Whether it be a probate, trustee, divorce or bankruptcy sale, the involvement of the court system severely complicates most arms-length transactions. My 25 years of experience as a trial attorney handling real estate litigation in each of these types of transactions can serve to assist you if you are an attorney, trustee or simply a fiduciary called upon to ensure due diligence. As a licensed real estate agent now working in Sotheby’s International Realty, I am assisting buyers and sellers in the purchase of properties that must undergo the additional scrutiny of creditors, judges, and beneficiaries.
I can help you jump through hoops: Generically called due-diligence in the judicial process, the legal procedure of selling properties subject to court oversight requires additional assurance that proper notice, marketing, and maximal value is derived from a transaction. Unfortunately, it’s not just a buyer and a seller and a lender involved in such transactions. The additional layer of scrutiny is satisfied with painstakingly prepared disclosures and declarations. Having successfully completed thousands of property sales, settlements and exchanges involving litigation, mediation, arbitration and court-sanctioned auctions, I can serve as an expert guide to lawyers and fellow agents tasked with closing a transaction within strict time deadlines. I also have ready-access to the formatted declarations, court forms, and third-parties necessary to ensure a seamless transaction.
With that said, let me provide you a cursory background about the various legal procedures that you may be engaged within:
Sale of Property after Death of a Property Owner (with or without a will):
Not uncommonly, I am contacted by a lawyer (or an executor of a will) to assist in the post-mortem
Appointment of the Administrator or Executor of the estate. In most cases, the decedent’s will names an Executor who is designated to handle the distribution of assets, including real property. If no Executor is named, if the named Executor is unwilling to serve or if there is no will, the court appoints an Administrator to carry out these duties. The Executor or Administrator is the person who has the authority to list and sell the property; the sale cannot proceed until that person has been identified.
As provided in the Independent Administration of Estates Act (IAEA), the Executor establishes a list price for the real property. The price takes into account the appraisal by the Probate Referee and is usually determined with the assistance of a real estate agent experienced in probate and trust sales. The property is then listed for sale through that agent/broker.
The real estate agent markets the real property to the public as aggressively as possible to attract the highest offer. This generally involves a number of approaches, including signage, newspaper advertising, listing on one or more real estate websites and hosting open houses for other real estate agents and potential homebuyers. The real estate agent will also schedule appointments to show the property to interested parties who inquire directly.
While buyers of probate and trust real estate may be looking for a bargain, their range of offers are limited by the court. An accepted offer must be 90% or more of the Probate Referee’s appraised value. Once a buyer is found, the real estate agent assists the seller in negotiating terms that are satisfactory to both parties.
When the property has an accepted offer, a Notice of Proposed Action is mailed to all heirs, simply stating the terms of the proposed sale. The heirs have 15 days to review the notice and pose any objections. If there are no objections, the sale may proceed without a court hearing.
If the Executor/Administrator does not have full independent powers under IAEA, or if one of the heirs poses an objection to the Notice of Proposed Action, notice of the sale must be published in a generally distributed local newspaper (unless the will does not mandate such action).
The attorney for the estate then applies for a court date (the “confirmation hearing”) when the sale will be executed. The court date is usually within 30 to 45 days of the date the application is filed. A copy of the application and details concerning the sale are mailed to all interested parties.
Even after the court date has been set, the real estate broker should continue to show the property and advertise the home to potential buyers in the hope of securing an “over-bidder” and thereby raising the sale price.
During the court confirmation hearing, the previously accepted bid may be overbid by another interested party. In such a case, the overbidding party must appear at the hearing with a cashier’s check (no personal checks accepted!) in an amount totaling at least 10% of the minimum overbid price in order to successfully overbid. The minimum overbid is determined by the following formula: 10% of the first $10,000 plus 5% of the balance of the accepted offer.
EXAMPLE: A property is listed at $200,000. The accepted offer is $175,000. The minimum overbid is calculated as follows: Accepted offer = $175,000 +.10 x $10,000 = $1,000 + .05 x $165,000 = $8,250 Minimum overbid = $184,250 x .10 = $18,425 amount of cashier’s check
If there is more than one overbidder, the highest bid ‘wins.’ The winning bidder gives a cashier’s check to the Executor/Administrator and escrow is opened. Escrow will close approximately 30 to 45 days from the court hearing.
Sean Erenstoft can be reached at (310) 613-8887.