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Real Estate Sale After Death (Part 1)

Real Estate Sale After Death (Part 1)

In recent months we have had a number of calls coming to our office with the following problem.  The caller explains that he or she is attempting to sell a home owned by another family member.  A buyer is found but then shortly before the closing the sale hits a snag.  

The buyer’s title company does a search and discovers that the deed shows the owner to be someone who has died.  The company asks for Letters Testamentary (if the decedent had a will) or Letters of Administration (if there was no will) proving that the person selling the property has the authority to do so.  If none was obtained, the title company will not insure the title.  If the buyer is financing the purchase with a mortgage the bank won’t approve the loan without a title policy.  Even in an all cash deal a buyer will not go ahead with the sale because the “seller” does not have authority to complete the transaction.

So how does this happen?  No one realized that when the owner died, a legal process was necessary to determine who has the authority to sell the property as well as to determine the person(s) entitled to the proceeds from the sale.  This is done through the office of the Surrogate of the county where the owner lived when he or she died.  The Surrogate is the elected official whose office is responsible, among other tasks, for overseeing the administration of the estates of person who have passed away.  

What many don’t realize, however, is that no one contacts you and tells you what needs to be done.  If you are unaware of the process, you first discover it when you need to access or sell an asset, such as a piece of real estate and are asked for proof of authorization to do so.

But, why does it so often happen that this discovery is made only after a buyer is found and everyone is ready to close?  At that point there are deadlines to be met.  For example, the Buyer may have a mortgage lined up at a certain interest rate but that rate lock is set to expire.  The time it takes to get an executor or administrator appointed may be longer than the buyer has to save the rate.

How can this problem be avoided?  We’ll cover that next week.