Managing Death in a Short Sale

Occasionally in a short sale, one of the owners/spouse, has died, before or during the short sale process. This is a manageable situation, but it requires more work for the short sale agent.

In the state of Texas, when somebody dies, the ownership falls to their next-of-kin, namely the spouse and any children. For example, if you are working with a couple and the husband dies, the surviving spouse has the right to live in the house for the remainder of her life. But, if she chooses to short sell the property, the children have to sign to release any claim to the house.

This becomes much more complex when there are children from previous marriages or children born, shall we say, as a result of extramarital activities. Those children also will have to sign a release to permit the house to be sold in a short sale. For example, Jeff and Sharon own a home together, and Sharon has three children from a previous marriage. While Jeff and Sharon live in the house, Sharon dies. Her three children from a previous marriage now have claim to that house. They must either release any claim or sign their consent during the short sale process. Unfortunately, since there are no proceeds going to the seller – and therefore no benefit to the other heirs – the children may not be inclined to cooperate, particularly if there is an estranged relationship between the children and surviving spouse.

The situation can become even more complex if one of the spouses dies and one of the children also dies, because the ownership then drops down to any grandchildren (the children of the deceased child). This was our experience when an elderly lady contacted us because she was upside down in her house and wanted to short sell the property. We learned that she was unable to make her mortgage payments because her husband had died. The husband had had seven children by three previous wives. The current widow did not know these children other than their names – she had no contact with them or any address information. In that scenario, since we would have to get the children to sign at the sale or sign a release that they had no claim to the house, we could not complete the short sale. It was an impossible situation with too many people to track down.

On the flip side, we had another situation where an elderly lady contacted us because her husband had passed and she could not afford the mortgage payment. We learned there were no previous marriages and they had one child, who at that time was living with the mother. All we had to do was prepare an Affidavit of Heirship, signed by the surviving heirs (the wife and the son) and two witnesses, and we were able to complete the short sale.

A short sale also becomes easier when a will is in place. If there is a will that gives ownership to somebody – either the spouse or an heir – and the will has been probated, you are covered for the short sale. You don’t have to worry about any surviving heirs, because the will dictates who owns the house. One of the challenges is that, because there are no proceeds from the short sale, heirs won’t go through the process of probating the will because it costs money. In that case, if the will has not been probated, you will need to get signatures for an Affidavit of Heirship.

In the initial conversation with a client about a possible short sale, find out whether there have been any deaths related to either spouse, and if so, get the details about the surviving heirs. If the scenario is too complex, it’s not worth your time to go through the entire short sale process only for the title company to tell you that you need to find several other people to sign their consent. However, a death of one of the spouses alone should not be a factor that deters you from proceeding with the short sale until you gather more information.

If you have any questions about the managing the short sale process in the event that the homeowner or their spouse has died, please call us at 972.342.0011 and we will be happy to assist you.

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