Detailed Answer
This article explains how selling real estate that still has a mortgage works in Nebraska during the probate process. It assumes the house belonged to a deceased parent and that the mortgage remained unpaid at the time of death. This is an explanatory overview and not legal advice. For exact rules and steps in your case, consult a Nebraska probate attorney.
Who controls the house during probate?
After someone dies, their estate — including real estate — becomes part of probate if the decedent did not transfer the property by a non-probate method (for example, a living trust or joint tenancy with right of survivorship). The person in charge of the estate (the personal representative or executor) has the authority to collect estate assets, pay debts and distribute what remains under the will or Nebraska intestacy rules. The Nebraska Probate Code governs these duties; see Nebraska Revised Statutes, Chapter 30: Neb. Rev. Stat. ch. 30.
Does the mortgage disappear when the homeowner dies?
No. A mortgage is a secured debt tied to the property. Death does not automatically wipe out the mortgage. The lender retains a lien on the property and may enforce loan terms if payments stop. The debt becomes a liability of the decedent’s estate. The estate must address mortgage debt before distributing clear title to heirs or buyers.
Can the personal representative sell the house while probate is ongoing?
Yes, in most cases the personal representative can sell estate real property, but how they proceed depends on several points:
- If the will grants the personal representative authority to sell real estate, the representative can usually sell under that authority, subject to any notice or court procedures required by Nebraska law.
- If there is no express authority in the will (or if there is no will), the personal representative may need court approval to sell the property. The Nebraska Probate Code sets out the powers and procedures for administration; see Neb. Rev. Stat. ch. 30.
- A proposed sale typically must provide for payment of valid estate claims, including the mortgage, either from sale proceeds or other estate funds.
How does a sale handle the existing mortgage?
Common ways a sale resolves the mortgage:
- Payoff from sale proceeds: At closing, title companies obtain a mortgage payoff statement and use sale funds to pay the lender. The mortgage lien is then released and the buyer receives clean title.
- Assumption: Some lenders permit a buyer (or an heir) to assume the loan, but most modern mortgages have due-on-sale clauses preventing this without lender approval. The lender’s consent and qualifying the buyer/assumer are typically required.
- Short sale: If the mortgage balance exceeds market value, the personal representative can request a short sale approval from the lender. The lender must agree to accept less than full payoff. The lender may require documentation that the estate lacks other funds to pay the debt.
- Sale subject to mortgage: Selling “subject to” an existing mortgage without formal assumption can be difficult; title companies and buyers generally prefer the mortgage be paid off at closing so title insures free and clear ownership.
Practical steps the personal representative should take
- Locate the mortgage documents and contact the lender for a payoff statement and instructions for how to handle payoff from an estate sale.
- Determine whether the will gives explicit sale authority. If not, consult the probate court clerk or an attorney about a petition for authority to sell.
- Get a property valuation or appraisal so the personal representative knows fair market value and how much sale proceeds will cover the mortgage and other debts.
- Provide proper notice to heirs and creditors as required by Nebraska probate procedures. Interested parties may have the opportunity to object to a proposed sale.
- Work with a title company and lender to obtain payoff figures and lien releases needed at closing.
- At closing, use sale proceeds to pay valid estate debts (including mortgage payoff) and any court-ordered fees before distributing remaining funds to beneficiaries.
What if the estate lacks enough money to pay the mortgage?
If estate assets are insufficient, the personal representative must follow Nebraska procedures for administering an insolvent estate. That often means the representative sells non-exempt assets (including the house) and applies proceeds to creditor claims in statutory priority. If sale proceeds are still insufficient, unsecured creditors may receive only partial payment or nothing, depending on priority. Consult an attorney early if the estate faces insolvency.
What should a buyer know when buying a probate property with a mortgage?
- Buyers should require a title search and title insurance to confirm liens and ensure the mortgage will be paid off at closing or otherwise resolved.
- Closings can be delayed while the personal representative obtains court approval, payoff figures and releases.
- Buyers often insist the mortgage be fully paid at closing, unless they accept an assumption that the lender expressly approves.
Where to read the Nebraska rules that apply
Relevant Nebraska statutes are in the Nebraska Probate Code (Chapter 30). You can browse the probate statutes here: https://nebraskalegislature.gov/laws/statutes.php?chapter=30. For questions about mortgages, lien priority and foreclosure practice, consult the Nebraska statutes and an attorney for state-specific application.
Bottom line: You can usually sell a decedent’s house during probate in Nebraska, but the mortgage remains a lien on the property and must be addressed at sale. The personal representative needs authority to sell, must notify interested parties, get payoff information from the lender, and use sale proceeds to pay the mortgage (or obtain lender approval for an alternative). Because probate and lender rules interact, it’s wise to involve a Nebraska probate attorney and a title company early.
Disclaimer: This information is for general education only and is not legal advice. Consult a licensed Nebraska attorney for advice specific to your situation.
Helpful Hints
- Ask the mortgage lender for a written payoff statement and the lender’s specific instructions for payoff from an estate sale.
- Locate the will and determine if it grants sale authority to the personal representative; if not, be prepared to petition the probate court.
- Get a current appraisal or broker price opinion before listing the property so you can assess whether the sale will cover the mortgage.
- Work with a title company early to identify all liens and to learn what is required to clear title at closing.
- Keep detailed records of communications, payoff statements, court filings and closing documents — these protect the personal representative from later disputes.
- If the estate may be insolvent, consult a probate attorney immediately to avoid improper distributions and to follow Nebraska’s rules for paying creditor claims.
- Be cautious about buyers who want to take property “subject to” the mortgage without lender approval — lenders commonly enforce due-on-sale clauses.