Owner finance on a house in probate

[Josh R.]

I received a response from a yellow letter I sent to a probate lead this morning. The daughter says they want to sell the house and would consider financing the sale (the home is free and clear).

My question is when structuring an owner finance sale on a home in probate would we need to have an MLO involved to satisfy the SAFE Act or is this an exempt situation because it is the decedents immediate family?

[Rick H.]

With respect to the disrespectful Mr. Gulley, I do not drink however I DO believe my 1,800 + probate deals over twenty five years as a probate specialist gives me some level of expertise to base my experience on.

In order to buy a property from the heirs of an estate using seller or carry back financing, as it may be called, there has to be a way to pass title, preferably insurable, marketable title voluntarily, in order to negotiate a purchase money note for any portion of the equity purchased.

The reason a Purchase Money Note, as a debt instrument is preferable is because of the possibility of a seller-come-creditor having some ability to have recourse on the borrower, where it it is argued that obligation is a promise to pay by the purchaser.

My point about this is really about using language in the note that makes it clear that this is not a loan of money but rather the terms of the sale of real property. Avoid language that the buyer "promises to pay" and similar verbiage.

As for the ability to purchase prior to the close of probate, this really depends on the state and the powers granted the PR (personal representative) and the point of time you, as buyer, wish to complete the transfer of title.

For instance, in my state, CA, a formal probate can be avoided if the total gross value of the estate is $150,000 or less. Unfortunately, using this method has limits because there really are no interim powers granted the PR to sell or encumber. Basically, the PR as seller needs to complete the summary probate, then sell. I've acquired many estate properties via assignment and acted as PR then distributed assets (real estate to m, Purchase Money Note + other consideration to assignors) but then I get stuck with any fiduciary baggage that crops up.

On the other hand, it may be necessary to obtain a court order confining the sale. In my state this may be the case when the PR has limited powers or full powers but lack of agreement among heirs/beneficiaries. In this case, your deal will be under a higher level if scrutiny and seller financing is a great way to show a higher sale price, if required.

Josh, you ask darn good questions. Your posts are some of the best, most cogent that I've read here. I would encourage you to continue to do exactly what you are doing. Invite plenty of comments however be careful who you listen to. Ask yourself if the poster is trying to helpful to you or merely has an obsession for commentary. Looking forward to following your sagacious marketing efforts.