Del Mar - Encinitas - La Jolla - coastal San Diego real estate
Independent Administration of Estates Act
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.
Despite the right to avoid this process, most Executors seek Probate Court Confirmation. Probate Court Confirmation makes life harder for the Realtor® and in times of flat markets, often results in a lower price to the heirs. It 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?
Probate is the State's procedure to finalize a decedent's financial affairs and distribute his property to his heirs. [A Probate usually takes I 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:
I) 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. The Courts realized that the heirs were the only people who ever contested a proposed action of the Executor; usually they were in favor of the proposed action. Court Hearings were monumental wastes of time; no one would show up or challenge 99% of them. Why have a Court Hearing if no one objects?
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.
I - 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 - Bigger fee for the lawyer! [The lawyer's regular fee is set by law; services for Court Confirmations are subject to additional fees (extraordinary fees).]
In fact, it is necessary to analyze each of these "benefits" to see if they are real, or worth the cost,
The REALITY is that making a sales contract conditional on Court confirmation and overbid diminishes market price.
I. Scares away many potential buyers.
2. Attracts bottom fishers.
3. Increased complexity, uncertainty, and risk results in lower offers.
4. Makes more work for Realtor®.
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.
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. Obviously, he will not be sued by the decedent; rather, the heirs will sue.They are the only people who care about the results of the Probate. Therefore, the question is: Does a Court Order confirming a proposed sale give the Executor more protection than written consent by all of the heirs? Court Orders give more protection, but if an heir has consented to a sale, it is very difficult for him to complain later. Normally, approval by all of the heirs to the Notice of Proposed Action is enough protection for the Executor. [Of course, if the Executor commits fraud or hides facts (e.g. selling the property to a friend for below market value), neither Court approval nor the heirs' consent will protect at all.]
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.
Whether to use (or avoid) the overbid process is really a marketing decision, not a legal decision. The person hired to market the property is the Realtor®.The Executor should make the decision, with help from the Realtor® and advice from the lawyer.
Caveat: As always, Realtors® cannot give legal advice and should not even approach the gray area between the practice of law and real estate. If a problem ever arises, the Realtor® gets sued. The Realtor's® best defense is to make sure that the Executor acts with competent legal help.
Reminder: The Executor is exempt from the Transfer Disclosure Statement, but he still has a duty to disclose any known property defects.Also, there is a duty to disclose death which occurred on the property within 3 years, if the nature of the death was material.When in doubt, disclose!