Can a Probate Estate do a short sale?

[Marc Cormier]

Once someone dies and that person's estate enters probate. The executor is in charge of ensuring that the bills get paid, and the beneficiaries get any assets promised to them. One of the essential tasks the executor must do involves transferring the property from the estate to the heir.

Unfortunately, the decedent owed more on the property than the property would sell for on an open market. This problem becomes stickier when you realize that the executor is also in charge of liquidating real property to pay off outstanding debts.

Another important rule is that the executor must always act in the best interest of the estate. It may benefit both the state and the person inheriting the property if it can be sold in a short sale, thereby clearing the title.

What Is a Short Sale?

Simply put, a short sale is when the home is sold without paying off the outstanding debt, with the lien holders' permission. Sometimes lienholders are willing to accept a short sale, for instance, when the alternative is foreclosure.

To do a short sale in an estate, you will need to keep good records to prove that the house wasn't worth as much as the mortgage. Otherwise, others interested in the estate could try to claim that you could have gotten more money from the sale.

Realtor or Lawyer?

You need a professional to help you navigate the tricky intersection of real estate and probate so you can accomplish your task without getting in trouble. Realtors may know about selling homes but usually have little experience with probate matters.

Closing the Deal

Given the right situation, a lender will be willing to negotiate the lien on the property. Once you have an agreement, you need to make sure the lienholder will not come after the estate, taking away assets from the other heirs. If your agent works out a poor deal, it could harm the rest of the estate. You may have a friend or familiar real estate agent who wants to help, but poor advice from someone unfamiliar with probate work could lead to dire consequences.

Don't forget that any fees you pay a professional as part of setting the estate can be billed to the estate.