What happens if I let the bank take my father's house while he is in a nursing home?

If home has a mortgage or HELOC, it’s considered securitized lending, with the property & it’s inherent value is used to “secure” the loan.

If borrower defaults on payments due, the lender after a somewhat brief period of time - usually 90 days- will start foreclosure. The lending agreement will state the terms that trigger all this. Lender doesn’t care who pays mortgage; could be owner, you or Santa. As you all have been paying the note, all is good for lender.

To me, what to do depends on outstanding mortgage vs. equity in the home (if it’s “upside down” or is positive) & it’s likely sale price.
Scenario 1 - say mortgage is 200k (horrors!) & dad has let property become a real POS so that it’s only worth it’s land value of 75k, I’d put the keys in a padded envelope & certified mail it to the lender and dad walks on the mortgage; they start foreclosure & send him a IRS 1099-C for whatever actual balance of the lending is at the time it finally becomes their property as that’s taxable income. Right now it’s almost September so it may not even be done for 2019 tax year but 2020. In this scenario, you totally stop paying for anything house ever as there’s no real benefit for you ever. There will be a 1040 & 982 tax filing to be done for whatever year the 1099-c is sent, but that’s down the road for a problem......
scenario 2- mortgage is 200k but property has realistic sale price of 450k. You find a Realtor who understands moving an “as is” Sale and has a record of doing like 30-60 days DOMs (days on market) sales. You have full financial DPOA for dad and house gets a weekend removal of the egregious nasty stuff by family & put on market ASAP. House sells for $400, 200 goes to mortgage Co at Act of Sale and dad gets abt 185k paid to him as there’s 6% realtor commission. Realize that 185k is TOTALLY his $. He cannot reimbursement you or your siblings for any of the costs you all have paid on house, as Medicaid will consider it to be gifting of $$$ from dad to you. Imho you would have needed to either have had a notarized Promissory Note or Memo of understanding on future costs paid to be secured lending between dad & you all done way waaayyyy before you paid a dime on the place to get around this; or you get a real pit bully of an elder law atty to challenge Medicaids gifting determination. Dad uses $185k to private pay for his stay in the NH. When he dies & if there is $ left, state can attempt to recoup whatever Medicaid paid before he went private pay; and if $ still left, it is distributed as per terms of his will in whatever type of probate court action that fits the circumstances (small estates affidavit, muniment, full probate).
Choices are stark no matter what you do.

For family to honor elders wishes to keep old homestead, can be done. But imo property needs to be mortgage free w/ manageable costs & family needs to have wallet or purse to pay whatever costs for an unknown period of time. & a pretty deep sense of humor. Medicaid cannot force applicant to have their homestead to be sold per se. Only if it is over a certain value (550k or 750/800k depends on state) can a state not consider it to be an exempt asset.
Rub is that Medicaid elder has zero $ to pay on house. Family has to pay all & they stop being all kum-ba-ya on shared responsibility & get zero interest on paying or dealing with it. Mortgage must be paid or it gets foreclosure. So it gets sold. Based on posts on this site, it’s abt 6-8 mo. mark where this happens & triggered by property tax bill.

Medicaids “lien” ability on property really gonna depend on your states laws on property rights. Not all states allow for a TEFRA type of lien placement (predeath); for some it is instead is only an after death lien or claim against the Estate. But whatever the case, Medicaid is not secured lending, the mortgage holder is and they get the $ first & foremost. They are not beholden to Medicaid.

It depends on what the house is worth, how much is still owed to the bank, and what Medicaid says; but the normal procedure would be to sell the house, repay the outstanding mortgage, and then spend down whatever capital remains before reapplying for Medicaid.

Medicaid doesn't yet *own* your father's house; they have a lien on it, which means that when it is eventually sold they get first dibs on the balance between what goes to the mortgage provider and what's left over.

But anyway - paying the upkeep on an asset that is not and never can be yours is bonkers. Were you hoping to make a different plan for the property but it hasn't worked out, or something like that?

You NEED to let the bank take his house. Since he is already on Medicaid, Why would you continue to pay the mortgage and upkeep out of your own funds that Medicaid will take anyway?

List the house for sale then use proceeds to pay for dad's care until he spends down to again qualify for Medicaid. Could it be rented?

What about equity in the home? Home's value? Do you have POA so you could sell it?

Has the house been cleaned out? Could it be rented?

Get with an elder law attorney for help.

Is Medicaid involved now, or anticipated to be?  Or does he have enough funds to pay for his care indefinitely?

And what's the situation with his house?  Is it in foreclosure, and if so, at what stage?

In addition, are you convinced, absolutely, that he'll never return home?   Is in he AL, rehab or memory care?  

It would also help if you shared your rationale for not keeping the house and just "letting it go."   

If there is a legitimate reason for that, and if the house is in foreclosure, another option would a deed in lieu of foreclosure, a quicker method than the declaration of foreclosure, notices, Sheriff's Sale, etc. 

But as Alva stated, much more information is needed before on point answers can be offered.

I feel like I don't have enough information here. I agree with Worried in Cali that his credit would be ruined, and honestly he doesn't need credit. BUT I worry that you may be his financial power of attorney, and that he may have directed you to make payments on his home as per normal. Not knowing if his mental acuity is good enough to direct you or not, not knowing whether you are his POA and have decided he cannot both pay for his nursing home bills and his home, puts me in a position I cannot answer this. If the home has was bought years ago by him it may well be worth more than he paid, and the better idea could be to sell his home? But again, this is all so individual. If you have questions I would buy an hour of time with an Elder Law Attorney. Perhaps have a realtor stop by and evaluate the value of his home, how much is owing on it, and etc. Just not enough information to guess what might happen in this instance.

Nothing really except a negative entry on his credit history but that shouldn’t matter at all since he shouldn’t be trying to take out a credit line or finance anything.