Probate Basics For Finding Deals
Probate cases are a great source of deals, but first, what exactly is “probate”? Probate is a legal process that transfers the title of the property belonging to someone who has died, to their heirs while making sure all debts owed by the estate/deceased have been paid. Determining who these rightful heirs are is one of the main functions of probate.
Probate exists to protect creditors too. For instance, when someone dies, they may have credit card bills and some other types of loans. Of course, those creditors should have a right to get paid from the deceased person’s estate before the heirs get their share. That’s why probate laws were created to make sure all the assets of the deceased person do not just flow directly to the heirs and that creditors have a chance to collect the money they are owed by the estate.
To pay these creditors, sometimes the assets within the estate have to be liquidated. There may be estate taxes that must be paid and in the case where real estate is involved, the heirs may want to get the property sold so that they can divide up the proceeds. This is where you as an investor come in and provide the estate a very valuable service.
The whole explanation of how probate works and is done, is beyond the scope of this course. Our main focus here will be to give you an overview of how the actual process of probate works so that you can understand how to locate estates who may want to sell a piece of property. Furthermore, the laws governing probate vary from state to state. As a result, you may need to study your local state laws in more detail later.
Petition For Probate
The probate process usually begins by the heirs hiring an attorney who files a “petition for probate” in court and any available Will would be submitted. If no objections to the Will are received, the court will approve the petition, appoint a Personal Representative, and order that all creditors and taxes be paid by the estate. A letter “Testamentary” will be issued giving the Personal Representative the right to deal with the deceased’s property.
The Personal Representative
The Personal Representative is usually one of the heirs and they sometimes may be referred to as the “executor” or “administrator” of the estate.
Their main duties are to:
Determine and disclose the estates assets.
Appraise or estimate the value of the estate’s assets.
Receive payments due to the estate including unpaid salaries, dividends, interest and other income.
Set up a checking account for paying bills and expenses related to the estate.
Pay funeral bills, any outstanding debts, or valid claims against the estate.
Give legal notice to any possible creditors.
Investigate any claims against the estate.
Handle various paperwork such as having credit cards canceled, discontinuing utility services, and notifying Social Security and possibly the Veterans Administration of the death.
And finally, closing the probate.
A Chance To Contest The Will
Other than making sure all the creditors get paid, there is the other issue of the heirs. If there is a Will, this is referred to as dying “testate” and all the heirs must be given a chance to contest it. An heir may want to contest the Will for any number of reasons. First, someone may be upset that they were left out. They even could bring up issues regarding the validity of the Will. For instance, there may be a newer Will, the Will might not have been drawn up properly, the deceased may have lacked mental capacity to execute the Will, or there may have been some type of fraud or undue influence involved with the Will. If any heir contests the Will, this is what is referred to as a “Will Contest”.
What If There Is No Will?
If there isn’t any will to begin with, this is referred to as dying “intestate”. In this case, the Personal Representative pays all bills, taxes and distributes the remaining assets according to the laws of that state.
When Is A Probate Not Needed?
Another thing to understand is when does an estate not need to be probated? Probate is usually not needed if there is no property in the estate or if the property was owned by a living trust. In addition, personal property and real property that is owned as “joint tenants” (such as in the case of a spouse) passes to the surviving co-owners without probate.
Learn Your Local State Probate Laws To understand more about the intricacies of probate and the specific laws for your state, we recommend that you get a “do-it-yourself” probate book.
Searching The Probate Legal Notices
To get started looking for probate deals, begin by watching for legal notices in the newspapers such as “Notices Of Death”, “Notices To Creditors”, and “Petitions To Administer Estate”. You are not going to be looking at the obituaries though. Obituaries are just regular news of someone’s death and are not actually legal notices.
Determining If The Deceased Owned Real Property
Once you have the name of the deceased in connection to the estate, your next step is to check the tax rolls to see if they owned any property. If you can’t find the deceased’s name, chances are they didn’t own any property in your county. In this case, you’ll want to put their name aside and only continue focusing on the people who did own property.
Who Is The Personal Representative?
Next, the personal representative and their address will usually be listed in the legal notice.
Looking At The Probate Records
Along with looking for legal notices in the newspapers, you can search at the county court house. There, you’ll want to find out where the probate files are kept.
Determining If Real Property Is In The Estate
Before, you may have looked at the tax rolls to see if the deceased owned any property. Now, you’ll want to double check the probate file to see if any real property is listed as an asset of the estate. The assets of the estate will usually be listed in the Petition For Probate or some subsequent document.
Checking The Will
You can also check the Will (if there is one) to see if any property is identified and who the heirs are that it has been left to. In addition, when reading over the Will, look for the words “with or without notice” (or similar wording). This means the Personal Representative can liquidate the assets of the estate without the courts approval.
Contacting The Estate
Once you know the names and addresses of the Personal Representative and the heirs, along with whether or not there is any real estate in the estate, you are then ready to try and make contact.
Contacting The Personal Representative
Usually, you will only need to contact the Personal Representative. Remember, many times the Personal Representative will be one of the actual heirs to the estate, so try to be sensitive and understanding to their situation.
After sending out an initial letter, if you don’t get any response, continue by sending out several follow-up letters over the period of a couple of months and don’t forget to include your business card.
Contact The Heirs
Sometimes, it may be necessary for you to contact individual heirs. This is usually when the heirs are having a dispute or when everyone must come to an agreement on the sale of the property. As we just said, always be careful and try to be sensitive to their situation.
Contacting The Attorney
You’ll also want to send out a letter to the estate’s attorney at the same time you send a letter to the Personal Representative. Realize, these probate attorneys do get a lot of letters and post cards from investors so sending a letter to the attorney is a long-shot but it does sometimes work.
Not only are you going to let them know that you are interested in helping to liquidate the real estate within that particular estate, but that you are interested in helping on any other estates the attorney may have. You can even look in the phone book for attorneys who do probate filings. As always, include a business card and be sure to mail them a letter on a regular basis so they are reminded of who you are.
Buying Property From The Estate
When you do get an agreement with the estate to buy the real estate, if the Personal Representative has the power to sell the property without court approval, then great. Otherwise, you’ll have to have the estate’s attorney (or your attorney) petition the court to allow the sale of the property or have the state’s attorney do it. From there it is pretty much like buying a property from a regular seller.