Probate in California

[Alberto Fraire]

I have searched the Web on information regarding Probate Real Estate investing. I am not sure many people know that in order for a Personal Representative (Executioner) to sell the estate, they have to have full authority of the home. That does not mean you cannot submit offers. If you do submit an offer, it has to be approved by the court first, which will probably not be accepted it if it isn’t at least 90% of the appraised value. Some Probate petitions that I have seen have the Public Administrator as the Personal Representative, which we can save for another talk, but for now here is a detailed description of how the sales of Probate real estate in California works.

Let me know if this helps.

Sales of California Real Property in Probate

Investors in real estate sometimes wish to buy property out of probate estates. Depending on the situation, the mechanics of this may be simple or complicated.

No probate proceedings are required to sell real property if the real property is an asset wholly owned by a trust. Note, though, that in this case a filing often needs to be made with the county recorders office to remove the deceased’s name from the title so that a sale can occur.

If there is no trust covering the property, then it may be possible to file only a spousal petition (versus going through a full-blown probate) if the surviving spouse has 100% unqualified ownership of the real property (meaning there are no-owners, it is not merely a life-estate, etc.). Usually this requires either a will giving 100% of the property to the surviving spouse, or the deed to the property having been held by the spouses in joint tenancy (with right of survivorship) or community property with right of survivorship. If this is not the case, then a probate is almost always required.

With one exception, if the personal representative (executor) wishes to sell real property that is part of the probate estate, the property can only be sold with Court approval and notice to those who have an interest in the property – and the sales price must be for at least 90% of the appraised value.

The one exception is where the personal representative has been given authority to act under the Independent Administration of Estates Act (IAEA) and the property is not being purchased by the personal representative or his/her attorney. In that situation the “at least 90%” rule and the requirement that the personal representative “obtain the highest and best price for the property reasonably attainable” do not apply . The request for authority under the IAEA may be made at any time, though this is usually done as part of the initial petition for probate. Any interested party can object to the grant of authority, although the Court must grant the authority unless an objecting party can show good cause. If authority is granted, letters testamentary must also be obtained showing that authority.

With a sale of one to four units of owner-occupied property located in California where a loan secured by the property is in default, the sale agreement must comply with California’s relatively intricate pre-foreclosure sale statutes. To be safe, anyone indicated in any will as receiving an interest in the property, any surviving spouse and anyone receiving an interest under the intestacy laws (if there is no will) should be considered an owner.

In any case, the personal representative must give notice of the sale to all affected parties. The notice must include all material terms of the transaction, including the sales price and the amount of any commission. Notice need not be given if all interested parties may sign a waiver of notice or a consent to the request for authority.

In estates that require a bond (any estate where a will does not specifically say that no bond is required), the Court will generally set the bond equal to the amount of the equity in the property plus the value of the personal property, plus twice the value of the annual income from all estate property. The premium for the bond is often approximately one percent (1%) of this total. One possible way to avoid paying a bond premium is to have all interested parties (beneficiaries, etc.) sign a waiver. Note that most bonding companies will not issue a bond if the personal representative is not formally represented by an attorney.

Although this is not technically a problem for the purchaser, at the end of the probate the personal representative – even with full authority under the Independent Administration of Estates Act – is required to file an account when seeking final distribution. The personal representative must list and describe the sale of the real property, including when it was done, when and to whom notice was given, whether notice was waived and by whom, and whether objections were received. Still, if an interested party failed to object to the proposed sale at the time the notice of sale of the real property was given, then that failure constitutes a waiver of the right to object to the accounting. This waiver requires that the notice was properly given and the party actually received the notice before the time to object expired. For this reason, it is crucial to ensure that proper notice is given and that there is proof that the notice was received. The Court may review the sale only in very limited cases, such as when the recipient of notice lacked capacity or notice was not given to the legal representative of a disabled heir.