Uncover the “mysteries’ of probate – an often misunderstood yet great source of leads that is virtually untouched! Join us for a short but informative webinar, during which we explain what probate is, and how you can profit from this never-ending niche of leads. We will actually review cases online to demonstrate the power yet simplicity of probate.
Continue reading Coaching Call – July – How To Find Probate Deals
Some of my students had some additional questions that I thought many of you would benefit from so I’m posting them today:
Always be networking – When you build a network of probate / real estate attorneys that are consistently referring you business, you have it made. Sit back and cash checks the rest of your life. Do you understand the power of this? Sell yourself to every single probate attorney you come in contact with. Here is what to say
The Fast, Easy, Simple and Profitable Way to Wealth
Do you want a ready-made market of motivated sellers who often sell at a deep discount — a market where you’ll have little to no competition at all? Probate real estate investing is the easiest and fastest way to find deals and a get check. I think it’s an ideal way for the beginning investor to make money when you combine this with the concept of “quick turning.”
WHAT IS PROBATE?
Probate: is the official proving of a will authentic or valid in a probate court
When a person dies, their estate – all their worldly belongings – often goes into probate court, where a judge appoints a Personal Representative (a.k.a PR ( Executor)) to oversee its administration. It is the PR’s job to make sure that the belongings are divided fairly and according to the decedent’s wishes. Depending on the state, the judge may also give the PR different levels of power.
Probate is the process of distributing the assets of an estate after the creditors have been satisfied. One of the primary functions of probate is to transfer the title of the decedent’s property to its proper heirs. Of course, the government wants the estate to pay any taxes that the deceased still owes first.
After the expenses are paid once all the decedent’s property is sold, the people who have inherited anything from the person who died, divide up the remaining money.
However, what often happens is attorneys get involved and then the process becomes complicated and expensive.
Why Are The Owners Of Probate Property So Motivated?
In many cases, when an heir inherits property, they inherit a burden. There are estate taxes to be paid, repairs that must be made, in some cases, a mortgage or second mortgage must be kept up to date. Add in the fact that there are often multiple ‘owners’, and many of them may live far away, and you have a situation where selling the house is the best, and sometimes the only option to make sure that everyone gets their fair share of the estate. Ready cash may be more important to them than any other factor. People who inherit the estate want the money and not the house, they will often take a quick sale at a discounted price.
There are some other reasons why I love probate investing…
It’s one of the easiest ways to find properties at less than 70% of market value, do a little fix-up and sell at market value; you will make lots of money.
The other reasons:
Little Competition
Little Seller Resistance Very Easy and Simple High Response Rate
Are you starting to see why probate properties are so attractive?
Here is an interesting deal that illustrates the mechanics of probate or estate investment home purchases.
The Seller (I’ll call him Dave) co-owned this house with his mom, and both had signed on the loan. Unfortunately Dave’s mother died three years previously. Dave allowed the sister to live in the house, but she did not make the mortgage payments which were now 6 months in arrears. Dave is tired of dealing with the house and is ready to sell. But when he and his mother bought the house, they did not purchase with ‘joint rights of survivorship". Had they bought in this manner, if and when either died, total ownership would have passed immediately to the other person.
To complicate matters more, Dave’s mother left no will for her estate with six other siblings all awaiting their share. If that’s not enough of an investing adventure for you — the bank is threatening foreclosure so time is of the essence to create a deal. In fact, the bank is not just threatening….the house is scheduled to go to the courthouse steps in three weeks. Why would anyone even try to purchase a mess like this with a short time frame? Well, Dave owes $33,000 + $5,000 in back payments. The house just needs cosmetic repairs totaling no more than $10,000, and the house will have a market value of about $140,000.
That leaves approximately a $92,000 margin less expenses until the property sells – definitely worth pursuing as an investor! So lets investigate further
The estates of the elderly, their finances, medical situations and their property are often abused. A
A real life example exemplifies why Living Wills and Durable Power of Attorney does not protect your assets or protect the inheritance that you expect to bequeath to your heirs, as in the case of George Ferrara in 2006 as ruled upon by the New York State Appellate Court.
In 1999 a stock broker named George Ferrara willed his life’s savings to the Salvation Army. In January 2000, the ailing George Ferrara signed a POA over to his nephew Dominic. George Ferrara signed a form that said that the agent could make “gift” payments to the nephew Dominic Ferrara. By the time George died, the account was empty and there was no money left for the Salvation Army. When brought before the court, the court ruled that the “agent” must act in the best interest of the principal. It is fantastic that the court ruled this way, but there was one big problem: The money was already gone. Herein, lays the dilemma.
If the agent does not act on behalf, the POA and the basis of the intention of the principal are just a smoke screen. In the case of George Ferrara’s assets, they certainly were not protected in the manner of original intention. In reality, the assets of George Ferrara were not protected with the original intent of George Ferarra.
Wouldn’t a Living Will have helped George Ferrara?
A Living Will is a legal document that specifies in advance any life-sustaining measures a person refuses to undergo if there is no reasonable expectation of recovery. Typically, a person may refuse the use of feeding tubes, respirators and cardiac resuscitation. The Living Will makes an incapacitated individual’s treatment preferences known in a set of limited and specific circumstances and serves as a guide in medical decisions. This Will has power over the Medical or Durable POA and conveys the wishes of the principal.
A Living Will has power of the principal while they are alive and their Last Will and Testament enacts upon death. The problem is that only the Durable of Power of Attorney authorizes movement of property and finances, and this is at the digression of the agent.
If George Ferrara had his affairs set up differently, he could have prevented the movement of his assets so that his last wishes could have been honored.
When presented in this light, one conclusion is apparent. You should understand ALL of your options before signing anything away. Having said that, POA’s are important and necessary. As you investigate your options, each state has their own technicalities when it comes to Durable POA’s and/or health care proxies. Trustmakers is available to enlighten you with opportunities that will protect your assets and your bequest in a coordinated effort with your Estate Planning. We believe that you should know all of the options before making such an important choice in life.
Stay well and be protected.
Purchasing Property From a Decedent's Estate Frequently, the property of a decedent is sold rather than distributed to the heirs. There is sometimes a need to raise cash or pay taxes, or, more often, property will be sold so that the sales proceeds can be split among several heirs. In any event, estate sellers are often very motivated to sell, and motivated sellers can mean bargains to careful buyers.
There may be unique procedures that must be followed when an estate sells real property. These procedures depend on how the decedent's estate is being handled. There are three common alternatives:
1. The property is held in trust.
2. There is (or will be) a probate proceeding.
3. The estate is subject to the Independent Administration of Estates Act. Trust Property You can usually determine whether a property is held in trust by determining who the record owner is. If title is held by a trustee, the property is held in trust. For example, if title was vested in "John Smith and Jane Smith, Trustees of the Smith Family Trust," the property would be trust property.
On a person's death, trust property passes according to the terms of the trust and a probate proceeding is not required. If the decedent was named as the trustee, the successor trustee will be the person identified in the trust agreement as the successor (or appointed by the court if there is no named successor able to serve). The trust agreement is a private document and is not required to be filed in any public record either before or after a person's death. It may be difficult to ascertain who the successor trustee is.
A letter addressed to the property (assuming it is residential property) will usually be forwarded to the successor who is in the process of winding up the decedent's affairs. Although a trustee's power may be restricted by the trust agreement, a trustee will usually have the power to sell trust property as if the property was not held in trust. No court approval of the sale is required, although a trustee may seek court approval to protect against later claims by a beneficiary of the trust. The subject of court approval, if desired, should be addressed in the real estate purchase agreement.
Occasionally, you may encounter a property that the seller claims as trust property, but does not stand of record in the name of the trustee. In setting up estate planning trusts, people often fail to fund the trust by actually transferring property to the trust. So, while people may intend property to be in trust, they fail to take the critical step of actually deeding the property into the trust. These properties are not trust properties and they cannot be transferred by the trustee. If you take a deed from the trustee, you will not be able to secure title insurance, and in fact risk losing the property if there is an heir entitled to inherit the property. In these situations, check with the title company to be sure title insurance will be available, and, if not, what they will require to insure title. There is a summary procedure for property worth $20,000 or less.
The only other alternative will be a probate proceeding. Probate Proceedings The representative of an estate has the power to sell any asset of the estate by either a private sale or public auction. Real estate is almost always sold at a private sale where independent bids are solicited by the representative prior to any sale. The key feature of a probate sale is that, unless the personal representative has authority under the Independent Administration of Estates Act, all real property sales must be returned to the court for confirmation. Until the sale is confirmed, neither the personal representative nor the buyer can enforce the sale. However, a written bid cannot be withdrawn once it has been accepted by the personal representative subject to court confirmation.
At the time of the confirmation hearing, other prospective buyers may make offers to purchase the property that exceed the offer being returned for confirmation. Where a higher bid is made at the confirmation hearing, the court is not required to confirm the sale to the higher bidder. If a written offer is made by a responsible person in the minimum amount required in excess of the offer being returned, the court must accept the highest offer if it is to accept any offer, but the court has the discretion to reject the highest offer and order a new sale.
When comparing bids, the court cannot consider the net amount to be received by the estate. The amount of the bids must be considered without reference to any commission owed by the personal representative and without reference to any condition of an offer that a commission be paid by the personal representative. Estate property may be sold for cash or credit. Where this is a credit sale of real property, the unpaid balance must be secured by a mortgage or deed of trust on the property. There is no statutory requirement that the security be a first deed of trust; it may be subject to existing liens and such other liens as are approved by the court.
There is no requirement in the Probate Code that there be any minimum down payment. Court rules in some counties may require a minimum deposit. The prospective buyer should check the local court rules to determine whether there are any local requirements applicable to sales. For example, some court rules provide that a sale will not usually be confirmed where the buyer assumes or takes subject to existing financing if the estate is subject to contingent liability.
Finally, one of the mandatory findings that a court must make before a private sale can be confirmed is that the price is at least 90% of the appraised value of the property. The valuation date of the appraisal must be within one year preceding the confirmation hearing. Probate properties must be appraised by probate referees. While the referees are generally knowledgeable, their appraisals are usually less rigorous than that of fee appraisers. If the appraised value is set too high, a supplementary appraisal can often be obtained using as evidence the arm's length offer from a third party. Independent Administration of Estates
Most California probates are now administered under the Independent Administration of Estates Act. When the procedures of this act are followed, many of the procedures for court confirmation and overbidding can be avoided. When the personal representative has full authority under the act, the property may be sold at public or private sale, and the procedures related to court confirmation, including a sale at not less than 90% of the appraised value do not apply. The personal representative must give notice of the proposed sale to persons interested in the estate. The notice must set forth the material terms of the transaction, including the sales price and the amount of any commissions. If any person objects to the proposed sale, the representative cannot make the sale without the prior approval of the court. The failure of the representative to give the required notice will not affect the validity of the title in the hands of a bona fide purchaser of the property who relied in good faith on the representative's authority. The buyer has no duty to investigate whether the representative has given the notice in the proper manner. The representative's authority to act under the Independent Administration of Estates Act can be confirmed in the representative's letters of administration (the representative's authorization from the court) or from the court's file.
Dealing with property owned by a trust or probate estate may present opportunities for the real estate investor. There are, however, additional procedures that the investor should understand. Failure to follow the correct procedures may lead to title problems that can significantly affect the value of the property. The foregoing has been prepared for informational purposes only and does not constitute legal advice. The information is summary in nature and does not address any particular situation. Readers should not act upon this information, but should instead seek professional advice.