Probate and Trust Sales: Why They Are Important To You
Odds are, at some point in your life you will be involved in a probate or trust sale of real property. Whether you are a buyer looking to purchase a home, or you are an executor selling real property, you will want to understand exactly what is involved in the process. First, probate and trust sales usually occur when the last remaining owner of record has passed away. There are a few exceptions to this rule, such as a trust sale where the owner is alive, but no longer able to care for him or herself and the property is sold to help pay for care expenses. Understand that the largest difference between the two is that trust sales are set up to be smooth, uninterrupted transactions, while probate sales may require court approval or interaction with a court administrator.
A trust sale occurs when real property has been properly transferred into either a revocable or irrevocable trust. The trust states that upon the occurrence of a certain event or set of circumstances, the property is to be sold. The assigned trustee will then put the property on the market as soon as possible and it is sold with the proceeds being distributed via the trust instructions. A revocable living trust allows the owner to freely transfer the property in and out of the trust as often as they like. However, once the owner passes away the trust becomes irrevocable and the trustee will usually be required to sell the property immediately.
A probate sale occurs when the last owner of record has passed away and essentially does not have any estate planning vehicle in place such as a living trust. Once complete, the proceeds will be distributed by the court administrator in accordance with a judge’s order. One key item to note is that some probate sales will have an additional step. Court approval may be needed to complete the sale if the executor has put the home on the market prior to receiving final permission from the court administrator or judge. While this permission is usually given, it can create a delay in your transaction.
Most trust and probate sales run smoothly and the new owners do not encounter any issues. However, if you are a buyer considering the purchase of a home that is a trust or probate sale there are a few things you should be aware of. First, understand that the trustee or administrator has never lived at the property. Not only can they not give you the customary personal disclosure insight into the property, but the law actually exempts the trustee or executor from any meaningful disclosure that normally takes place on state mandated disclosure forms.
Your agent should recognize the pitfalls immediately and advise you accordingly. The homework and your game plan for kicking the tires on the house has to change from the traditional methods. Since you will not receive the personal narrative from the current owners through disclosure you will need to rely heavily on your inspections and your ability to do as much investigation into the neighborhood as possible. For example, the property inspection is not going to tell you if the neighbor has a garage band or a dog that barks at all hours. Those types of items would normally appear on the seller initiated disclosures which you will not have in a probate or trust sale.
Talk to the neighbors. People will generally tell you everything (and more) that you need to know about their block. For the home itself, consider having two home inspections rather than just one. There are only a few of them, so do your homework and get the right ones.
Responsibilities of Trustees and Administrators
Understanding the role of a trustee or administrator is crucial. Keep in mind that trustees and administrators are bound by a fiduciary duty to the trust or order of the court. That fiduciary duty usually boils down to essentially two things (1) expeditiously selling the property at market value; and (2) distributing the assets to the beneficiaries. The key here is that most trust and probate sales that come on to the market sell quickly. Why? Because the trustee has a duty to put the property on at a price that will be at market value. Rarely, will you see a trust or probate sale linger on the market for more than a few weeks. Remember, the trustee or administrator has a duty to get the assets to the beneficiaries in an efficient manner.
A Strong Candidate for Multiple Offers
Many trust and probate sales end up being great candidates for multiple offer situations. Their candidacy is aided by the fact that they are usually on at a very attractive market rate. Preparing for a multiple offer situation with a trust or probate sale requires a different type of preparation, strategy and presentation. It would be wise to plan out your strategy with your agent in advance of the offer date.
Call us if you are interested in a Probate Sale!