If you’re thinking about letting a relative’s property that you have been left responsible for go back to the lender instead of messing with the daunting task of trying to sell it, let me help. I’ll assess things and see what we can do, and I have a network of resources in place to get it done!
What is Probate?
Probate is the formal legal process that gives recognition to a will and appoints the executor or personal representative who will administer the estate and distribute assets to the intended beneficiaries. The laws of each state vary, so it is a good idea to consult an attorney to determine whether a probate proceeding is necessary, whether the fiduciary must be bonded (a requirement that is often waived in the will) and what reports must be prepared.
The basic job of administration and accounting for assets must be done whether the estate is handled by an executor in probate or whether probate is avoided because all assets were transferred to a living trust during lifetime or jointly owned. Many states have simplified or streamlined their probate processes over the years.
Should You Avoid Probate?
The living trust is often marketed as a vehicle that allows you to “avoid probate” upon your death. Probate is the court-supervised process of administering your estate and transferring your property at death pursuant to the terms of your will. Probate is rarely the calamity naysayers claim. In addition, many types of property routinely pass outside of the probate process, even without the cost of establishing a living trust. Such property includes life insurance or retirement plan proceeds, which pass to a named beneficiary by designation rather than pursuant to your will, and real estate or bank or brokerage accounts held in joint names with right of survivorship.
While it is true that the property passing under the terms of a living trust upon your death will “avoid probate,” it should be noted that there may or may not be actual value in that result. Probate laws are different in every state. In some states there are statutorily mandated court or attorney fees while in others those fees may be minimal. Many states have expedited or simplified court proceedings that are efficient and inexpensive for small or simple estates. A properly drafted will in many states can eliminate some of the steps otherwise required in the probate proceedings. In addition, much of the delay and red tape customarily associated with probate is a result of tax laws and tax filing requirements, which cannot be eliminated through a living trust and the avoidance of probate. Finally, a living trust can almost never totally avoid probate, and a simple will is needed to “pour over” to the trust any property that has not been transferred to the trust during your lifetime.
Property that passes at death through a revocable living trust must be transferred to the trust, administered by a trustee who may or may not charge fees, and then transferred out of the trust to the beneficiaries. There may be other costs, such as real estate transfer taxes or fees, depending upon the jurisdiction. The costs associated with these steps and the costs associated with tax filings are often ignored by living trust marketers. A comparison of the costs of probate and those of a living trust should be made on a case by case basis.
Living trusts, in fact, have great value as part of estate planning, but not necessarily to avoid probate. A living trust, if properly prepared and administered, can be a very effective tool to manage assets in the event of illness, disability or the effects of aging. In light of the aging population, the use of living trusts to minimize the risk of elder financial abuse and address similar issues, should be an important consideration in an estate plan.
If you try to sell a property without a needed probate, the title will not convey at closing. The buyer will be awarded their earnest money back, and you will walk away still in charge of the property. If anyone tells you, a title company, or a title attorney, that “you need to go through probate,” you will not be able to sell the property without going through this process. The title will not be “clear,” and no one will buy a property without clear title. You might hear the words “cloud on a title,” and that’s what this is.
Also, a listing agreement to sell the property can only be signed by the person designated by the court to be the “executor,” “personal representative,” “administrator,” or “trustee.” In most cases you will receive a Letter of Testamentary from the Probate Court that allows you to sell the property owned by the estate and legitimately sign a listing agreement.
Properties in Probate
Probate properties are owned by the estate of a deceased homeowner and are often sold below market value to property investors and potential homebuyers. The process of purchasing these properties can take anywhere from 6 months to several years. Selling these properties can be tedious and not all real estate agents have the ability or patience needed to oversee this process. Also, before buying a probated property, buyers need to be educated on how to purchase these properties, and in some cases the process of court approval for this purchase. A probate real estate specialist will have the knowledge needed to educate these buyers and prepare them for what could be a lengthy process.
Contact a local probate real estate agent who specializes in probated property. Probate property sales may be marketed like any other home sales, but an experienced probate real estate specialist has the knowledge and the patience to guide sellers and buyers through the court proceedings and the process, bearing in mind that each property and probate is unique, and will encounter different and obstacles. The executor of the estate (the person in charge of disbursing a person’s goods after they die), will be responsible for hiring a real estate agent (not the court system), and hopefully will hire one who has probate experience, to handle the marketing and sale of the property.
Probated property is handled directly through the executor, the administrator, the personal representative, or the trustee of an estate. Occasionally, Courts will have to approve the amount of the sale, especially if there is still a mortgage on the property, or if the property falls into foreclosure while the estate is being settled. Sometimes agents will need to work closely with probate attorneys if this is the case. Be sure and inform your agent if special conditions exist, such as a property that still has a mortgage, and whether or not the mortgage payments, taxes, and insurance are up to date. Bear in mind that mortgage payments, taxes, and insurance still need to be paid during the probate process. If the executor and/or heirs are unable or unwilling to make the mortgage payment, the property could go into foreclosure after 90 days. If this happens, interest and penalties will accrue in addition to the missed payments. Probate attorneys may be able to postpone sheriff sales if the property goes into full foreclosure, but lenders do not care about probate. If payments are missed, the property will go into foreclosure and be handled in accordance to the mortgage contract signed by the property owners at the time the loan was taken out. If the probated property is in foreclosure at the time of sale, a payoff will need to be applied for which will include any additional interest and penalties that have accrued. Getting this payoff can take anywhere from 72 hours to 30 days or more if there are title issues, and all parties involved in the final sales transaction need to be prepared for closing delays.
Prepare for a lengthy sales process. After placing the property on the market you should be prepared for a potentially long process. Generally, purchasing a probate property takes at least six months and could take much longer. If you have a hard timeline for selling and settling with heirs, as the executor it will be your responsibility to inform heirs of the possibility of a lengthy process.
Getting an offer. You should be aware that there are specific requirements for probate properties that are not typically required for regular real estate.
Property Inspections. Buyers will make inspections. Even if he offer is accepted, it could be contingent up the buyer’s satisfactory inspections. Most often, family members selling a property do not know all of the problems that exist with the property. By having the home inspected, a buyer, even an investor, will have a better understanding of the potential problems with the home and whether the value of the home is less than you originally anticipated. Even though the property is marketed “as is,” savvy buyers will include language in the offer (or the contract if the offer is accepted) to include a statement such as “purchase subject to buyer’s satisfactory inspections.” If utilities are off at the time of these inspections, sellers can stipulate that it will be the buyer’s responsibility to pay to have these turned on for inspections, and then turned off again once the inspection period is over.
Move forward after the offer is accepted. Sometimes, once you as the seller accepts an offer the attorney for the estate applies for a court date so that the sale can be confirmed.
Attend court hearing. In some cases, if needed, in order for the sale to be confirmed, the buyer must attend a court hearing, along with any other buyers interested in the property. The court will identify the property and could conduct an auction style bidding process.
Once the estate and the buyer close the real estate transaction, all funds will be transferred to the estate, and the buyer would become the new property owner.
This process may take about 30-45 days from the court hearing.
As stated earlier, each property and each probate is unique. Sometimes the process goes smoothly with just a few hiccups along the way. Sometimes the sale is complicated. If the process develops obstacles, some buyers will walk away. Some will give up their deposit or earnest money to move on to a bigger, better deal. Some will get their earnest money or deposit back because of the way the purchase contract was written. Investors who buy probated property are accustom to delays, but that doesn’t mean they will stick with you through the court process.
The condition of the property, the financial conditions surrounding mortgages and liens, local market conditions, heir expectations, and court delays are something only experienced probate real estate specialists are accustom to. It is our responsibility to educate you as the seller, and any interested buyers regarding your particular property.
Probate real estate specialists tie all the ends together to get your property sold, and thereby move you one step closer to settling an estate. Getting an order to sell property (if required) usually takes approximately 6 months from the initiation of probate. The property will then be on the market for what could be months. Be prepared for these time lines, ask questions, and get the help and professionals needed.