Probate and Pre-Foreclosure Deal?

Question

I have a pre-probate and pre-foreclosure deal on the table that goes like this and I need help getting my arms around the acquisition using seller financing.  I have kept the math easy:

$125K ARV;

$25K repairs to get up to date;

$20K lien; this lien is 6 months behind payments of $722/month;

Parents died and house was left to recently divorced daughter (only 1 heir) who currently lives there and wants out and wants move-out money to a townhouse paid for by the government (Section 8) - to start over. There is no PR or executor yet and probate has not started (Pre-Probate).  Attorney wants $2000 for probate of which daughter could not do.  Bank moved the ball forward and tried a Foreclosure Trustee Sale to "force" a short sale with no takers on foreclosure price...

I have a gentleman's agreement with single heir (who is not executor and cannot sign contract since she does not own it yet - pre-probate).  But I would like to get under contract with seller financing for $60K, no interest, no payments, ASAP, tomorrow, and then until I get it re-sold and cashed out down the road.  I would plan to deal with the fiduciary catch-up issues.  Heir would net $40K at the end, with offering potential discount also at cash-out time or the end.

If I don't want to deal with a potentially flaky seller as pressure is relieved and I want control, and seller is willing, is it best to set it up at the beginning that I just become executor and deal with all this?

But would I be the buyer and seller in this case?  Me and my LLC?

Or would it be better for marketable title issues to let her become executor (as only heir) but then I lose control and have all these costs out for loan mod, catch-up, and probate settling, attorney costs, paying taxes, mowing, you name it - that she has no capacity to do?

Thoughts on how I can do the paperwork to get the deal done with the heir (current non-owner) with good terms and owner financing?

Thanks for any pre-probate, pre-foreclosure advice, expertise.

Account Closed · Answer

Too many metaphors at one time.  Just.  too.  much.

Derek W. · Answer

It's always fun, and a challenge, for me to decifer Rick H.speaks Rick language and is usually great at breaking his code. Biggest concern on buying heir's equity this early in the game, as Rick mentioned, is the unknown creditors. There may not be any equity by the time medical, nursing home, bail bonds agent etc is done. So Rick is suggesting a way to tie up the property now, and pay the heir in a safer manner later. Now, I just need to figure out what it is he said...

If you contract for her interest in the estate, assignment of beneficial interest, heir is done and out. It will be you, not her, that is now in charge of settling the estate. But what happens if you pay for the remaining "equity" and during probate, four other heirs step forward that you have not contracted for beneficial interest? And knew nothing about. I wonder if she, working closely with you and attorney, can open probate, file for Petition for letters of special administration, and get the authorization to put a small second on the property, which would be you, of course. This could pay the attorney, bring the first current and save foreclosure, and secure you as a party to the transaction without playing the equity game?

Account Closed · Answer

The heir can't sign a lien or purchase agreement, as she isn't the owner of the real property.  The only thing she owns today is her interest in the estate.

If you buy the heir's interest via an assignment, you're the owner of the heir's interest in the estate.  Not the property. You then probate the estate (as the sole bene, electing yourself as administrator/exec) paying off all creditors and distributing the real property. It backfires when there is debt you didn't know about and/or when heirs show up you didn't know about.  Ask me how I know.

Was the decedent in a nursing home or on any public assistance?

Charles Robinson · Answer

So, if I were to do an Assignment of Beneficial Interest, I assume that means she would need to somehow become the Executor or PR first and through my guidance.  I could plan to create a trust where she is beneficial interest, where she would put the property in a Trust and then her beneficial interest could then be assigned to me.  Am I understanding this strategy correctly - go ahead and allow her to become the PR?

Also, for the recordable lien, is that my lien on the property.....or her lien of the $40K she believes she will get when it's cashed out?  Or both?  Not sure I followed the recordable lien strategy.

Yes, for the defaulted mortgage, I can handle the $20K loan as usual Sub2 deal if needed, so not as concerned about that deal structure.  But I was not sure on recorded lien(s) in my example.

Would there be 2 liens recorded - hers for $40K and then mine?

Thanks for the great advice.

Rick H. · Answer

Welcome to BP.  I suggest you complete your profile and upload a recognizable face picture.

Don't over-complicate this. Outline one hurdle at a time.

For starters, think of probate as a title issue for you. Absent capacity, powers and authority of a personal representative, it's pretty difficult to pass marketable title.

You can control the deal contractually via assignment of beneficial interest and a recordable lien. I'm told I just got paid off on one Friday that I recorded in 2008 after an heir changed their mind and reneged on our agreement.

The next matter is the defaulted mortgage. If they can be kept at bay and a Notice of Default or Lis Pendens avoided being recorded, you'll keep this out if the radar of others.

However, taking the pressure off the heir is unadvisable, since that is a bigger trigger than the probate issue.

The sub2? No big deal. Just structure as you would other deals.

Her black box equity is a pig in a poke at this point as you do not know about potential creditor claims that could eat away at this part. I would give her purchase money note(s) for  the balance and do not wrap around the old mortgage.

Rick H. · Answer

Kristine Marie Poe My style guide was Strunk's 'Elements of Style' however I haven't looked at it for about 40+ years. At least my punctuation is (usually) accurate except when the iPad spellcheck gremlins come out and play.

Derek W. · Answer

Which is why I suggested the debt play. Become one of the creditors and control the estate through the back door.

Charles Robinson · Answer

Yes, had both.  Although I'm "told" that the debts are small in relation to the estate, I wonder if there is an easier way or proactive way to better confirm all the debts of the estate?  To your point, if the bank buys the house via a foreclosure sale though, there is nothing but debt.

Charles Robinson · Answer

So if I open probate as exceutor or PR, the heir is out completely with an assignment of beneficial interest?  Am I understanding that correctly?

And if I just decide to give her cash for keys and moving money, then it's mine to handle from here on out?....

But, can she renege later after the pressure is off if there is no recordable lien, since cash is in play?

What about her teenage son - can he sign an assignment of beneficial interest also?  Or is he downline and not necessary?

There is no way she can handle this, and they want out and to move on...  Thanks.

Rick H. · Answer

Nope

Probate and Pre-Foreclosure Deal?

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