The mortgage may be coming due. Property taxes may be outstanding. The house may need repairs before it can be sold. Legal and estate expenses may continue accumulating, or beneficiaries may need to be bought out before the estate can be settled.
In situations like these, the equity in an inherited property may provide a source of financing. But an estate mortgage is different from an ordinary homeowner refinance.
Before a lender can place a mortgage on estate property, the legal authority to deal with that property must be clear.
That is why obtaining the proper Certificate of Appointment of Estate Trustee, commonly referred to as probate or an estate certificate, can be such an important part of obtaining an estate mortgage in Ontario.
Lendworth provides probate and estate financing for qualifying Ontario properties, but the mortgage can only move forward when the estate has the documents required to support the transaction.
Why Having a Will May Not Be Enough
A will can identify who the deceased intended to act as executor or estate trustee, but a lender and its lawyer may require additional evidence that the person signing the mortgage has the legal authority to deal with the property.
The Certificate of Appointment of Estate Trustee is issued through the Ontario court process and confirms the person authorized to administer the estate.
This becomes particularly important when real estate is involved.
Consider a Toronto home worth $1.3 million with a $250,000 mortgage. The estate may have more than $1 million of gross property equity, but that equity cannot simply be accessed because a beneficiary or family member signs a mortgage application.
The lender must know who is legally authorized to act for the estate.
Depending on the circumstances, the estate lawyer may require the Certificate of Appointment before the property can be transferred, refinanced or mortgaged.
How the Estate Certificate Process Begins
The process generally starts by determining who is entitled to apply to become the estate trustee.
Where there is a valid will, the person named as executor will commonly make the application. Where there is no will, a court application may still be made, but the process and priority of who may act can be different.
The estate lawyer will usually review the original will, any codicils, the death certificate, information about beneficiaries and details regarding the deceased's assets and liabilities.
The value of the estate must also be determined because Ontario Estate Administration Tax may apply.
Once the necessary application documents are prepared and filed with the court, the application is reviewed. If everything is satisfactory, the court can issue the Certificate of Appointment of Estate Trustee.
For mortgage purposes, that certificate can become critical evidence that the estate trustee has authority to proceed with the proposed financing.
Probate Does Not Automatically Mean the Mortgage Is Ready
Receiving the estate certificate solves an important legal issue, but the lender still needs to underwrite the mortgage.
The property value must be established.
Existing mortgages or liens need to be confirmed.
The lender needs to understand how much money the estate requires and why the funds are needed.
The estate lawyer must also be involved because title and signing authority need to be handled correctly.
For example, an estate may own a $1 million property with a $200,000 existing mortgage and require another $150,000 to pay arrears, property taxes, legal expenses and necessary repairs before the home can be sold.
The equity may support the request, but the lender still needs the correct estate documentation before financing can close.
That is why executors should begin the financing discussion early rather than waiting until a mortgage maturity or other deadline becomes urgent.
What Can an Estate Mortgage Be Used For?
Estate financing can provide liquidity while the property remains inside the estate.
The funds may be used to pay out an existing mortgage that is maturing, bring mortgage arrears current, cover property taxes, complete repairs, pay legitimate estate expenses or provide capital while the executor prepares the property for sale.
In some situations, financing may also form part of a beneficiary buyout where one family member intends to retain the inherited property rather than selling it.
Every estate is different, which is why the financing structure needs to be reviewed alongside the estate lawyer.
A private mortgage in Ontario can sometimes provide greater flexibility when the estate has substantial real estate equity but does not fit the structure of a conventional bank mortgage.
What Documents Should an Executor Expect to Provide?
The exact requirements depend on the estate and legal circumstances, but the mortgage file will typically need enough information to establish the estate trustee's authority, property ownership, existing debt and available equity.
The Certificate of Appointment can therefore be one of the most important documents in the file.
The estate lawyer may also need to provide or review the will, death certificate, title information and other estate documentation.
The lender will generally require information about the existing mortgage, property taxes, property value and amount being requested.
The goal is to make sure the person borrowing against the estate property actually has authority to do so and that the proposed mortgage can be properly registered against title.
Do Not Wait Until the Estate Runs Out of Cash
An estate can be property-rich and cash-poor.
The home may have substantial equity, but mortgages, taxes, utilities, insurance and maintenance continue while probate and estate administration are being completed.
If the estate property also requires repairs before it can be sold, the executor can face significant expenses before any sale proceeds become available.
If financing may be required, it is usually better to speak with the estate lawyer and mortgage lender early.
That provides time to obtain the estate certificate, confirm title, understand the mortgage balance and determine how much equity may be available.
Ontario Probate and Estate Mortgage Financing
If you are administering an estate in Toronto, Vaughan or elsewhere in Ontario and the estate owns real property, the home's equity may provide financing options while the estate is being settled.
The important point is that equity alone is not enough.
The estate must have the legal authority and documentation required to mortgage the property.
Lendworth can review the property value, existing mortgage, amount required and proposed use of funds while your estate lawyer confirms that the appropriate Certificate of Appointment and other legal documents are in place.
Learn more about Probate & Estate Loans in Ontario or request your estate financing options.
Lendworth Financial Corp. — FSRA Mortgage Brokerage #13494
905-597-1225 | Lendworth.ca
Your Equity Deserves More™.
This article is for general informational purposes only and is not legal or tax advice. Executors and estate trustees should obtain independent advice from an Ontario estates lawyer regarding the documents and authority required for their particular estate.