When a person passes away and leaves behind the property, their property must first pass through the probate process before being passed down to family members and loved ones. Essentially, the probate process is a legal process that determines the execution of the estate of someone who has passed away. Moreover, during the probate process, the court appoints an executor or an administrator to administer the deceased’s estate. Therefore, probate property refers to any assets or property left behind by a deceased person that passes through the probate process.
It is possible to sell or buy probate property while it is still in the probate process. However, the sale of probate property is different from a standard sale of real property, and there are court and statutory procedures that need to be taken into consideration. At the Underwood Law Firm, our attorneys are more than familiar with the sale of probate property and the requirements that follow.
The Probate Process
There are four major steps in the probate process. The first step is to determine whether the property is testate or intestate. Property is intestate when the deceased passes without a valid will. Therefore, even if the deceased passed away with a will, the property may not be testate if the will is invalid. As such, during the probate process, the court must determine whether the deceased’s will is valid. If no will exists, the property is considered to be intestate and passed down based on next of kin.
Next, the court must determine the deceased’s heirs or beneficiaries. This allows the court to ensure the property passes to the right people.
Third, the court must determine the value of the deceased’s property and discharge the deceased’s financial responsibilities. As an administrator of an estate, you are responsible for covering the deceased’s debts and expenses with the funds in the deceased’s estate.
Finally, once the deceased’s obligations are fulfilled, then the administrator may transfer the deceased’s property to heirs or beneficiaries.
In 1987, California passed the Independent Administration of Estates Act (IAEA). Under the IAEA, administrators of executors may manage and administers most aspects of the deceased’s estate without major court involvement. The rules under the IAEA differ for an administrator depending on how much authority they are granted.
Buying and Selling Probate Property
Under California Probate Code section 10000, an administrator may sell probate property when (1) the sale is necessary to pay debts, devises, family allowances, expenses of the administrator, or taxes; (2) the sale is to the advantage of the estate and in the best interest of any interested parties; (3) the property is directed to be sold by the will; (4) the will gives authority to sell the property. (Cal. Prob. Code § 10000.)
Under IAEA, an administrator’s power to sell probate property varies depending on whether the administrator has full authority or limited authority. If an administrator has limited authority, they must follow the terms of the IAEA when administering the deceased’s estate. As opposed to full authority, when an administrator has limited authority, the sale of probate property must be reported to and confirmed by the court. (Cal. Prob. Code § 10308.) When an administrator has limited authority, the administrator’s power to (1) sell real property, (2) exchange real property, (3) grant an option to purchase real property, and (4) borrow money with a loan secured by an encumbrance upon real property, is subject to court supervision. (Cal. Prob. Code § 10403.)
When the administrator has full authority, they have the power to carry out the sale of the property without court supervision. Therefore, the administrator may hire a real estate broker, list the property, and close escrow without any court involvement. The administrator may also set the price and sell the property on terms decided by the administrator themselves. However, where an administrator has limited authority, this is not the case.
With limited authority, the administrator’s actions must be approved by the court. Therefore, any decisions as to the price and terms of the sale must be supervised by the court. Instead, under limited authority, an administrator is obligated to maximize the estate’s assets. Therefore, with the sale of probate property by an administrator with limited authority, the administrator is subject to the overbid process. Under California Probate Code section 10311, the amount of an original bid and any higher offer for probate property is determined by the court without any consideration for the commission that an agent or broker who entered into a contract with the administrator is entitled to or any condition that a certain amount of the bid is paid to an agent or broker by the administrator. (Cal. Prob. Code § 10311.)
Notice of Sale
Regardless of whether an administrator has been granted full or limited authority, the administrator is required to give notice of the sale of the probate property. (Prob. Code § 10580.) Notice of the sale must be given to (1) each known devisee whose interest in the estate would be affected by the proposed sale; (2) each known heir whose interest in the estate would be affected by the proposed sale; (3) each person who has filed a special request under Chapter 6; and (4) the attorney general, at the office of the attorney general in Sacramento, if any portion of the estate will escheat to the state and the state’s interest in the estate would be affected by the proposed sale. (Cal. Prob. Code § 10581.) Any person that is entitled to the notice of the sale may object to the sale. (Cal. Prob. Code § 10587(a).) If a proper objection has been made, then the sale of the property will be subject to the supervision of the court. (Cal. Prob. Code § 10589.) If no objection is made, then the sale of the property will proceed to escrow.
“Shawn” passed away suddenly after a car accident. In his name, Shawn had an ocean-side house in Los Angeles, California. Shawn also died with a valid will. In his will, Shawn gifted his ocean-side house to his lifelong partner “Julie.” However, during the probate process, the court discovered that Shawn had a lien on the ocean-side house that had not yet been paid. The court then appoints Max to administer Shawn’s estate and sell the ocean-side house to pay off the lien. Max is granted full authority to sell the property.
Max decides that the best way to sell the house is through a public auction in Los Angeles. Fifteen days before the sale, Max provides written notice of the sale to all interested parties in Shawn’s estate, including Julie. Two days later, Max receives a written objection to the sale from Julie. Although Max has full authority as an administrator to sell the house, now that Julie has brought forth a proper objection, the sale of the house comes under court supervision. Since Julie gave a proper objection, the sale of the house cannot be effectuated without confirmation of the sale by the court.
How Can the Attorneys at Underwood Law Assist You?
The purpose of the probate process is to determine that a deceased’s property is passed down to the correct people in the correct manner. Property within the probate process may be sold and bought for the best interest of the deceased’s estate. However, there are several procedures that must be taken into consideration when selling probate property. Most importantly, the power of an administrator to sell probate property is subject to the supervision of the court when that administrator has been granted limited authority.
As each case is unique, litigants would be well-served to seek experienced counsel familiar with the ins and outs of probate property and the law surrounding it. At the Underwood Law Firm, our knowledgeable attorneys are here to help. If you are seeking to buy probate property, are worried about the sale of probate property, or if you just have questions, please do not hesitate to contact our office.
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