Buying an inherited home
When someone sells a house they have inherited, they are often in a hurry and generally ask for a lower price: their main interest is in a quick sale. However, sometimes an heir with greater rights to buy the house than us might appear, or the seller might turn out not to be the sole owner at the last moment.
The law protects us if the sale is affected by circumstances of which we were not aware, as article 34 of the Mortgage Law, on registry attestation, protects the rights of buyers if they have already registered their title. But registry attestation also ensures the rights of forced heirs (children, parent or spouse of the deceased) against presumptive heirs, as, even when acting in good faith, heirs with greater rights could appear.
Therefore, when it comes to buying a house, public attestation does not protect buyers who buy a house from the heir of a deceased relative or friend during the two years following the death. In this case, we have to wait for two years before our purchase can be guaranteed. It is usual for the bank not to grant mortgages during this period. When we are signing the deeds, the notary will tell us whether we are covered by this principle, and also about the risks that an heir with greater rights than the seller might appear, as, in that case, the purchase of the inherited house could be cancelled.
Inherited homes and taxation
Buying a house from an inheritance is considered a capital gain. For this reason, it is taxed in personal income tax (IRPF) for the year when the house is sold and has to be included in income tax declarations. The seller also has to pay local capital gains tax, although they will be exempt if the sale is at a loss.
And from another angle, who pays the mortgage if the owner dies?
- When someone dies, their assets pass to their heirs, but so do their debts. In other words, their relatives (children, siblings, parents) become responsible for paying the mortgage. However, inheritance is a right and not an obligation. The heirs may decline the inheritance completely, accept it with all its consequences, or accept the inheritance and receive the remainder once the debt has been settled.
- If the mortgage is in the name of two people and one of them dies, half of the mortgage passes to their heirs. If they decline the inheritance, the other holder of the mortgage becomes responsible for the entire debt.
- If there is a guarantor, they continue to be liable despite the death of the holder, so if the heirs decline the mortgage, the guarantor normally becomes responsible for it.
Some formalities are required when the owner dies.
- First, we have to report their death to the bank: until this happens, the repayments will continue to be charged to the deceased's account.
- We also have to provide some documents: the death certificate and certificates of the will and payment of inheritance tax, the deed of award of the inheritance, and the public deed declining the inheritance, as applicable. The bank can inform us of our options once it has this information.
- If the deceased had life insurance, this may cover some or all of their mortgage debt. This information is provided by the banks and insurance companies involved, once all the information has been analysed.