Selling a House in Probate Santa Clara County CA

When a homeowner dies without a living trust or formal estate plan, the heirs have to figure out what it will take for them to take control of the property so that they can sell it. Many people see the word “probate” and think of it as an expensive and lengthy court battle. Note that in California probate can be avoided in some cases (see the 3 main ways to inherit real property in Santa Clara County here). This article is an informative resource for anyone dealing with the probate process. It will explain what is probate and how one can navigate the often tricky process to sell a property in probate while still recovering some value from the estate.

What is a Probate?

Probate is the process sanctioned by a local court which allows for the transfer of a deceased party’s property to the living heirs. In California there are 2 main types of probate: (i) Full Authority and (ii) Limited Authority. A Full Authority probate can take as little as 6 months whereas a Limited Authority probate can take up to a year or more for the heirs to receive their share of the estate assets.

The probate process usually begins when an heir to the estate hires a probate attorney to commence a proceeding in probate court. The attorney will gather information about the living heirs to the estate and determine the order of priority (per state law) as to who can be the personal representative of the estate. The probate attorney will then prepare and submit a Petition for Probate to the local probate court in the county where the decedent had their permanent residence, i.e. in Santa Clara County Probate Court if the decedent had their permanent residence in San Jose.

The Petition will usually ask the judge to grant the Petitioner full authority to administer the estate. An initial hearing is usually scheduled about 30 days after the filing of the Probate Petition to determine whether the Petitioner should be granted full authority or limited authority. If all goes well, the judge will approve the Petitioner as the personal representative and grant that person full authority to administer the estate. If the decedent left a will, then the personal representative is referred to as the “executor” of the estate. If the decedent died without a will, then the personal representative becomes the “administrator” of the estate.

About 2 weeks after the initial hearing, the judge will issue the “Order for Probate” which provides the name of the personal representative and states whether that person has full authority or limited authority.

Can a House Be Sold While in Probate?

Yes, it can! In California once the judge approves the Probate Petition and appoints the personal representative (also known as the “executor” if the decedent had a will), that person can sell the property (assuming that there is no dispute among the heirs as to selling the property). If the executor is granted full authority by the court, then no court approval is needed to execute the sale and no restrictions are placed on the sale price value. If the executor is granted limited authority by the court, then he/she will have to go through an appraisal process and the sale price must be within 90% of the appraised value. We will get into more detail on the steps for selling a property under limited authority below.

What Does it Take to Sell a House in Santa Clara County CA While in Probate?

While a house can be sold during probate once the court approves the Probate Petition, the executor must go through several steps in parallel.

An executor’s main responsibility is to preserve the estate’s assets for distribution to any heirs or beneficiaries, as outlined in the will. Sometimes a situation might occur where the estate owes a large amount of debt to creditors or the property has been neglected and back taxes are owed to the government. The executor is required to give written notice (usually through their probate attorney) to all known creditors of the estate. If the creditors want to get paid, they are required to file a claim with the court against the estate. In California, creditors’ claims must be filed within 4 months of the court’s issuance of the Probate Order and Letters (documents which provide instructions on the administration of the estate) OR within 60 days after notice was mailed or personally delivered to the creditor, which is later. If claims are timely filed, the executor of the estate is allowed to sell the property to settle those debts, even if there are heirs.

A good example of this is an elderly woman who passes away with an executor for her estate to manage her affairs. She has two heirs. By the time she dies, she has racked up both hospital and credit card debt to the amount of $110,000. She leaves a home worth $600,000 but no cash assets and owes $100,000 to the hospital and $10,000 in credit card debt. Despite having passed, the estate still must find a way to pay off these debts. If those creditors file timely claims within the statute of limitations and the heirs are unable to cover the debt themselves, the executor will need to sell the property to pay off the $110,000 of debt. Once the house is sold, the remaining $490,000 (less closing costs, and any court and attorney fees) would be divided between the two heirs.

For more information on navigating the probate process in California and selling a house fast while in probate, check out this video post:

Steps for Selling a House in Probate

If you own a property in CA that is stuck in probate and you’re struggling to find a way to sell, there is hope! As mentioned above, once the judge issues the Order for Probate and Letters, the executor can begin the process that can lead to selling the property.

If you are assigned as the executor (or you and the executor are in agreement on how to continue), you now have the ability to decide whether to sell the property or keep it. Whether the estate owes money to creditors or you inherited a house in another state that doesn’t make sense to keep, you can decide to sell that property and walk away. You can list the property for sale on your own (FSBO) or with a trusted realtor who has experience with probate properties, or sell it directly to an investor.

If the executor and heirs are in agreement to sell the property, here are the steps for getting the sale done: 

1. Inventory and Appraisal 

First up is finding out how much that property is worth. In California the executor must file an Inventory and Appraisal form within 4 months of Probate Letters being issued by the court. The Inventory and Appraisal form lists all of the assets owned by the decedent as of the date of death. The court will assign a California Probate Referee, a neutral third party, to appraise the assets within 60 days of receiving the Inventory and Appraisal form from the executor. Note that the Probate Referee typically does not enter the property. He/she relies mainly on comparable sales and a visual inspection of the property exterior. It’s important for the executor or his/her realtor to provide interior photos of the property and repair estimates to the Probate Referee, especially if the property is in bad condition.

Once the Inventory and Appraisal form is finalized with the Probate Referee, the executor (usually through his/her attorney) files it with the court. Once filed, the form can be used by the IRS and the Franchise Tax Board to determine estate taxes and capital gains taxes (as applicable) once the house is sold.

If the Probate Order grants only limited authority to the executor, then the property sale price has to be within 90% of the appraised value determined by the Probate Referee.

2. Listing the House 

If the executor is granted full authority by the court, then he/she can list the house for sale as soon as the Probate Order and Letters are issued by the court (assuming the heirs are in agreement to sell the house). Written notice to creditors and the Inventory and Appraisal process can happen in parallel. The executor can even accept an offer on the house before the Probate Referee completes the appraisal.

If the executor is granted limited authority by the court, then he/she is also required to publish a “Notice of Sale of Real Property” in a local newspaper where the property is located. The purpose of providing this notice is to inform potential buyers that the property will be subject to an auction in court.

Whether you choose to sell the house yourself, use an experienced real estate agent, or sell directly to an investor, make sure that you have someone in your corner that has experience with probate properties.

3. Offers

Whether offers fly in or trickle, eventually you’ll need to decide which offer is right for you. Evaluating your goals for the sale of a house is an important part of this step. Do you need a quick sale so that you can pay off the estate’s debts? Would you prefer to wait a bit longer and see if you can get more profit from the sale? Or is the property in disrepair and needs a special buyer who can handle a complete remodel? These are all things you’ll need to take into consideration when you decide when and how to list a property in probate.

Remember that if the executor has only limited authority, the selling price must be within 90% of the Probate Referee’s appraised value. Also the initial deposit from the buyer should be 10% of the purchase price.

Knowing what goals you need to meet with the sale of the property will help you decide which offer to accept so that you can move on to the next step.

4. Notice of Proposed Action and Other Disclosures

Once an offer is accepted and a purchase agreement with a probate addendum is signed, the seller’s probate attorney will draft a Notice of Proposed Action (“NOPA”), which contains information about the sale and the fact that it is part of a probate process. The NOPA must be filed with the court and mailed to all heirs. If no objections are filed within 15 days of the NOPA being sent, then the seller and buyer can proceed to close escrow.

With a limited authority sale, once all contingencies are cleared by the buyer, the seller’s probate attorney will prepare and file a “Report of Sale and Petition for Order Confirming Sale of Real Property” with the court. This petition discloses certain key information about the sale process. Once the petition is filed and the court filing fee is paid, the court will set a hearing date to see if other potential buyers will appear in court to overbid the purchase price.

Due to disclosure law, this should not come as a surprise but a buyer inexperienced in probate may balk at the added time needed for the sale. This is often one of the reasons why a probate house is skipped over for another property, even if the probate property is priced to sell fast. The delayed timeline may cause a buyer to decide it’s not worth the wait. But if a buyer has come forward with an offer and doesn’t mind the wait, the court will review the bid before releasing an order to approve the sale of the property.

5. Bidding

On the hearing date set by the court to confirm the sale of real property in a limited authority probate, 3rd party bidders may appear in court to overbid the purchase price. A minimum overbid amount is set by court rules. Once the highest bidder is confirmed, the judge will sign an “Order Confirming Sale of Real Property.” The escrow holder will need a certified copy of this order to close the escrow and complete the sale.

6. Distribution of Sale Proceeds

While a house can theoretically be sold within 3 months to a year from the beginning of the probate process, it will take longer for the proceeds to be distributed to the heirs. The executor is required to go through certain procedures mandated by law. As mentioned above, the executor must provide notice to creditors, and creditors have 60 days to file any claims against the estate. Once the executor resolves all outstanding claims, he/she puts together a final accounting and files a final petition with the court. If everything is in order, the judge will sign the “Order for Final Distribution” and the executor can proceed with distributing any remaining funds to the heirs. Each beneficiary will be required to sign a “Receipt on Final Distribution” which specifies what that person is receiving from the estate.

Mistakes to Avoid When Selling a Probate Property 

1. Moving Too Quickly 

When a person passes away, their family may try to move as quickly as possible to sell the property so that they have time to grieve. Or, if there is debt that has interest that is compounding monthly, the executor or administrator will try to sell the house as quickly as possible by valuing it below market value to pay off the estate. Sometimes a too-fast sale can also happen when the house is in poor shape or needs major upgrades the beneficiaries do not want to pay for. They may undervalue the property so that they can sell it as-is.

2. Not Completing Real Estate Disclosures 

In California, sellers are required to make certain disclosures when selling their house. These disclosures include the Transfer Disclosure Statement (“TDS”), the Natural Hazard Disclosure (“NHD”), and the Lead-Based Paint Disclosure. In addition, the Seller Property Questionnaire (“SPQ”) is required in most residential real estate transactions. In some cases the buyer and seller may agree to waive certain disclosures, including the SPQ.

The State of California requires sellers and their agents to disclose in writing “material defects” about the home. According to the National Association of Certified Home Inspectors, material defects are “…a specific issue with a system or component of a residential property that may have a significant, adverse impact on the value of the property, or that poses an unreasonable risk to people. The fact that a system or component is near, at or beyond the end of its normal useful life is not, in itself, a material defect.” If the seller has not lived in the home, they can indicate on the TDS that they have no knowledge of specific issues.

Experienced real estate agents are great at navigating these tricky waters, but what if you inherited a house that you never lived in? How would you know what to disclose? In some states, the executor, person selling the property, and/or real estate agent may be exempt from filling out local real estate disclosure forms due to the property being in probate. This is because that person does not and did not live in the property, so would have no way of knowing what to disclose.

If you are unsure of California laws, someone who is experienced in probate real estate (whether it be a real estate agent or investor who has purchased probate properties in the past) will be able to help you navigate these legal waters. If looking into the latter option, be sure to sell your property directly to an experienced investor who doesn’t mind purchasing a property in probate and is willing to take the risk of purchasing a home from someone who is unable to give proper disclosure. You do have options!

3. Failing to Hire a Lawyer

We can not emphasize this enough – a knowledgeable lawyer with experience in probate and real estate can help you navigate the process of probate much faster and easier than going at it alone! Not only will they know how to petition the Court so that you can finally put that property up for sale, but they’ll be able to guide you through the legal steps to sell that unwanted house or property with less hassle and tears. Even consulting will help ensure you aren’t missing the blind spots of the probate process.

4. Waiting Too Long to Start the Probate Process

When someone loses a loved one, grief may cause us to put everything on hold while we process the loss of the deceased in our life. But what happens to the probate property during that time? Property taxes continue to add up, utility bills continue to come in, and the bank will want its monthly mortgage payments until the property is settled. Waiting too long can cause the estate’s expenses to add up fast, eating into the estate’s assets and leaving you in a difficult situation.

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Who Buys Houses in Probate? 

We do! SV Selling Solutions works with multiple cash buyers that have built their reputation on buying houses for cash with less stress and less fees. Contact us today and get a competitive cash offer for that house or property that’s stuck in probate. We buy homes in any condition. We can help you with the convoluted process of selling a house in probate, making the process faster and as stress-free as possible.