When there’s an outstanding mortgage on a heritage property

When a person dies, they may leave behind assets such as bank deposits or properties. However, many people do not have a will and relevant arrangements. This may easily lead to conflict of relationship when inheriting assets without a will. 

The process for inheriting properties is notably complex. Factors such as ownership status and existing mortgages can influence the inheritance outcome. Unless the property is held in joint tenancy, it is subject to division by the terms of a will or by intestate succession. If the deceased left a will, the heirs could inherit according to its provisions.

A valid will must be a written document in black and white; recordings are not permissible. The will must clearly state the names and ID numbers of the testator and beneficiaries, detail the method for handling and distributing the estate, and include the date on which the will was created. 

It's important to note that a will can be drafted with the assistance of a lawyer or by oneself. However, the testator must be of sound mind and possess cognitive ability at the time of making the will. Furthermore, it must be signed by two witnesses, both of whom are over the age of 18. Neither the witnesses nor their spouses can be beneficiaries of the will; if they are, the will becomes invalid. 

If the deceased did not leave a will, the distribution of the estate will be conducted in accordance with the Intestates' Estates Ordinance (Chapter 73). The spouse will have priority, followed by the children, the deceased's parents, and finally the deceased's siblings. Additionally, there are specific provisions for the distribution of assets that should be reviewed prior to inheritance. 

The distribution of an estate varies based on family size. For instance, if the deceased is survived only by a spouse, with no children, parents, siblings, or children of siblings, the spouse will inherit the entire estate. This inheritance is subject to the deduction of certain debts, such as credit card debts and salaries tax, as well as administrative expenses.

To inherit an estate, the heir must apply for a grant of representation at the High Court Probate Registry, and obtain it in accordance with the legal procedures. A Grant of Probate is required to authenticate a named person's entitlement to collect money or property on behalf of the deceased and to handle the payment or transfer thereof. 

It is common for estates to include property; however, the maximum mortgage term is typically 30 years. If the mortgage on a flat has not been repaid, the approach taken by the bank depends on the circumstances. In some cases, should the owner fail to meet the mortgage repayments, the bank may repossess the property. In other cases, a mortgage default could potentially lead to an increased interest rate. 

Banks follow different protocols. For instance, Hang Seng Bank, in line with its "Bereavement Guide," will freeze the deceased's account once notified of the death, affecting all related services and transactions. The continuation of a mortgage contract under such circumstances is handled on a case-by-case basis.

HSBC also freezes the deceased's account, but the mortgage contract remains active, and interest continues to accrue on the remaining balance. To prevent default, the bank allows a third party to sign an undertaking to continue repayments before the grant of representation is obtained, which can prevent issues such as penalty interest due to default. However, this transitional period lasts for only one year.

Under the Inland Revenue Ordinance, beneficiaries are exempt from stamp duty on properties inherited either through a will or under intestacy laws. Nevertheless, since banks have varied methods for managing estates with mortgages, it is advisable to consult your bank when handling such matters to avoid complications. 

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