Q: I have a question regarding my mothers house I will be inheriting.
My mom passed away on 1/31/23, she had no will. At the time of her death she had a Mortgage with 219K left to pay off and 60k in credit card debt, and only 4k in savings. I would like to keep the house so I payed off her credit cards. By negotiating with the lenders I was able to reduce the 60k debt down to 30k. As administrator to her estate which is currently in probate, I have continued paying the mortgage and property taxes, all with my own money. I have the funds to pay off the mortgage completely, but I am wondering if it is possible to negotiate down the mortgage in a similar way to the credit card debt. Should/could I let the mortgage lapse like I did with my moms credit cards, then try to negotiate a lump some payoff with the lender?
A: No. If there is equity, the bank will not take less, and you will be paying default interest, attorneys fees and other costs. The credit cards are different as there is really no way to collect so they take a good deal.
Less likely than with the credit card debt.
Because secured creditors are in an improved position over unsecured creditors, they have less incentive to settle debts; unsecured creditors often have little to no recourse from a debtor (who may, e.g., die or file bankruptcy). Letting a mortgage note fall into default involves risk because the house will eventually go into foreclosure, risking a loss of the property (although NY has a relatively borrower-friendly judicial process the mortgage lender must go through).
For this reason, lenders will not often accept a "short payoff," unless there is good a reason to. Some of this will depend on the value of the property. If there is equity, it is even less likely because the lender is more-secured and can afford to wait out the time it takes to foreclose, receiving interest, late fees and attorneys fees along the way.
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