Disclaimer
This is general information and not legal advice. I am not a lawyer. For advice about your specific situation, consult a New York probate or real estate attorney.
Detailed Answer
If a decedent’s home still has a mortgage, the house can often be sold during the probate process in New York — but several legal and practical steps must be followed. Who can sell, whether court permission is needed, and how the mortgage is treated depend on whether the property is controlled by a will, who is the estate’s personal representative (executor or administrator), and the lender’s requirements.
Who has authority to sell the house?
The person authorized to manage and dispose of estate property is the personal representative (called an executor if named in the will, or an administrator if appointed by the court). The personal representative’s powers come from the will (if the will grants sale powers) and from New York probate rules in the Surrogate’s Court Procedure Act and the Estates, Powers & Trusts Law. If the will specifically authorizes sale of real estate, that generally makes the process easier. If there is no will or no sale clause, the personal representative typically must obtain court permission from the Surrogate’s Court to sell real property.
Do you need court approval?
Often yes, unless the will explicitly grants authority to sell or the beneficiary and personal representative agree. Where the will does not grant express authority, the personal representative should seek an order from Surrogate’s Court approving the sale. The court issues such orders routinely when a sale is reasonable and in the estate’s best interest. For general guidance on the probate process, see New York’s Surrogate Court resources and statutes: Surrogate’s Court Procedure Act (SCPA) and the Estates, Powers & Trusts Law: EPTL. The New York State Courts also provide practical probate information: NYCourts – Estate and Probate.
How does the mortgage affect the sale?
- The mortgage stays attached to the property until it is paid off at closing or released by the lender.
- At closing, sale proceeds are used to pay the mortgage lender (the closing agent requests a mortgage payoff statement and the lender receives payment from the escrowed funds).
- If the mortgage balance exceeds the sale price (underwater), the lender must agree to a short sale or accept a payoff arrangement; otherwise the sale may not close unless the estate or a buyer agrees to satisfy the loan.
- The personal representative should get a written payoff statement from the lender early in the process so the estate can estimate net proceeds and plan for creditor claims and estate expenses.
Typical steps to sell during probate in New York
- Confirm who is the personal representative (executor or administrator) and review the will for sale authority.
- Notify the mortgage lender promptly. Request a payoff statement and learn whether the lender requires a personal representative appointment or additional documents.
- If the will does not clearly allow sale, or if the title company or buyer needs an order, petition the Surrogate’s Court for an order authorizing sale. The court will usually approve sales that benefit the estate and protect beneficiaries.
- Obtain an appraisal or broker opinion of value and list the property. Disclose that the property is part of an estate/probate sale as required by law and custom.
- Accept an offer and prepare for closing. The closing will typically require a certified copy of the Letters Testamentary or Letters of Administration (proof that the personal representative has authority), a mortgage payoff, and court order if one was required.
- At closing the mortgage is paid off from sale proceeds, closing costs and any secured debts are paid, and remaining funds become estate property to be distributed under the will or by intestacy rules after creditor claims and taxes are handled.
What if the buyer wants the mortgage assumed?
Most mortgages have a due-on-sale clause that permits the lender to require full payment when the property is transferred. A buyer can only assume the mortgage if the lender agrees. Lenders may permit assumption in limited circumstances, but expect a payoff at closing unless a specific assumption is approved.
What about taxes and creditor claims?
Sale proceeds go into the estate and must be used to pay valid creditor claims, funeral and administration expenses, and taxes before distribution to beneficiaries. The personal representative must follow statutory timelines for creditor notice and claims in Surrogate’s Court. For statutory frameworks, see the New York statutes linked above and the NY courts’ probate guidance: NYCourts – Estate and Probate.
Example (hypothetical)
Mom dies owning a house with a $150,000 mortgage and fair market value $200,000. The executor (named in the will) notifies the lender, obtains a payoff figure, and lists the house. A buyer offers $200,000. At closing the lender gets $150,000, closing costs and any commissions are paid, and the remaining roughly $50,000 becomes part of the estate. The executor uses the net proceeds to pay creditor claims and distribute per the will. If the house had been worth only $130,000, the executor would need to work with the lender on a short sale or have the estate cover the deficiency if possible.
Helpful Hints
- Confirm authority: Before listing the property, confirm the personal representative has Letters Testamentary or Letters of Administration issued by the Surrogate’s Court.
- Talk to the lender early: Get a written payoff statement and any lender instructions to avoid surprises at closing.
- Check the will: If the will authorizes sale, present that clause to the title company and court to smooth approval.
- Expect court involvement: When in doubt or when the will is silent, plan to seek a Surrogate’s Court order authorizing the sale.
- Work with professionals: Use a real estate agent experienced in probate sales, a title company that handles estate closings, and a probate attorney to handle court filings and creditor issues.
- Document everything: Keep records of communications with the mortgage company, appraisals, repair invoices, and sale documents for the estate accounting required by the court.
- Consider timing: Probate can take months; if the estate needs cash sooner, discuss a lender bridge or interim options with an attorney and lender.
- Plan for short sales: If the mortgage exceeds value, discuss short sale options and whether the lender will accept less than the balance or require a deficiency judgment.
If you need help finding a New York probate or real estate attorney, contact your local bar association or use the New York State Bar Association’s lawyer referral resources. For statute-level information, see the Surrogate’s Court Procedure Act and the Estates, Powers & Trusts Law on the New York Senate website: SCPA, EPTL, and the NY Courts probate guide: NYCourts – Estate and Probate.