My mom and dad are both in a nursing home. I sold the house but they owed money on it. What will happen?

Assuming they will have some $$ left after the mortgage is paid out, as others have noted that money will have to be spent before Medicaid picks up the NH payments again. Medicaid allows an amount to be set aside from assets in an irrevocable trust for funeral expenses. The amount varies by state, depending on the average funeral cost in that state. Normally, you have to set up the trust before applying for Medicaid. The $$ in funeral trusts are not considered as countable assets for Medicaid eligibility, but you need to be sure the trust is set up correctly. One thing worth checking is whether you could set up such a trust (one for each parent) with these new assets from the house, during the period when your parents are temporarily off Medicaid and spending down the proceeds from the house sale. You should definitely check with your local Medicaid office both about the amount allowed in your state for funeral trusts and also whether you can set up a trust after the person started receiving Medicaid but during the time when Medicaid was temporarily suspended.

There will be a paper trail through the clerk and recorders office. I would imagine that Medicaid has already placed some sort of a marker on their house records. Probably staff that watches properties that have liens and monitors for sales.

Any equity from the house sale is theirs to be used for their care, spent down. That money can be used for what they need, hearing aids, medical bills, clothing, pre-paid funeral expense, elder law attorney.... Self pay nursing home care.

It cannot be spent down on gifts or others expenses. They will go off Medicaid until the funds remaining are $2,000.00 in my state. Then they will go back on Medicaid. There may be a social worker or finance person at the nursing home that can help with this.

Also, how did you sell the house? Did they transfer the property to you at some point? If so when?

Well I'd imagine the bank gets paid what is owed to them first. How much is left over? Who qualified them for Medicaid and when? I'd imagine the home value was factored in and conditions were set up when they were put on Medicaid. Was a lawyer involved? Whatever money that is left over i'd assume would need to go to the state.

The mortgage will automatically be paid off at closing, the title company will do that. If you are saying that they sold it for less than the mortgage amount, then that is a short sale, and they will still owe the balance, the mortgage lender handles that, you cannot just sell the house when you are under water. As for the funeral arrangements, if they have no money then have them cremated, no big funeral arrangements.

peacchappy, good to sell the house, one less major worry. Now, could you tell us if your parents are self-paying at the nursing or are they on Medicaid [which is different from Medicare].

If your parents are on Medicaid, you probably need to use whatever equity you got out of the house for their care in the Nursing Home.... they would now be self-pay until the funds run out, then they go back onto Medicaid. You can check with your State Medicaid office to see if you could purchase pre-funeral arrangements from those funds.

When your parent's house goes to settlement/escrow/title company, whatever it is called in your area, that office will mail a check to the mortgage company using the proceeds from the house. Plus there may be back real estate taxes, cost of handling the settlement, real estate commissions if a Realtor was used, and other taxes that the local and State government usually receive. Then the settlement company will give you a check which will be in your parents name.

Hope this works out smoothly for you.

Do you mean they owe more money on the house than you got from its sale?

What did you do with the money from the house sale?