Heir is dragging feet on probate while property faces auction

[Jonathan Vince]

I want to submit an official, legally legit offer to a person whose deceased parent left a property with heavy tax liens, and who never wrote a will. This person is the only child, and is apparently daunted by the probate process in spite of the fact that they’ll most likely be able to do a much faster, cheaper “summary proceeding”. I am ready to go immediately with an all-cash offer, and I will also pay off all of the tax delinquency. I’m even willing to pay the probate attorney fees. I already found an attorney, and put the two in touch with each other. That was a year ago. However, the would-be seller still hasn’t taken any steps, meanwhile the tax delinquencies are accruing, and the property will officially come under “power of sale” status in a few months from now. My offer is a good one, and it’s infinitely better than getting zero dollars because you were too scared or lazy or uninformed to take a few easy steps. What makes this more challenging is the current legal limbo. In my perfect world, would-be seller would accept my offer of $X plus all probate attorney fees, and would be eager to move forward since they won’t have to pay a thing and all they’ll have to do is give their thumbs-up to the attorney. Seller would sign an agreement binding them to sell the property to me once the summary proceeding clears them to do so. Once seller agrees to this, I will pay the attorney to get it started. That’s the best scenario as far as I see it. But probate stuff is foreign territory to me, and I don’t really know how much protection some sort of pre-signed agreement between me and the would-be seller would give me. This is where I’d love for BP folks to chime in on the legal/business/etc aspects of this situation, or to suggest other creative ways to possibly structure this transaction. With that in mind, I’d also appreciate any input on how I might structure my offer so that the would-be seller

1. can see the situation clearly

2. be finally motivated to take the next steps

3. won’t feel coerced in any way, but will see and feel how it’s a fair deal

Thanks as always!

[Randall Alan]

Let me start out by saying that I am not a lawyer... but have been through several probate proceedings, and have bought properties on the foreclosure market, so I can speak to a lot of what you are proposing... but just know it is based on my own experiences... 

First - realize that probate proceedings are very specific. If the property is in probate, the heir has no say in what is done with the property - other than if they want to keep it or sell it. He/She can't decide to sell it without the court's permission - at least until probate is closed... and that can take a long time... the one I was involved with took 2 years!!  Also realize that if in probate, the property isn't the heir's to do with what she wants... it belongs to the deceased relative, and probate is the process by which she is granted the rights to it.  To sell it within probate, the court would demand an appraisal, and would expect for the property to be sold for close to market value. That is the fiduciary duty of the executor... to get the maximum reasonable amount for the property.  It is also likely that the probate attorney could file a motion in the foreclosure case asking that a foreclosure proceeding be put on hold pending the outcome of the probate proceeding.  But I suspect that the attorney actually wants the property to go to foreclosure sale... Read on.  If the property isn't in probate yet, the heir can't actually sell it until it does go through probate as it is likely in her deceased relative's name - not hers.

 A lot of people don't realize how foreclosure sales work.  Mainly, that any beneficiary - be it the estate, or the heirs receive ALL the proceeds (less all the expenses attached to the property- be them court, lawyer, lender, etc).  So if it were to go to auction, the heir doesn't lose out... they get the free and clear proceeds if they exceed the encumbrances of the property.  All they have to do is write a letter to the court asking for the excess funds.   So an off-market offer, like you are attempting, is probably not much better than a competitive foreclosure sale from investors who have to bid against each other on auction day.  The auction is recognized by the courts as a valid way of establishing a true value of the property (albeit through an auction).  I often see the foreclosure prices go above what I would ever be willing to pay as an investor looking to flip a property.  The point being, that the urgency you sense on your side, probably isn't shared by the probate attorney on the other side.  

Another advantage of selling at the auction is that all of the typical claims clouding the title to the property are wiped clean at auction by the power of the court.  There are some exceptions, like IRS liens, etc as I understand it - but all typical claims are wiped clean.  This makes for a very clean way to discard the property.  The court clears the books and (more or less) guarantees clear title.  It is even possible that the estate may bid on the property at the auction.  So if the  property were upside down (say it was bought in 2006 when prices were nuts), and if it were thought to be worth less now through the auction price, the estate could bid and if they won the auction for less than the lien, they would effectively come out ahead if the heir wanted to keep the property.  

The broader point is that being on the outside looking in, you probably don't have insight into all the mechanics at play with the property you are interested in... and there are some dangers to be aware of in doing what you want to do.  As a random example - what if you were to accomplish what you want, then you find out there was an undocumented 2nd mortgage on the property that would hold seniority to your acquisition? It's an off chance... but the point being - if you swoop in and acquire the property and it didn't go to foreclosure - that 2nd mortgage still exists and is enforceable against YOU (or at least your newly acquired property).  So just know that there are potential hazards there you may not be aware of.   By going to foreclosure all of those claims are disbarred by the court.  

So it won't surprise me if you aren't successful, as sad as that probably sounds to you.  But if you think your offer is far superior, you will probably win at the auction, which is likely where the property will end up... and that's probably not a bad thing for the reasons mentioned above.

All the best!

Randy