can’t afford the monthly payments.
- The property needs major repairs.
After paying off the loan, any remaining funds go to the estate or heirs.
Example:
A family in Riverside inherited a home worth $620,000 with a $400,000 mortgage. They sold it to a cash buyer, paid off the balance, and split the remaining $220,000 among siblings within 30 days.
Option 4: Walk Away (If It’s Underwater)
If the home is worth less than the mortgage balance — also known as being “underwater” — heirs are not personally liable for the debt.
You can allow the lender to foreclose or sign a deed in lieu of foreclosure to release your interest.
This prevents additional legal or financial headaches, though it may result in losing the property.
Step 5: Consider the Tax Implications
When you inherit a property, you get what’s called a “stepped-up basis.”
That means the home’s value is reset to its market value on the date of death — not what the original owner paid.
So if your parents bought the house for $200,000 and it’s worth $600,000 when you inherit it, your new tax basis is $600,000.
If you sell the house for close to that amount, your capital gains tax will be minimal.
However, if you keep the home and its value rises before selling, you’ll owe capital gains on that increase.
Step 6: Be Prepared for Probate
If the home wasn’t held in a trust or joint tenancy, it will likely go through probate before you can sell or transfer ownership.
Probate can take anywhere from 6 months to 2 years in California, depending on the estate’s complexity.
During that time, make sure someone is maintaining the property and staying in touch with the lender.
If the mortgage isn’t paid during probate, the bank can still foreclose — even before ownership is transferred.
Step 7: Explore Selling As-Is
If the home is in poor condition, needs repairs, or has an ongoing mortgage you can’t manage, selling as-is to a cash buyer can save significant time and stress.
Cash buyers can:
- Close in 7–21 days.
- Handle all repairs and cleanup.
- Pay off the existing mortgage at closing.
You walk away free from debt, without worrying about showings or realtor fees.
Example:
An heir in Los Angeles inherited a property that had $320,000 left on the mortgage and needed $60,000 in updates. They sold it as-is for $450,000 to a local cash buyer, paid off the balance, and pocketed $130,000 in two weeks.
Common Mistakes to Avoid
❌ Ignoring the Lender: Delaying communication increases the risk of foreclosure.
❌ Letting the Home Sit Vacant: Vacant homes are at risk of vandalism and insurance lapses.
❌ Not Consulting a Tax Professional: You could miss deductions or pay unnecessary taxes.
❌ Overestimating Market Value: If the mortgage is high, get an appraisal before listing.
What If There Are Multiple Heirs?
When multiple people inherit a mortgaged home, everyone must agree on how to handle it.
Options include:
- One heir buying out the others.
- Selling and dividing proceeds.
- Renting the home and sharing income.
If there’s disagreement, the executor may need to petition the court to approve the sale or file a partition action to force one.
Final Thoughts
Inheriting a house with a mortgage in California can feel overwhelming — but you have options.
You can take over the loan, refinance, sell, or walk away entirely depending on your financial situation and the property’s value.
The key is to act quickly, communicate with the lender, and seek professional guidance before the situation becomes unmanageable.
At Mrs. Property Solutions, we specialize in helping California families sell inherited homes quickly — even if there’s a mortgage, liens, or probate involved.
We buy homes as-is, pay off loans directly, and make the process simple from start to finish.
📞 Call or text (602) 376-8391 to get a fair, no-obligation cash offer today.