Probate sales are different than normal sales. A probate sale can arise as a result of a guardianship, conservatorship or probate estate. The manner and procedure with regard to conducting a sale of real property in a probate type proceeding is generally the same for each of the different types of matters with the exception of a probate estate (a matter involving a deceased person) where "full" Independent Administration of Estate powers have been granted.

INDEPENDENT ADMINISTRATION OF ESTATES:

The Independent Administration of Estates Act (IAEA) may be applied for by the personal representative (e.g. executor or, administrator) at the time of the initial petition or at any later time that need arises. As a practical matter the application is made at the initial petition for appointment. If sales of real property are permitted under IAEA the court must have granted the personal representative ''fulI'' authority, not just limited authority to act under the IAEA.

If  IAEA powers have been granted the personal representative can enter into an exclusive listing agreement without court approval. The personal representative, if no objections are received by interested persons, can enter into a contract and sell the real property without court approval. (Practice Point - Representation of Buyer It is a good idea to have a provision in the contract that allows withdrawal of the offer in the event of an objection.)

To exercise IAEA powers for sale of real property a Notice of Propose Action is given all interested parties (e.g. heirs, creditors, etc.) unless written consents to the sale can be obtained. If not all parties can or will consent then a fifteen (15) day notice of the terms of the sale is required to each interested party. During this fifteen (15) day period any interested party may object to the terms of the sale. If no objections are received then sale may go forward. If objections are received then a court hearing is required and the bidding procedure required in normal probate court sales is followed.

EXCLUSIVE LISTING AGREEMENT:

Unless the personal representative has IAEA powers an exclusive listing agreement requires court approval. A listing agreement of ninety (90) days can be entered under IAEA without court approval.

The California Probate Code §10161(b) states that if a broker representing the estate as seller fails to have an exclusive listing agreement and the winning buyer is not represented by that listing broker no commission is due the broker. Selling brokers should ALWAYS HAVE AN EXCLUSIVE WRITTEN LISTING AGREEMENT.

PROBATE SALE TERMS:

Most probate sales are conducted on an “AS IS” basis. This means the sale is made without any warranty as to the condition of the property, zoning, title, and/or permitted use unless otherwise agreed to in writing. The "AS IS" nature should be clearly expressed in the contract. Regardless of whether the estate (seller) agrees to repair certain items the buyer should understand as a practical consideration that once the property is sold, the proceeds of sale distributed to the heirs, the estate is closed and the personal representative is discharged, the chance of collecting for a breach of the warranty claim in a sales agreement is for all practical purposes nil. There is no one to sue except the REALTOR.

SETTING THE LISTING PRICE:

The Listing Price is usually set by preparing a market survey. This is compared to the appraisal provided by a person known as the Probate Referee. The ultimate sale price exclusive of commission after deduction for all credits to the buyer (pest control work, closing costs, etc.) must be within ninety percent (90%) of the Probate Referee's appraised value within one year of the sale.

The one year appraisal can be updated as the need arises. Initially the appraisal is as of the date of death in a decedent's estate and in a conservatorship or guardianship the appraisal is as of the date of appointment of the conservator or guardian. The appraisals are made on an "AS IS" basis using a drive-by inspection. Therefore, if the property has interior damage or immense pest infestation, concealed roof damage you should let the attorney know immediately as an amended appraisal can be obtained.

TERMS FOR COURT APPROVAL:

Generally all, including IAEA, probate sales should require the ability of the seller to demand a ten percent (10 %) earnest money deposit. Each court has its own local rules. Most courts require a deposit in escrow of ten percent (10%) of the purchase price in a probate sale. You as a realtor should protect yourself from a lost sale by requiring, even IAEA sales, the buyer to put a ten percent (10%) deposit in escrow in the event an objection is received and court confirmation is required.

In the recent past the market conditions dictated that the initial deposit might be less than ten percent (10%) simply to obtain a qualified buyer, e.g. a five percent (5%) down payment transaction. The court for good cause in Alameda County has been waiving the ten percent (10 %) requirement on a case by case basis. This has generally been where the property has been marketed for a long period of time and the lender has issued a letter of commitment subjecting the loan funding solely to court approval. Please do not count on getting court approval in this manner as the court could determine that good cause does not exist and you will be out a lot of time and money should the sale fail.

COURT CONFIRMATION:

When court confirmation is required, a petition to the court is made describing the terms of the sale. The court confirmation is generally held about 30 to 45 days after the petition is filed. The petition will not be filed until all contingencies are removed. It is recommended that any buyer personally appear at the sale to protect their bid on the property.

In some cases, when there is no will or power of sale, a publication in the newspaper is required to advertise the sale. A buyer should understand that the seller is unable to accept the buyer's offer until after the expiration of the period set forth in the published notice. Therefore, any acceptance of the offer prior to a completed publication is voidable.

At the court confirmation hearing, if buyer's contract is accepted, any deposit money held by the seller will be credited towards purchase price. If the sale is not confirmed to the buyer, such as an overbidder wins the sale, buyer's deposit should be refunded less any applicable costs. If the sale is confirmed, the court will issue a document entitled “Order Confirming Sale to Buyer". The buyer should be prepared to pay the purchase price within ten (10) days following the court order.

As stated previously, the purchase price must be within ninety percent (90%) of the Probate Referee's appraised or reappraised value of the property. If the purchase price is less than ninety percent (90%) of the referee's appraisal, the buyer may have the opportunity to increase the purchase price to the minimum amount required or may withdraw from the transaction. This should be clearly spelled out in the contract.

If buyer fails to follow through on the sale, the Order Confirming Sale may be vacated. This may result in buyer's forfeiture of the full deposit or an amount the court may determine to satisfy any deficiency e.g. a lesser sales price, costs, or other losses.

OVER BIDDING

At the hearing the matter will be called by the court and at that time the court will ask for any persons willing to overbid on the property. The first overbid must always be in an amount of at least 10% of the first $10,000.00 or $1,000.00 plus 5% of any sums thereafter of the original net bid. A net bid is after all credits and repair costs have been deducted from the sales price. As an example if the bid returned to the court for approval was $100,000.00 the first overbid would be $1,000.00 plus 5% of $90,000.00 or $4,500.00 for a FIRST OVERBID OF $105,500.00. After the first overbid the court will usually allow lesser amounts in various increments until no further bids can be obtained.

The overbidding party will be required, once he or she elects to bid and usually prior to the start of open court bidding, to prove that they have certified funds of at least 10% of the amount they intend to bid. The terms and the contract will be signed that day and the deposit will be delivered to the personal representative or his broker for deposit. It would be a good idea to bring a new deposit receipt and contract for signature if you are the seller's representative. The purpose of the deposit is to allow the estate a recourse should the successful bidder back out.

BUYER & SELLER PRESENCE AT HEARING:

If there is going to be a sale in court then it is important to have the buyer and seller present in court on the date of the hearing along with yourself. There may be overbidding which the buyer may desire to increase or there may be other questions that the judge may pose that only you and your client may answer.

COMMISSIONS:

Commissions are controlled by the court, not by the listing agreement (us for less commission). There are certain procedures for overbidding, if the matter goes to court. Each broker must understand that they may not receive 100% of the commissions they originally contracted for because of the court control. Please also remember that commissions are determined based on the net to the estate after any credits given back to the buyer. For example, if the estate was to pay for repairs, points, nonrecurring closing costs, or other similar items as credits to the buyer, the commission will be computed based on the purchase price less those credits.

The commissions on overbidding are set by statute. The statute is designed to encourage overbidding. Please refer to the attached table for the commission breakdown.

No commissions are paid to a broker who is acting as buyer or where the broker has an interest in the buyer.

TRUSTS:

The sale of real property by a trust in the case of administration of a deceased person's trust in regard to disclosures is similar to that of a probate sale. In a trust situation, unless there is a dispute between the beneficiaries and the trustee it is unlikely that any court appearance will be required.

The trustee needs to have a basis for his or her decision to list the property at a particular price. A market analysis is therefore imperative to protect the trustee. In addition, if a relator, has a document describing his or her experience this would be an added benefit for the trustee. A lack of experience may generate the need for an appraisal. Since time is of the essence the more assurances that can be provided to the trustee of market value the better.

CONTINGENCY REMOVAL:

It is to the sellers advantage to have the contingency removal of a passive nature. Please remember that no petition to the court should occur until all of the contingencies are removed, except those related to court confirmation.

ATTORNEY REVIEW:

Please allow sufficient time when accepting an offer or making a counter offer for this office to review any documents that our client is to sign. If you receive an offer with a short acceptance period, I would suggest that you contact the offering party to see if that period could be extended. If not, please make immediate arrangements for our review of the offer.

EXECUTION OF DOCUMENTS:

In a probate estate (executor or administrator), a guardian or conservator must execute the documents with his or her capacity indicated on the documentation. In a trust situation the trustee will execute the documents. These sales are not sales by the individual that may be the representative of the estate, conservatorship, guardian ship or trust. Therefore, it is important that on all documents where signatures are required that your client sign in their representative capacity, e.g. if there is an executor of the Executor of the Estate of AMY DOE"; or a conservator: "JOHN DOE, Conservator of the Person and Estate of AMY DOE; trustee:" JOHN DOE Trustee of the XYZ Trust, dated September 1, 1999."

 

EXEMPTIONS:

When there is a probate sale or trust sale, the seller (estate, conservatorship or guardianship) is exempt from carrying out certain statutory requirements of the normal seller in residential sales.
The following are several examples:

a. Real Estate Disclosure Statement: The seller is exempt from making the Real Estate Disclosure Statement under Civil Code §1l02.2(b) for transfers pursuant to a court order or § l102.2(d) for transfers by a fiduciary in the course of administration of a decedent's estate, conservatorship or trust. No such disclosure statement will be provided to the buyer by the seller.

b. Mello/Roos District: The seller is exempt from obtaining and delivering to buyer any notice regarding Miller/Roos Community Facilities Special Taxes.

c. Earthquake Safety: The seller is exempt from having to complete and deliver to the buyer homeowner's guide to earthquake safety or commercial property owner's guide to earthquake safety.

 

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d. Smoke Detectors: The seller is exempt from state requirements regarding smoke detectors. Sometimes smoke detectors are required by local ordinance, if so, these should be at buyer's expense and direction.

e. Disclosures Required by Seller: Generally speaking, disclosures that sellers must provide, even though a probate sale is involved, those disclosures regarding geologic and seismic hazard zones, special flood hazard areas, state fire responsibility areas, and, for property built prior to 1978, lead based paint disclosure.

 

f. Retrofit and Water Heater Bracing: Seller may be required to retrofit property to the minimum standards required by the government but obligation to pay can be either parties burden. In addition, any water heater bracing requirements must be complied with.

 

g. The Real Estate Agents Duty To Inspect: The real estate agent has a duty to inspect properties of one to four dwelling units when representing buyer or seller by making a diligent visual inspection of all reasonable access areas to the property and informing the buyer of any material facts that are discovered affecting the value or desirability of the property. This should be done in a written report dated and signed by the agent or broker.

h. Continue The Right to Market Property: The probate estate always has the right to continue to market the property. The realtor should be willing to accept any backup offers.

i. Arbitration/Mediation Liquidated Damages: Since the probate court has complete jurisdiction and control of the sale, there can be no arbitration mediation or liquidated damage clauses in these probate sale contracts. Most preprinted contracts have an exemption regarding probate sales.

j. Contingencies: In the usual case, no petition for court confirmation will be filed until the buyer's investigation of the property's condition is completed, the buyer has reviewed the preliminary title report, all financing contingencies are removed, and any condominium common interest subdivision reports have been approved.

k. Investigation by Buyer: Since this is going to be an "as is" sale, buyer should be instructed to seek out and conduct all inspections, investigations, tests, surveys, and other studies including review of local records and title information prior to the sale. The buyer's inspection may include geologic, soil testing, or other testing for hazardous materials. Buyer should be made to understand that he accepts full responsibility for discovering whatever damage or problems may be present. The seller should make the property available to the buyer for any and all inspections. Obviously, the buyer should indemnify the seller and hold the seller harmless from any liability, claims, demands, damages, or costs and/or repair charges that might result from the inspections conducted by the buyer. Buyer should provide to the seller at no cost, and upon request of seller, complete copies of any inspection reports.

I. Section 1-Pest Infestation Repair: There is no obligation on the part of the Seller to make any repairs whatsoever even Section 1 repairs. An AS IS sale also would and should exclude this item of repair. This of course a point of negotiation. However, any contribution by seller toward this repair will reduce the price someone has to offer on an over bid.

 

If you have any questions, please do not hesitate to contact our office. We would consider it a privilege to assist you in any real estate matter.

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San Lorenzo, CA 94580
Phone: (510) 278-0800