Buying a Home in Probate Court Isn’t for the Faint of Heart
Dan and Tina are a west San Fernando Valley couple who have learned firsthand the headaches involved in buying a home that is being sold through probate.
As complicated as a typical home purchase can be, buying a home in probate is further tangled by complex laws and the fact that most probate home sales require a court hearing and the consent of a judge.
Probate sales occur when a homeowner dies, leaving property to be divided among inheritors, or to be sold to pay the homeowner’s debts. The sale is generally handled by the executor of the homeowner’s will or a court-appointed administrator if there is no executor named.
The whole process of buying a home in probate was more complicated and nerve-racking than anyone ever said it would be, said Dan, who preferred not to give his last name.
Because of legal restrictions, it took nearly a week for the attorneys handling the probate of the Thousand Oaks home that Dan and Tina wanted to buy to get back to the couple with an affirmative answer to their offer. The couple also had to make a 10% deposit of the $207,900 purchase price, and they risked losing all the down payment if they couldn’t get financing for the rest of the purchase price. It took another 65 days until Dan and Tina got their day in court. Meanwhile, the listing agent kept marketing the home and soliciting any bids that would be $1,000, plus 5% more than Dan and Tina’s bid--as is allowed by state law.
The day of the probate hearing, Dan and Tina had to wait through more than 30 cases that were ahead of them. “You’re looking at everybody in the room and wondering who may stand up and overbid,” Dan recalled. “You take a big sigh of relief when the judge asks for any overbids and there is silence. You could hear the clock ticking on the wall.”
Finally, the judge confirmed the sale and the long process was over--except for the signing of some papers.
Some time this month, Dan and Tina expect finally to move into their new home.
“If I knew then what I know now, I would have thought long and hard about making an offer,” Dan said. “I would have at least hired an attorney to watch out for my interests.” Because Dan and Tina didn’t understand the probate process when they made their offer on the house, the couple didn’t get any interest on their hefty 10% deposit. They also had to suffer through the delay of the hearing date and other mistakes that cost the buyers both time and money.
Would-be probate buyers should be aware that probate sales are an exception to California laws requiring sellers to disclose all known defects--so the principle is buyer beware.
“You cannot be faint of heart and submit an offer on a probate property,” said Nancy Sanborn, assistant manager for the Jon Douglas Co. in Studio City. “You have to be very prepared.” Because most probates don’t provide for any contingencies, the buyer has to thoroughly check out the property before making an offer. Also, she said, the buyer must have an immediate 10% deposit and be ready to risk losing it if the buyer is unable to close on the deal.
Another worry in buying a probate property is that the buyer must be ready to match or better a counter-bid, which can come along at any time. Just because a buyer’s offer has been accepted doesn’t mean that someone can’t step in with more money.
Sanborn reported that she goes to court about twice a month to get final approval for probate sales. Only about 10% of the original offers are challenged by a counter-bid, she said. When real estate was selling well, however, sometimes courtroom bidding wars would break out over properties. Sanborn has been selling probate properties long enough to have developed relationships with probate attorneys and administrators or executors charged with picking a real estate agent.
Some of the probate deals are very favorable for the buyer--others are not, Sanborn said. One recent property that Sanborn sold had a very reasonable asking price of $399,000 and sold for $375,000, she said. Another property in Toluca Lake, however, had an asking price of $270,000 and attracted an initial offer of $275,000. The buyer thought that offering $5,000 more than the asking price would dissuade other bidders. Not so. After seeing his $27,500 tied up while waiting for a hearing, the buyer was outbid by someone who walked into court and offered to pay $290,000. The first buyer got his money back, but meanwhile he had missed the chance to make offers on other properties.
“It’s no wonder that many people are afraid of the process,” Sanborn conceded.
Buying a probate home requires knowledge and nerve, said George Devine, co-author of the Nolo Press book entitled “How to Buy a House in California” and a professor at the University of San Francisco.
Many seasoned probate buyers never make the first offer on a property. They wait for someone else to make the first bid, then they come in as the spoiler, Devine noted. “A great many people who buy probate properties only want to buy once a bottom-line price has been set,” he said. The spoilers also don’t have to tie 10% of the sales price up for up to two months.
Another frustration is that probate laws are out of date and open to varying interpretations, said Carole Wilson, an agent at White House Properties in Woodland Hills. “Everybody interprets the rules very differently. There are often more exceptions than there are rules. Even judges handle things differently.”
For example, Wilson said, by law, the first overbid on a probate property must be at least 10% of the first $10,000, plus 5% of the balance. After that first overbid, however, the judge gets to set all subsequent increments for overbidding.
Probate is both a hassle for would-be buyers and for the heirs, who have to wait months for an estate to be distributed. Many people are avoiding probate altogether by placing their assets in family, or living, trusts, where assets pass on to the heirs with much greater ease.
“A lot of the banks used to have large probate departments, but they are phasing them out,” Wilson said. She used to handle about 10 probate properties a year; now she handles maybe three or four. She acknowledged that, in many cases, “they’re not particularly good bargains.”