Probate property contract

[Ryan Hobbs]

Can I use a standard purchase agreement on a probate property, where the administrator has full authority, no bond,in California?

[JP M.]

I am not yet an attorney, (although I am attending law school), but I am buying probate properties in the five western states. My suggestion below are not to be construed as legal advice, only general suggestions based upon my own experiences buying probate properties over the past 10 years.

Regardless of the agreement you use, or the level of authority of the administrator, to transfer title of a probate real estate property in California REQUIRES the approval of the presiding judge and an appropriate court order. In my personal opinion, this is the last place you want to try a do-it-yourself purchase agreement. There are many clauses you may want in your contract to protect yourself against outstanding liens and creditors, unnamed beneficiaries, etc. I also include an escape clause in my personal agreements so my earnest money is 100% REFUNDABLE if the court denies my initial offering price. 

If you are seeking to keep your legal fees to a minimum, I suggest you research the various pre-paid legal services plans available. Personally, I use Legal Shield because for my purposes it delivers the most bang for the buck. But there are many other offerings, and another plan may suit your needs better. If you research legal plans online, you will find opinions both pro and con. Nolo Press seems to be against them, perhaps because they sell self-help information, I don't know. 

However, the American Bar Association encourages their use, and according to the Oregon Bar Association, "Prepaid legal plans have been endorsed by the National Association of Attorneys General (NAAG), a savvy group with no interest other than equal justice for all. Legal plans dramatically increase access to justice, because they dramatically improve the cost-benefit ratio."

I am a member of the American Bar Association and found you a link you may find informative: (You do not have to be a member to access it).

https://www.americanbar.org/groups/group_prepaid_l...

Also, check out the American Prepaid Legal Services Institute.  http://www.aplsi.org/

I am not yet an attorney, and have no vested interest in providing you these links other than sharing hopefully helpful direction in your search for information.

[Ryan Hobbs]

Thank you for the links Jp.I never even considered a pre-paid legal service.I will check out the links you sent.I am trying to get into the probate investing niche, so any advise you could give is tremendously appreciated.

[Mark Pedroza]

@Ryan Hobbs Research CA probate codes 10402 and 10552. Full authority to my knowledge means court confirmation is NOT required. But you will need a (maybe) Notice of Proposed Action (DE-165) if heirs who have an interest in the (probate) property agree with the terms and price. If you do need real estate forms in the future log on to  http://journal.firsttuesday.us/  There based in Riverside...

[JP M.]

Mr. Pedroza is partially correct, there are two instances I am aware of where court approval is not required to sell real property in California. No probate proceedings are required to sell real property if the real property is an asset wholly owned by a trust. However, in this case a filing often needs to be made with the county recorders office to remove the deceased’s name from the title so that a sale can occur.

With ONE exception, if the personal representative (executor) wishes to sell real property that is part of the probate estate, the property can ONLY be sold with Court approval and notice to those who have an interest in the property – and the sales price MUST be for at least 90% of the appraised value.

That ONE exception is where the personal representative has been given authority to act under the Independent Administration of Estates Act (IAEA), AND, the property is not being purchased by the personal representative or his/her attorney. In that situation the "at least 90%" rule and the requirement that the personal representative "obtain the highest and best price for the property reasonably attainable" do not apply . The request for authority under the IAEA may be made at any time, though this is usually done as part of the initial petition for probate. ANY interested party can object to the grant of authority, although the Court must grant the authority unless an objecting party can show good cause. If authority is granted, letters testamentary must also be obtained showing that authority. The judge must sign admitting the will and approving the letters testamentary. (Letters of Administration in some states).

With a sale of one to four units of owner-occupied property located in California where a loan secured by the property is in default, the sale agreement must comply with California’s relatively intricate pre-foreclosure sale statutes. To be safe, anyone indicated in any will as receiving an interest in the property, any surviving spouse and anyone receiving an interest under the intestacy laws (if there is no will) should be considered an owner.

In any case, the personal representative must give notice of the sale to all affected parties. The notice must include all material terms of the transaction, including the sales price and the amount of any commission. Notice need not be given if all interested parties sign a waiver of notice or a consent to the request for authority. 

It is specifically because of the intricacies of the Notice requirements, and the ability of any interested party to object, that the question as to whether 'full authority' has been granted under IAEA and letters testamentary issued is so critical. It is common for a related personal representative to claim 'full authority' because it was granted solely within the verbiage of the will, which could lead the under-informed to assume that no court order is required. Unless the authority has been granted under IAEA, a court order MUST be obtained. Rather than go into all of this detail, I originally decided to answer your specific question regarding using the standard purchase agreement more succinctly presuming the common occurrence of assumed 'full authority,' because you had not mentioned letters testamentary or IAEA.

I stand by my original answer that because of the myriad pitfalls inherent in using a 'standard purchase agreement' for such a purchase, I strongly suggest you NOT use that agreement and instead seek affordable legal counsel. Not only can they include verbiage to protect your purchase transaction, they can also verify that proper procedures have been followed, proper Notices given, and letters testamentary have indeed been issued; which means that those with standing to object have been given their opportunity to do so, and either agreed to the sale, or their objections have been quashed.

I am perhaps more sensitive to the importance of using counsel whenever dealing with probate purchases because I lost significant capital on a $2.5 million purchase literally at closing when one of the previously unnamed beneficiaries served an injunction to stop the sale. This happened back when I was first starting out buying probate properties, and was in a state that does not have the 90% rule; the price was about 65% of appraisal value - a significant loss of profit and huge legal fees to correct. The seller thought she had 'full authority' to sell, and was as horrified as we were to have the sale reversed by the court. We were both even more horrified by the ensuing legal fees that it cost to extricate ourselves from the mess because of the unfounded allegations the 'injured party' levied against us.

"An ounce of prevention is worth (much more than) a pound of cure!" - Ben Franklin

[Robert Davidson]

In my experience in California, in virtually all (I can't remember one that didn't) of the wills the decedent stated the name of the Personal Representative and alternates, and stated it was the decedent's desire to have the estate administered under the Independent Administration of Estates act. So no court confirmation is required (unless one of the heirs files a dispute.) One of the main reasons the Act was passed many years ago was to relieve the courts and judges of the paperwork burden for estates where the will clearly stated how the decedent wanted the estate handled.

[Ryan Hobbs]

Thank you all for the knowledge. I have a lot to learn in the probate niche.Thank you Mark Pedroza for the reference.

[Derek W.]

@Ryan Hobbs in your initial post you asked about which contract to use. When you said a standard purchase agreement, were you referring to a CAR RPA (residential purchase agreement)?  If so, the answer is no.  You need to use the CAR form PPA (Probate Purchase Agreement) whether or not the seller has full or limited authority. 

Short answer to the wise info given previously; Sometimes a sale requires court confirmation, sometimes not.  It depends on the level of authority the seller is granted. 

[Mark Pedroza]

@Ryan Hobbs  Remember, if no will then Letters of Administration. If the estate has Limited Authority and should make contact and while working your numbers ask the PR to petition the court for Full Authority. Whenever your in N CA I'll show you so-called "dad's) "Notice of Petition to Administer Estate of H Pedroza". Dad wasn't that keen to file a Trust or Will so everything was based on Letters of Administration and yes a Probate Purchase Agreement was used to liquidate a property in San Francisco. 

Court confirmation was not required because my step-mother had "Full Authority" to administer the estate without court supervision and the authority was never revoked BUT with Notice of Proposed Action (DE-165)

Mark (N-CA) Sac/Placer counties

[Rick H.]

Ryan, there is no statutory form requirement for sale of real property in CA.

The rather lengthy explanation from the young man taking law classes fails to correctly answer your question. Derek W and Pedroza pretty well hit it right.

PR with full powers, no bond (and especially if sole heir/beneficiary) then make your best deal. Document as you wish. If subject to attorney review, s/he may be uncomfortable if non-standardized forms are used. Since I prefer a simple, 6 or 7 line, one-page with lots of white space, I've never had a problem but then again, I'm fairly high-profile in the probate legal world in CA.

Noticing is required for all transactions involving real estate, unless:

>No other heirs

>No Requests for Notice have been filed by other interested parties

>No active litigation

Title company will either want attorney "comfort letter" or or estoppel letter from PR asserting compliance.

If your transaction does not meet these requirements and noticing is required, it's not too difficult for either an heir or any interested party souring the bathroom at your party by objecting or sending most any communication to the court that appears to question your anticipated transaction. That will trigger the necessity of a court confirmed sale and Order Confirming Sale. Just had that happen in your neighborhood an a case where I am the PR.

What a pain for the buyer because more eyeballs are in your deal, pub may be required, and it's subject overbid, as my buyer learned to his disappointment.

[Ryan Hobbs]

Thanks Rick,

That was the information I was looking for. I thank you for taking time to answer my questions.I will be asking a lot more in the future.