Probate Real Estate: Do Liens Pass With The House?

Have you ever been having a conversation with someone and they continually use terms that are specific to an industry or hobby and you have no idea what they mean? Sometimes it almost seems like they are using this language to build their own ego. Has that ever happened to you? I know it has for me and it’s kinda irritating.

Well guess what? I found out that I did the same thing the other day.

Here’s what happened: one of my subscribers asked me this question. “What happens when after you and the Personal Representative reach an agreement on the purchase price of the Probate home, and you later find out there is an outstanding mortgage on the property that is greater than the price you agreed to pay?”

My subscriber wanted to know if he would be stuck buying the property and then be responsible for the existing mortgage.

My answer was “liens do not pass with title.” Now let me assure you that IS the correct answer. However, can you see how that might not be totally understood by everyone? That is a “real estate industry” phrase, if you know what I mean.

So it looks like I was guilty as charged, Perry Mason!

Here’s what I should have answered and if you have wondered this same question, this should clear it up for you.

First of all, a mortgage is a lien. That means the lender who loans money to purchase a property always will file with the county a lien against the property to protect their interest. You might say, in very simple terms, the lien notifies anyone who wishes to buy this property in the future that it cannot be sold until the original lender is paid in full. Then the lien will be removed.

So when you go to purchase a Probate property, your title company (remember I told you to always use a title company or if you live in a state that uses attorney’s to close, use a real estate attorney) will always order what is called a Preliminary Title Report. Many times you will hear real estate folks call this a “prelim.”

One of the things the prelim shows you are any liens that are still existing against the property. In most Probate purchases the houses are free and clear so there are no liens. But, can you see why this is so important?

Let me give you an example.

What if you and the Personal Representative agree on a purchase price of $175,000. However, when you get the prelim you find there is still an existing mortgage of $200,000. Are you the buyer responsible for that mortgage?

Well, breathe easier folks! The answer is, keep your checkbook in your pocket! The seller has to pay!

Remember the real estate jargon I used to answer, “liens do not pass with title?” Well, what that really says is that before you can receive title to the new property, all liens must be paid by the seller. They cannot pass with title.

So you can’t get stuck. Are you breathing a little easier?

Oh, by the way, the legal term you will hear used for paying off the liens is “satisfied.” So for those of you who were worried about getting stuck with an existing mortgage, it won’t happen!

Probate Real Estate: Do Liens Pass With The House?