VERY complicated wholesale deal. Advice?

Question

I've been working on a wholesale deal for the past month that's become a real frustration and I'm about ready to throw in the towel on it and follow up later but I thought I should ask for new insight first. I located a house while "driving for dollars" that upon investigation has been passed from deceased grandparents to deceased children and now to three living grandchildren. There was no will, there is no executor/executrix. After utilizing a skip trace report from findtheseller.com (I'm not an affiliate but I'm a HUGE fan of the service), ancestry.com, and facebook, I finally tracked down the three heirs. One of the heirs is behind bars, one is a state away, and the other drifts between Texas and California. I've come to an agreed purchase price of $20k with the drifter and the jailbird while the other just wants $1000 to walk away. Now that everything SEEMED to be in order, the drifter seems to have "drifted" off again and isn't responding to any contact while the other two siblings are pushing to move forward. The house is worth around $90k repaired and needs $20k-$25k in rehab. Any advice on how to proceed or are we all relegated to waiting till I can herd all three of these cats into a corner? Thanks.

Rick H. · Answer

As Ellis San Jose mentioned, anyone who thinks the worst case scenario is that they'll receive 2/3 or liquidated proceeds is incorrect.

In dealing with a pre-probate scenario, the decision must be made if you intend to buy the asset, buy heirs' or beneficiaries' interest, or merely focus on plays that make a profit.

If you buy the interest(s) and probate the estate yourself, you become the PR and have the exposure to all known (and unknown) heirs and creditors as the fiduciary.  I've had many estates end up with no equity when unsecured creditors like Medi-Cal pop up.

If you want to just buy the asset, someone else needs to be appointed PR or at least complete the summary probate (or similar process in your locale for a small, informal estate).

If you are only interested in making a profit rather than owning the asset, there are many, many exotic and sophisticated plays than can be executed.

Aaron Mazzrillo · Answer

Property is going to need to go through probate so I'd probably start with a probate attorney and see what he/she thinks your best strategy is at this point.

Dennis Lanni · Answer

Rick is right "worst case" is not the correct wording here.  Also Rick has most likely done more probates than days I have been alive (so if you get in a jam I bet Rick will have an answer for you)!  Buying 2/3 interest would be my approach assuming you have discovered all "known" liens on the general index against the subject property & POI.  Seems like the risk / reward is there to spend @ 5K (hopefully less).  Lots of way to skin a cat & you just read mine.

Ellis San Jose · Answer

@ Dennis Lanni

I'm not too sure the worst case scenario is liquidation through probate court. I think there are too many unknowns.

The conservative approach would be to secure a position in the deal for as little as possible upfront with the parties that are cooperative, then pay the balance once everything else is sorted out. No need to assume additional risk if the situation changes, or if obtaining marketable title takes a while or never happens.

Dennis Lanni · Answer

Keep it simple, purchase 2 of 3 heirs's interest & pay everyone right up front (less than $6,500) and open probate.  Worst case you can liquidate the property through the probate court & collect 2/3rd of the proceeds.  Line up your buyer with Probate purchase contract & your done.

Good luck

Ellis San Jose · Answer

The title wouldn't be clean to flip to most buyers or get traditional financing until that is handled.

If you don't mind holding it, consider Adverse Possession or Master Leasing.

Dennis Lanni · Answer

It depends on what the QC is doing (transferring title from the actual owner or transferring air rights; you get the idea here).  In your case here you just want to protect your small investment by putting your QC interest on public record which will prevent one of the heirs from selling you out to next highest bidder next week after you paid them.

Bryan Davis · Answer

I'm leaning toward taking the free part from the jailbird and recording it and waiting on the other two. He's fine with getting his $6500 whenever he can and he knows how the drifter is and so expects a wait. Thanks for all the advice.

Ellis San Jose · Answer

Recording an option or deed for partial interest is a good idea.  However, the estate will probably have to go through probate to get insurable title.

Booting the 3rd person out would require a partition action.

Tie up what you can for as little out of pocket.  It's not like the heirs have a lot of choices without clear title.

Bryan Davis · Answer

@Dennis Lanni : Do you find that your title company has any issues with the QC deed? I've spoken to three companies and all three say that they can't and/or won't insure a QC deed transfer.

VERY complicated wholesale deal. Advice?

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