Trust, Probate and Court-Confirmed Property Sales — a more involved way of getting a home in San Francisco, especially if it’s a fixer

Eventually we may encounter a property that is being sold subject to a “trust sale,” a “probate sale,” or a purchase is otherwise, “subject to court confirmation.” What gives? 

This isn’t a Law and Order episode (cue the music anyway?)  but a property sale where a property owner’s estate planning was unclear, missing or is somehow being contested. In other words, these types of sales are ones where someone has died and the estate, a conservator, trustee or court, is supervising the sale process because there is no will, trust or heirs. Varying regulations, procedures and timelines will apply depending on how lacking the estate planning was with some probate/estate sales resembling normal sales (without much by way of seller-provided information being the biggest difference), while other types require extensive court involvement, hearings and opportunities for for bidding and competing for a property at a court-run auction.

If his honor allows, we’ll explore more below.  

 

Lender
His Honor

Good. Better. Best. (Or Hard. Harder. Hardest)

Good. Trust Sale. Like a normal sale but may have a few more formalities during escrow period and little (if any) by way of seller-prepared disclosure documents.

Okay. Trust Sale with Confirmation. Like a normal sale but may have a waiting period where beneficiaries of the sale can object. Usually means a few more days added during escrow period. Little (if any) by way of seller-prepared disclosure documents.

Tense. Probate Sale with Court Confirmation (Lendable). Little (if any) by way of seller-prepared disclosure documents. Fixer condition properties that are in good enough shape a bank will lend on it. Properties are marketed/shown for a week or two. 10 percent cashiers’ check deposit usually required. Offer date is set and after winning offer picked by trustee, conservator, appointed estate representative or administrator, a hearing date is set whereby winning buyer must defend their price against any other party who can pay 5% above the then-winning accepted offer through a court-run auction.

Winning party at court hearing must have cashiers’ check down payment (if not original winning buyer) and has 30 days to close transaction (whereupon they must complete the loan approval process if paying by mortgage).

True Fixer Where All-Cash Required. Then there are the above sale methods but the issue being that a property is in such rough shape, purchases must be paid for all-cash. Usually the case with major fixers that are unsafe to access or fire-damaged structures.
Winning party at court hearing must have cashiers’ check down payment (if not original winning buyer) and has 30 days to close transaction (whereupon they must complete the loan approval process if paying by mortgage).

BACKGROUND

In most cases, when a property owner dies there’s an orderly process whereby the person’s assets (personal property) and real property — when combined, their estate — are distributed in a manner consistent with the decedent’s wishes. These wishes are most often contained in estate planning documents like a will or trust document. Of course, we’ve all heard of the stories of fraudsters, hucksters and all kinds of schemes to tamper with inheritance rights and plans but we’re not concerning ourselves with that here. 

An estate’s administration and asset distribution process itself is generally referred to as probate. And like our most responsible and successful clients, you will have prepared a will and a set up a corresponding trust long before anything ever happens to anyone, right? Doing so makes the entire probate process faster, private and clearer. The more specific the estate planning documents are the quicker the distribution process goes.  

When a person dies without estate planning documents is when distribution of an estate’s assets is overseen by a county court’s probate department (at least in California). A straightforward process will still take anywhere from 3-6 months to navigate its way through the system of notices, creditor notification and, our purposes here, disposing of real property. The lack of estate planning will not only add time to a sad time anyway but also cost your heirs (or the estate) thousands upon thousands of dollars for easy cases and much more it the circumstances are complex and contested. 

Successful Probate/Estate Buyers Say:

Kevin and Jonathan are an incredible team! After searching for two years, they encouraged us to bid on a probate sale — a house we loved — but believed to be out of our reach. Their persistence, reliability and encouragement landed us our dream house to remodel. Having Kevin and Jonathan as guides through the SF real estate market is a true win. Their expertise and knowledge in navigating housing and neighborhood options, complex processes and paperwork is bar none.

—  Katherine and Riyad, Buyers, Bernal Heights

Buying a house is complicated, and there are numerous factors to consider and decisions to make. You both helped us understand all of these, and you made yourselves constantly available to answer our questions. You helped us craft an offer that the seller accepted over the others, including one that was all cash. We feel so lucky that we had you on our side. Without your help and guidance, none of this would have happened.

— Patch K., Buyer & Seller, Twin Peaks & SoMa

To determine what type of sale will apply, ask the following question first:

Did the property owner die with any estate planning documents?

 

A Trust Sale with No Court Confirmation


 

Yes, There’s A Will And A Trust Document that Refers to the IAEA Correctly

= A Trust Sale with No Court Confirmation (easy-peazy) 

The fastest, most private and easiest method of handling an estate and of disposing of real property is if the property is held in trust. A ‘trust sale’ can be one with no court confirmation hearings so long as the trust documents cites a certain section of the Civil Code (the Independent Administrations of Estates Act). In these cases, a successor trustee is then given full authority to conduct a sale. Court supervision is bypassed. These sales pretty much track most ordinary private sales where bids or offers are independently solicited but disclosures are less complete as a trustee may have never even been to the Property being sold. Property sales under the IAEA do not have the same restrictions as a court confirmation sale and buyers may submit a contract with the usual contingencies and provisions as non-probate sales (see Cal. Prob. Code § 10503).

Some notes:

  • Most like a regular sale 
  • Fewer disclosures but there could be some as sellers may not know much about property
  • Decision-makers may decide on other factors apart from cash
  • Possibility of having buyer contingencies in offer
  • Normal financing usually available and a standard 3% deposit can be used

Estate Sale with Appointed Executor — There May Be A Court Confirmation if there’s disagreement between the heirs/beneficiaries


 

 

Yes, There’s A Will But No Trust Documents or The Trust Lacks Proper References to the IAEA

= Estate Sale with Appointed Executor, But There May Be A Court Confirmation

If the deceased designates what will go where and to whom in a will but fails to state that the estate will be administered according to a trust and the standards contained in the IAEA, the disposition of the estate will need to go through certain court proceedings before a piece of real property can be sold. It may not be the full blown-out court-sponsored auction circus we discuss below, however.

Assuming there isn’t anything awry or aggrieved folks cut of the will, an executor over the estate will be designated and have the authority to act on the estate’s behalf and decide if a property should and, provided they’re doing so freely and reasonably, can pick from offers presented.

Getting the executor the proper authorization to do so, however, will still take several months to complete in California. The appointed personal representative will act as the estate’s executor, executrix, or administrator/administratix and is generally responsible for wrapping up the estate, paying any remaining debts and distributing the remaining assets to those inheriting them. Executor/trustee conduct is subject to certain minimum standards however as there are various fiduciary duties to execute as well. A fiduciary may get compensated a certain percentage of the sale proceeds for their time according to the applicable rules and regulations.  

Some notes:

  • Waiting process before property sale can take place will be several months and delay close of escrow if marketed too early
  • Boilerplate disclosures may be available but specific ones about the given property may be sparse
  • Decision-maker may consider other factors than price but obligations to the beneficiaries which may influence whatever decision an executor/administrator makes
  • There may be people who oppose and/or contest the will, which may mean more court involvement
  • What’s worse if there’s a lot debt tied to an estate.
  • Financing is usually available so long property is in decent shape (C4 or better in most cases with some exceptions made with Fannie Mae loans up to C5.
  • Escrow deposit is 3% and closing’s duration is flexible
  • Buyers may have to pay San Francisco's Energy and Water Conservation Ordinance compliance and/or transfer tax (usually a seller cost in the county)

 

Probate Sale with Court Confirmation


 

No Documents — No Will, No Trust Documents — Nothing. They Died Intestate 

= Court Confirmation Hearing Required — A 10% cashier’s check is the price of admission

There are times where there are no estate planning documents or the documents that exist leave an estate to someone who’s already dead or there’s no one else left to inherit the estate. Or maybe the documents are too general or unclear to be valid, there’s been a dispute that isn’t easily solved. 

First off — tsk, tsk to those who didn’t plan ahead of time. They could have saved everyone this hassle. 

It's these times when a county’s Superior Court Probate division will be charged with disposing of the estate’s assets and/or resolving conflicts from the lack of documentation or clarity. Usually, this means the court is tasked with selling any real property the estate holds. Those judges will use a combination of hiring real estate agents for the preparation, presentation and marketing of a property in conjunction with a mandated court confirmation hearing (read: auction) to get a property sold.

Public sales like thee are supposed to guarantee some modicum of fairness because the process is slow but open to anyone who can make it to the court date. The court confirmation sale adds unnecessary delay and often favors cash buyers because they have money that’s ready to go now, Practically, though, property sales using the court confirmation system usually means buyers can have two bites at the apple if they fail to get the property through the agent portion stage of the sale at an open court hearing that would otherwise ’confirm‘ an accepted purchase offer contract — hence the term court ‘confirmation.' That hearing is akin to a public auction that will invite concurrent and competitive bidding.

Some notes:

  • 10% cashier's check needed as a deposit
  • Few, if any disclosures available
  • Depending on how dilapidated a property is, home financing may not be available, thus requiring a cash purchase
  • New owners may have to deal with tenants
  • New owners may have to pay transfer tax and SF Energy and Water costs
  • Not for the faint of heart

Trust Sales: Who Decides Who Wins... 

In trust-based sales, the decision-maker (and signer) may be just one trustee or executor deciding who to sell to. But in other cases a decision may require the consent from a number of named trustees. It may mean a lot of coordinating signatures across different time zones, generations among folks who may never had contact with the property or people with varying motivations. In any case, one offer will emerge as the winning one but these types of sales do allow for back-up offers too.  Just another note: In cases where the trustees disagree with each other or in executor-decided where the designated heirs disagree with decisions made or refuse to participate, selling the property using the court confirmation hearing may be unavoidable. In other cases, where heirs agree, written consent documents may still be needed, so be prepared for delays to accommodate this scenario.

A Court Confirmation Hearing

For sales requiring court confirmation the decision-maker is the market. Well the bidder who's willing to bid the highest amount and one who has cashier's checks and the ability to close on the property in 30 days or less. See how the process works below:

Like anything atypical please remember the above information may vary from your exact circumstances. It's best to contact us if you have questions. Be sure to consult any relevant professionals too!

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