Buying property subject to a life estate

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Buying property subject to a life estate

Account Closed
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes

I've got a lead in front of me with almost every kind of estate complication.  Property was transferred from Mother to Daughter in 2005, using a irrevocable life estate quit claim.  Mother was given life estate, daughter is only remainder men. Daughter dies, testate, in 2013 at age 78, leaving the property to her two daughters in the will.  Mother is still living at 102.  Daughter's heirs want to sell property subject to the life estate.  There are Medicaid eligibility issues for the Mother, now living in a care facility, debt and probate issues for the Daughter's estate, a false quit claim executed by heirs that didn't inherit the property, and a host of family members living the house with alleged claims to the property.

I can't quite wrap my head around buying this one sub-to the life estate AND the unprobated remaindeman estate without having full possession. Has anyone ever bought from a living life estate owner, thereby extinguishing the life estate and bringing together the possession and the property? .

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Dave Metsker
Investor · Portland, OR · Member since 2014 · 174 posts · 64 votes
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I love these challenges.  Here is what I would offer the daughters:

$10,000 now, in exchange for a Grant Deed, Subject to Acquired Interest, and a Trust Deed, Subject to Acquired Interest, for the reminder of 50 LTV to 60 LTV. The note would indicate that the remaining funds are due within 6 to 12 months of acquired title.

Then, just sit back and wait for mother to die.  Make sure the title company understands what you are doing, and get any additional documents they require. 

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  • Joshua Springer
    Residential Real Estate Agent · Columbus, OH · Member since 2013 · 281 posts · 110 votes
    11y

    Tricky situation...in a very uneducated guess I would assume the life estate would revert  back to original owner and not to daughters declared in will. 

    Since the daughter passed I wouldn't expect the will to be able to transfer ownership of something she hadn't fully owned to give away.

    life tenant > remainderman > heirs?

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  • Account Closed
    OP
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y
    Originally posted by @Joshua Springer:

    Tricky situation...in a very uneducated guess I would assume the life estate would revert  back to original owner and not to daughters declared in will. 

    Since the daughter passed I wouldn't expect the will to be able to transfer ownership of something she hadn't fully owned to give away.

    life tenant > remainderman > heirs?

    A life estate conveys no ownership of a property, only possession, which terminates upon death of the life estate tenant  There is nothing to revert back to the Mother.  She deeded away the property when she received the life estate.  So the Daughter's estate now owns the property subject-to the life estate.  The life tenant is alive and kicking at 102 and she still has right to possess.  The Daughter's heirs now inherit the property subject-to the life estate.  Just not sure I want to be in the same position.

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  • Dave Metsker
    Investor · Portland, OR · Member since 2014 · 174 posts · 64 votes
    11y

    I love these challenges.  Here is what I would offer the daughters:

    $10,000 now, in exchange for a Grant Deed, Subject to Acquired Interest, and a Trust Deed, Subject to Acquired Interest, for the reminder of 50 LTV to 60 LTV. The note would indicate that the remaining funds are due within 6 to 12 months of acquired title.

    Then, just sit back and wait for mother to die.  Make sure the title company understands what you are doing, and get any additional documents they require. 

    2Reply
  • Account Closed
    OP
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y
    Originally posted by @Dave Metsker:

    I love these challenges.  Here is what I would offer the daughters:

    $10,000 now, in exchange for a Grant Deed, Subject to Acquired Interest, and a Trust Deed, Subject to Acquired Interest, for the reminder of 50 LTV to 60 LTV. The note would indicate that the remaining funds are due within 6 to 12 months of acquired title.

    Then, just sit back and wait for mother to die.  Make sure the title company understands what you are doing, and get any additional documents they require. 

    I like the trust deed and financing aspect, but there is no real property with which to secure a promissory note.  All the heirs own is an interest in the estate of the Daughter who owned the property, they own no real property.  They have nothing to sell but their interest.  I don't think that's a trust deed kind of loan.  

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  • Dennis Lanni
    Investor · Sacramento, CA · Member since 2012 · 144 posts · 65 votes
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    Merging the deed can be done few ways.  I have done by (1) Purchasing the remainer interest with a (I think I use a grant deed) (2) ending the life estate simlar to severing a joint tenancy.

    I would break up your deal into a few steps because there are so many parts that need attention.  Without knowing the numbers I would do the following.

    1. Order an I&A for the daugher's estate. If it comes in <50k I would have the heirs file it and I would purchase from them (I would try an get my transfer/purchase insured).

    2. Does mom have capacity to deed out?  Does she want to?  Or I might wait a few years.  If I waited it out I might purchase an annuity that would start paying me out monthly when she turns 105 or something (as a hedge). I think her death would kill any Medicaid issues.

    3.  Get a handel on the debt (can you buy the debt?)

    4. What are the probate issues for the Daughter's estate?  

    5.  a false quit claim executed by heirs that didn't inherit the property, and a host of family members living the house with alleged claims to the property

    ---this is the messy part, if I got clean title i would definitely evict I might anyways.  If you end up with estate interest and need to probate double check how long a creditor has to file their claims from the DOD & when you open the probate because those family members will most likely attack the estate sooner or later.

    I'm sure I missed something here.  

    Good luck

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  • Rick H.
    Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
    11y

    @Account Closed  Remember that Title comes in two flavors: fee and estate for years. A life estate is very much of record and falls into the estate for years category. 

    I'll break it down. Please correct facts where needed:

    "A" deeds life estate interest to "B". B dies. A does not reside in property.

    Does A have capacity? Who might challenge it? Is any transfer on interest by her insurable? Can remaindermen interests be passed with insurance? I'd say yes with lots if exceptions. 

    How is B's interest removed? Affidavit with Death Cert? Quiet title? 

    Here's a wacky way to do this. Have A transfer her interest  to a trust. Thus permits you to fix the quiet title issue in probate court via an 850 petition, thereby avoiding normal civil court delays. 

    You know me; I say get it under contract to tie up with conditional, nominal money releases. Hope ARV is more than $100K as I know your primary market.

    2Reply
  • Account Closed
    OP
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    11y
    Originally posted by @Dennis Lanni:

    Merging the deed can be done few ways.  I have done by (1) Purchasing the remainer interest with a (I think I use a grant deed) (2) ending the life estate simlar to severing a joint tenancy.

    I would break up your deal into a few steps because there are so many parts that need attention.  Without knowing the numbers I would do the following.

    1. Order an I&A for the daugher's estate. If it comes in <50k I would have the heirs file it and I would purchase from them (I would try an get my transfer/purchase insured).

    2. Does mom have capacity to deed out?  Does she want to?  Or I might wait a few years.  If I waited it out I might purchase an annuity that would start paying me out monthly when she turns 105 or something (as a hedge). I think her death would kill any Medicaid issues.

    3.  Get a handel on the debt (can you buy the debt?)

    4. What are the probate issues for the Daughter's estate?  

    5.  a false quit claim executed by heirs that didn't inherit the property, and a host of family members living the house with alleged claims to the property

    ---this is the messy part, if I got clean title i would definitely evict I might anyways.  If you end up with estate interest and need to probate double check how long a creditor has to file their claims from the DOD & when you open the probate because those family members will most likely attack the estate sooner or later.

    I'm sure I missed something here.  

    Good luck

     Dennis:  thanks for reading and actually understanding the details.  You didn't miss anything.  I've already consulted with my attorney and her opinion of where the probate referee might go with date of death value for the property with the LE intact.  It's cutting it close, as it may or may not come back under $50K.  

    There are some CA income tax liens for the deceased Daughter, so I really want to be the assignee and go Affidavit if I can....not have the estate take title and not have to notice creditors.

    The Mother has capacity and I believe would be willing to release her life estate tenancy.  She is aware that the property cannot be easily sold unless she participates.  However, she is surrounded by a fortress of relatives who didn't inherit the property, the ones who put in her in long term care and moved into her house.  

    Just another day.

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