Estate Liable for Mortgage Under Decedent’s Will

In Oklahoma, when a person dies with a Will, the estate must undergo probate proceedings in order to distribute properties and liquidate debts according to the decedent’s Will. In many situations, conflicting interpretations of the testator’s Will have led to litigation proceedings where the court’s judgment is sought on complicated probate issues.

Issue on liability of Estate for Mortgage

In a recent case involving property disposed through a Transfer-On-Death deed (TODD), the transferee presented a claim against the estate for the payment of the encumbrance or mortgage that attached to the property. The mortgagee, as well, presented its claim against the estate for the settlement of the unpaid loan. The executor denied both claims stating that the liabilities presented were not liabilities of the estate.

Rule When Mortgaged Property Is Inherited

The representative of the estate relied on 58 O.S. 2011 Sec. 461 and 46 O.S. 2011 Sec. 5 which set down the rule that when real property that is encumbered by a mortgage passes to another person by Will or succession, the successor also acquires the responsibility for satisfying the mortgage unless the decedent specifically provided in the Will for payment of the mortgage by the estate or by some other way.

When the case reached the state Supreme Court, the high court ruled that the debt subject of the mortgage was the liability of the estate.

Testator’s Will Must Prevail

In its decision, the high court said that under Oklahoma law, the Will must be construed according to the intention of the testator and that discerning and implementing the decedent’s intent must be paramount.

The decedent’s Last Will and Testament contained a provision directing the executor of her estate to pay all her debts, including the debts secured by mortgage. The Court found that the Transfer-on-Death deeds, while considered as non-testamentary dispositions, were executed on the same day as the Last Will and Testament and were part of a comprehensive plan. In discerning the intent of the decedent, the Court said that the Last Will and Testament contained very clear instructions for the settlement of all of the decedent’s debts, which as well covers the encumbrance on the property transferred through TODD.

The Court also said that 58 O.S. 2011 Sec. 461 did not apply to the transferee, who received the property by TODD, not by succession or Will.

If you are contemplating the execution of a Last Will and Testament or have recently lost a loved one who left a Will, call the Rick Dane Moore & Associates Law Firm at (405) 703-6552. Our Firm has over 30 years of experience in family law matters including Wills and succession. We offer a free 15-minute phone consultation where you can learn more about how we can help you.