Under old common law, a beneficiary who inherited mortgaged real estate could sometimes demand that the estate pay off the mortgage before handing over the property, a doctrine known as exoneration. New York abolished that automatic right decades ago, and the modern default rule surprises a lot of people who assume the family home comes free and clear unless the will says otherwise.
The Modern Default: Anti-Exoneration
Under EPTL 3-3.6, specifically disposed property — including a specific devise of real property — that is subject to a mortgage or other lien passes to the beneficiary subject to that lien, unless the will expressly directs otherwise. In other words, the beneficiary inherits the house and the debt together, and the estate's other assets are not automatically tapped to pay off the loan. This reverses the old common-law presumption and puts the burden on the testator to draft around the default if a different result is intended.
Drafting an Exoneration Clause When You Want One
Testators who want a beneficiary to receive real property free of its mortgage need to say so explicitly, directing that the estate pay off the specific mortgage from the residuary estate or from a designated source of funds before the property passes to the beneficiary. This decision has real consequences for other beneficiaries, since paying off a mortgage from estate assets reduces what remains in the residuary estate for everyone else. It is a tradeoff that deserves a deliberate conversation, not a default left to chance.
- Confirm whether any specific real property bequest carries an existing mortgage or home equity line
- Decide explicitly whether that debt should be paid from the estate or travel with the property
- If exonerating the mortgage, identify which estate assets will fund the payoff
- Explain the tradeoff to other beneficiaries whose residuary share may shrink as a result
- Revisit the clause whenever the mortgage balance changes significantly or the property is refinanced
Why This Detail Gets Overlooked
Because exoneration rarely comes up in casual conversations about estate planning, many wills are silent on the issue simply because no one thought to ask. That silence now defaults to the beneficiary taking the property subject to the debt, which may not match what the testator actually wanted for a child inheriting the family home. We address this directly when preparing wills that include specific gifts of real estate.
If your will leaves real property to a specific person and you are not sure how any mortgage on it will be handled, an attorney can clarify and correct the language. Call Schwartsman Law Group at (212) 518-3868 or schedule a free consultation.
