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Ask Dave

What Will Happen After

Dave helps someone whose father is facing an uphill battle.

QUESTION: Listener in Indiana says his father was diagnosed with cancer and has six months to live. He wants to know, when he dies, if the bank will take back the home or sell his assets to pay off the mortgage.

Dave's ANSWER: As long as the payment is paid on the house, the house can be kept. Or if you were to refinance it, it could certainly be kept. If you have no interest in doing that, you can sell the house. If the house is upside down and he owes more on it than it’s worth, then you could hand it back to them if you wanted to.

If he is upside down on the house, the bank could chase the other assets in the event his estate was foreclosed on.

You can't just hand the keys back unless it's the only thing he owns. If it is, then you can hand the keys back. You wouldn't want to do that if he owes less on it than it's worth; you'd want to sell it and get the money out of it. Since he has no other debt, that would be clear money for the heirs.

If he owes more money than it's worth, you could hand it back, and you probably will because there is no one for them to go after for the amount for which it's upside down. You can do a voluntary foreclosure, called a deed in lieu of foreclosure, on behalf of the estate.