Mortgages and passing of property

Trusts Discussion
1

I’m hoping someone will be able to advise on the following examples, I have read a forum that was similar but didn’t seem to cover fully the legal position of these and how in practce they may be argies and therefore, how we can protect our clients when advising on their Wils, thank you in advamce.

Example 1.

A & B own a property as tenants in common 50/50. They bought the property for £300,000 with a £200,000 mortgage.
They have a joint life insurance policy in place when A passes away, the life insurance pays out to B, B uses this to pay off the mortgage. Does B now have a £250,000 interest in the property or is this still 50/50.
B did not have to use this money to pay off the mortgage and simply could have sold the property given A’s share of £50,000 to their beneficiaries and bought a new property with the life insurance which is solely theirs and their £50,000.

Example 2.

A & B own a property as tenants in common 50/50. They bought the property for £300,000 with a £200,000 mortgage.
They do not have a life insurance policy in place, A passes away leaving their share of the property “free of mortgage” in their Will to their children.
Firstly, the mortgage being a jointly held debt, did this already pass to B via survivorship and therefore there is nothing to pay off?
Secondly, as the mortgage is jointly held, the debt is 100% each of theirs, so if it is to be paid from residue, is it just 50% or the whole mortgage? If the whole mortgage, do A’s beneficiaries now have a £250,000 interest or a £150,000 interest?

Example 3.

A owns a property in their sole name, this is worth £200,000 with a mortgage of £100,000 which they have life insurance to cover.
A lives with B but has children from another relationship.
A passes away, leaving B a life interest in the property but the ultimate beneficiaries being their children.
Can you enforce the mortgage being paid off by the life policy? If this policy went to B they could then claim a £100,000 interest in the property, if this went to the children, they do not have to pay it off the mortgage and could benefit from this share immediately.

2

There are two separate issues here, namely, beneficial ownership of a property and mortgage debt.

Where the property is held as tenants in common by, say, X and Y then on either death the deceased’s beneficial interest passes under their will. On the death of X or Y it may be that the joint mortgage then falls to be repaid. If the life policy is jointly held by X and Y with pay out on the first death to the survivor, whether the survivor utilises the policy proceeds to pay off the mortgage or not has no implication for the respective beneficial interests of X and Y.

Most joint mortgages are joint and several and thus either borrower may become liable for the whole debt.

Malcolm Finney

3

I agree with Malcolm’s analysis of there being two distinct issues. However, the interesting point is what happens after the death of co-owner A? If B continues to pay the mortgage, (as they are jointly liable), does this change the beneficial interest? I do not believe it does. Assume a property worth £300,000 with a mortgage of £200,000. In this case after A dies, their estate would be liable for half the mortgage, however if the estate does not pay the half share and B continues to pay, then my understanding is that B has a right under equity to claim from A’s estate a half-share of the payments made. This does not really help much if house prices are rising as A’s estate still benefits from the rising prices. This is where some agreement should be recorded with perhaps B agreeing with A’s estate to assuming the full mortgage liability for a greater share in the property, (£250,000 from £300,000 in this case). This will the have stamp duty implications.

As for any life policy - it is a completely separate matter, and often the survivor takes it all.