Can an estate borrow money?

[ElizabethH]

My mother in law passed away about 6 months ago. Her home was paid in full and she left it to her four children (including my husband) equally. The only debts of the estate were minor medical debts which have been paid.

My husband and I would like to buy the other heirs out of the home. The original plan (everyone is in agreement on this) was to deed the house to my husband so we could borrow against it to make necessary renovations and repairs before moving in. Then when our existing home sold, we would take out a mortgage to pay the estate for the house and the estate would distribute that to the other three children. We have an agreed upon purchase price and everyone is happy.

The problem with that plan is that tightened lending restrictions will not allow it. So now we're trying to figure out another way to do it. Is it allowable for the estate to borrow money against the equity in the home, make improvements and then sell the house to us for the pre-renovation price? My husband's 1/4 share of the pre renovation price will be kept by the estate to repay the renovation debt.

We are informally probating the will. The plan would be to have a written agreement signed off on by the court so this would be 100% above board. Also, each sibling gets a share of my mother in law's stock which we would prefer not to sell, but if something went terribly wrong, my husband's share of the stock could be used by the estate to satisfy the debt since the debt is really for our benefit.

If this isn't allowable, are there any better options?

 

[anonymous]

to the simple question of:

can an estate borrow money?

The answer is yes. It happens quite often. Situations where the heirs pay for utilities on a house or taxes or any such debts owed by the estate but where the estate does not have liquid assets to be able to be used are often done so as a loan to the estate.


One problem you may have is finding a lender willing to lend money for what you are considering. Have you spoken to any concerning this? It would be a good idea before you got to deep into the possibility.

I am concerned with the statement that having the home transferred to you after which you would borrow money against the home to renovate it and then sell your current home and get a mortgage to cover the remaining balance due on the home (presumably applying any positive cash flow from the sale of your current home to the debt on the new house). I would think there would be a lender willing to lend on a home for a renovation where there are no other security interest holders. Why was that not obtainable?


One issue I see is the attempt of your husband to use his share of the stock to indemnify the estate in regards to the loan. Since he does not own the stock nor the house until it is actually assigned to him, he cannot promise something he does not have and may never have. As an example; the value of the stock drops to $0. What happens then should something go wrong?

Another issue is: what happens if you renovate it, or partially renovate it and then everything falls apart (not literally but circumstances change such that you could not complete the renovations or purchase the home or any other thing you can think of that would frustrate the completion of the plan)? Would you be expecting to recover the money you put into the home? It could get really really messy and should be avoided.

If the value of the stock is great enough, why not simply alter the distribution of the assets such that he gets no stock but gets the house in its entirety? If the value is not great enough for that, would it reduce any amount not covered by the stock to be within reach of you obtaining a personal loan or mortgage on either your current home or the estate home to pay the balance as well as make repairs?








I am not an attorney. Any information provided is not to be considered legal advice but simply my attempt to help using my knowledge and research skills.