PROBATE [IAEA] - NO COURT CONFIRMATION

The California Independent Administration of Estates Act (more commonly called the Independent Powers Act) usually allows the Executor of a Probate estate to sell real estate without Court approval or the overbid process.

Probate is the State's procedure to finalize a decedent's financial affairs and distribute his property to his heirs. [A Probate usually takes 1 or 2 years.]

The Executor is the person appointed by the Probate Court to act as manager to conclude the decedent's financial affairs and distribute the assets to the heirs named in the Will.

The Executor is given powers by the Probate Court in a document called Letters Testamentary. There are 3 strengths of powers:

1 NO POWER: A Court Hearing for approval is required for every proposed action the Executor wants to take. (Twenty years ago, all Probates were like this; now it is almost never used.This resulted in the Independent Powers Act, which allows the Executor to take certain actions without Court approval, unless the heirs object.)

2 Limited Powers under the Independent Powers Act: - Gives the Executor the right to do anything except sell real estate.

3 FULL POWERS under the Independent Powers Act: - Gives the Executor the right to do anything INCLUDING THE RIGHT TO SELL REAL ESTATE.

Executors receive their power after filing an application. If requested, the Court routinely grants full powers under the Act. In other words, if the Executor wants the right to sell real estate without the need for Court confirmation, all he has to do is ask for it.

So why should an Executor desire Court Confirmation if he can avoid it?

There are some perceived BENEFITS of Court Confirmation.

1 - Theoretically, Court Confirmation gives better protection to the Executor. [With a Court Order confirming the sale, he is relieved of any personal liability.]

2 - Having an overbid procedure lets the Realtor® market the property twice. He can hold open houses and publicize the property until he receives an acceptable offer. Then, after getting the best possible price on the open market, he goes to Court where there is an auction to get an even better price.

3 - A lawyer is involved in more aspects of the probate, putting in more "case" hours.

In fact, it is necessary to analyze each of these "benefits" to see if they are real, or worth the cost.

The Executor is appointed to act for the estate, for the benefit of the heirs. He is a fiduciary. He owes duties to the estate and heirs. For his protection, he must ensure that he does nothing improperly.

His best protection is a Court Order approving his actions. Without a Court Order, if the Executor acts wrongly, he is open to liability and may be sued by the heirs. However, approval by all of the heirs to the Notice of Proposed Action (sale of the property) is usually enough protection for the Executor. (consult your attny)

The REALITY is that making a sales contract conditional on Court confirmation and overbid diminishes market price as it;

1. Scares away many potential buyers.

2. Attracts bottom fishers.

3. Increased complexity, uncertainty, and risk results in lower offers.

4. Makes more work for Selling Realtor®.

The Overbid does it help or hurt the final price?: (this will be discussed in greater detail later), Overbid: If the market is flat, forced sales rarely result in market value offers. Probate auctions are cumbersome, intimidating, and confusing. In flat markets, Court auctions rarely result in a price higher than could have been obtained by a non-Probate sale.

If the Executor has FULL POWERS, Court Confirmation is not needed. The Realtor® should advise him that he can probably get a better price without making the sale conditional on court confirmation.

Despite the right to avoid this process, most Executors seek Probate Court Confirmation.

Probate Court Confirmation makes the sale more complicated and conditional; the deal may be voided by an overbid. Conditional sales reduce market value.

Why do Executors almost always chose the much harder method? Should they? Who makes the decision to seek Court confirmation (which requires the overbid)? Who should make this decision? Whether to use (or avoid) the overbid process is really a marketing decision, the Executor should make with help from the Realtor® and advice from the lawyer.

COURT CONFIRMATION

All offers MUST be at least 90% of the Probate Referee's Inventory valuation. The Referee's Inventory valuation appraisal must not be more than one year old. (If the Referee's appraisal is too high or too old, it may be updated or corrected and refiled.)

When an offer is accepted (subject to Court approval) by the Executor, a Court Hearing is scheduled by the lawyer for the Executor. The lawyer arranges for Notice of the Hearing to be published per the Courts rules.

A public Hearing is held in Court at which bids are requested. The minimum opening bid is 5% + $500 more than the original contract. The court then decides the next bid will be in $500 increments, or $1,000 or $5,000 or? This s very similar to an auction. The highest bidder wins. However the high bidder must have 10% in a cashiers check for the courts. And a few days after the hearing, escrow will open and close with in approx 10 days.

In addition, each local Court has its own rules which must be followed.

Commissions are subject to Court approval. Generally, Courts will approve more than 5% only with good cause.

***Realtors® cannot give legal advice and this article is not intended as legal advice. It is imperative the Executor acts with competent legal help.