Q: my mother died in Az. with a mortgage. My brother was to inherit the house. Does he automatically inherit the mortgage?
my mother had outstanding medical and credit card debt
A:
The "mortgage" is probably actually a promissory note secured by a deed of trust (a traditional "mortgage" is actually a pretty rare thing these days, even though everybody calls all home loans "mortgages"). The deed of trust has the property securing payment of the note. Even if the party to the promissory note dies, the security interest in the property remains. So, yes, it is almost certain that the liability for the note remains on the house after it passes to your brother.
The problem that then arises is that the note almost certainly has a clause that makes it payable upon transfer. In other words, the death of your mother and subsequent transfer of ownership triggers a requirement that the entire remaining balance of the note be paid off immediately in full. For this reason, inherited properties subject to a note are very often sold to pay off the loan (or, if the property is worth less than the loan amount, sometimes the gift is even refused). Another option would be to pay off the loan using other funds in the estate, if there are sufficient funds available.
However, because your brother is a relative, the lender is likely required to allow him to assume the mortgage or be added to it. This often comes with restrictions, though, like requiring him to live in the property or things like that. Another option would be to refinance the property in your brother's name.
There are a lot of facts that we don't know from your question, and this can be a complex area. Further, the applicable laws (such as the Dodd-Frank Wall Street Reform and Consumer Protection Act) and regulations (like those implemented by the Consumer Financial Protection Bureau) are in flux and may well be subject to major changes in the near future. As such, you will want to talk to the lender about what options they offer, and you very well may need to consult with an attorney.
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