If you qualified for a home loan but your financial circumstances are such that you can no longer afford the monthly payments, your lender will foreclose on your home. Your lender can seize any property it financed – regardless of whether the home was originally part of an inheritance. In some cases, lenders will also seize cash you inherited from your parents after foreclosure.
When a homeowner dies without paying off his mortgage, his heirs can claim ownership of the home provided they continue making the mortgage payments. If the payments stop, the mortgage lender has the right to seize the property – regardless of who the owner is. When your parents died, their estate went into probate. If their home was in foreclosure at the time they died and the estate doesn't contain enough funds to pay off the arrears, you can either pay off the loan balance and keep the home or allow the lender to foreclose. Provided your name is not on the property title, the foreclosure will not affect your credit.
After a foreclosure, the lender attempts to minimize its losses by recovering enough money through the property sale to cover the outstanding balance. Unfortunately, this does not always occur. You are legally responsible for paying off the remaining deficiency on a mortgage in your name, following a foreclosure. If you don't pay the post-foreclosure deficiency voluntarily, your mortgage lender can sue you. After winning the lawsuit, the lender can attach a lien to any additional real estate you own – including real estate that you inherited from your parents.
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Attaching a lien to property you own is not the extent of your former mortgage lender’s collection rights. It can also attach your bank accounts via a process known as a “bank levy.” Through a bank levy, the lender sends your bank a court order requiring it to freeze your accounts. The lender then seizes payment from your bank accounts. After the levy is complete, your bank will once again grant you access to your accounts. While some forms of income, such as federal and state benefits, are exempt from attachment, your inheritance is not. If you inherited money from your parents or sold inherited items and deposited the cash into your bank account, your former mortgage lender can attach it via a bank levy.
Protecting Your Inheritance
If you're facing foreclosure and worry that a foreclosure deficiency will give the lender cause to come after your inheritance, your state may provide a way to protect your money before the lender sues. Money you deposit in an Individual Retirement Account (IRA) is often exempt from seizure by creditors. State laws regarding IRA exemptions vary considerably, but if your state exempts retirement funds, depositing your inheritance into an IRA ensures that it will survive post-foreclosure collection activity.
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