Addressing heirs’ property
When a property owner dies without a will or estate plan or when they leave the property to multiple heirs, it may create a number of financial barriers to their heirs. In many cases, without clear title, property owners are unable to access the equity in their home, sell the home with clear title, or even obtain a mortgage, which can make them vulnerable to forced sales and property loss. These properties are often referred to as “heirs’ properties” or properties with “tangled titles”.
Supporting heirs’ property owners
Heirs’ property owners face a range of challenges, and overcoming all of them takes solutions from a host of stakeholders. While the effort to overcome many of these obstacles remains ongoing, there are some mortgage finance opportunities available to assist heirs’ property owners today.
While funds from a cash-out refinance can be used for any purpose1, a limited cash-out refinance (LCOR) is another option available to borrowers, depending on their circumstances. We’ve identified three common challenges that can also be addressed through a LCOR:
1 See “Acceptable Uses” under Selling Guide section B2-1.3-03, Cash-Out Refinance Transactions. Note that seasoning requirements do not apply in this situation per “Eligibility Requirements” in this section.
2 See “Acceptable Uses” under Selling Guide section B2-1.3-02, Limited Cash-Out Refinance Transactions. These expenses fall under “financing the payment of closing costs.”
3 See “Acceptable Uses” under Selling Guide section B2-1.3-02, Limited Cash-Out Refinance Transactions.
4 See “Refinances to Buy Out An Owner’s Interest” under Selling Guide section B2-1.3-02, Limited Cash-Out Refinance Transactions.
5 See Homestyle Renovation FAQs. The FAQs clarify that if an heir inherits a property without any outstanding mortgage liens, the property is still eligible for Homestyle Renovation. The FAQs also state that, while borrowers are not permitted to receive any cash back from a HomeStyle Renovation Limited Cash-Out Refinance, a portion of the loan proceeds may be used to buy out a co-owner.
Estimating the Impacts
"A Methodological Approach to Estimate Residential Heirs’ Property in the United States," developed by the Housing Assistance Council in partnership with Fannie Mae, provides an estimate of the prevalence and impact of heirs’ title issues on a national scale.
Billions of dollars in value
The total assessed value of properties impacted by heirship issues is conservatively estimated to be over $32B across 44 states and the District of Columbia.
Over 60% of heirs’ properties located in rural regions
While rural census tracts contain only about 30% of the country’s homes, they contain nearly two thirds (64.6%) of the country’s heirs’ properties.
Potential impacts on generational wealth
With homeownership among the primary means of wealth transfer in the U.S., heirship issues have the potential to expand the wealth gap.
Read the full report
Heirship issues impact the ability of thousands of homeowners to build wealth through their homes. Read “A Methodological Approach to Estimate Residential Heirs’ Property in the United States” for insights into this complicated issue and to understand the scale of the problem throughout the United States.
Proud to partner with HAC
Fannie Mae is pleased to have partnered with the Housing Assistance Council (HAC) to estimate the scope of heirship property issues in the United States. Working together, we hope to develop solutions that address such problems and ensure homeowners can access the equity and wealth in their homes.
