How Do I Sell a House or Other Real Estate in a California Probate? (Part 1 of 2)

This is the first post of a two-part post series.  Here and in our next post, we will discuss how to sell a house or other real estate in a California probate decedent’s estate court proceeding (or “probate”).

Reasons for Selling Probate House or Real Estate

Let’s first answer a smaller question:  If you’re the executor or administrator of a probate, why would you want to sell the real estate?  There are a few potential answers:

1. The decedent had liabilities that the executor or administrator needs to pay from the probate estate assets, and the probate estate doesn’t contain sufficient liquid assets to do that;
   
2. There are insufficient liquid assets to pay the ongoing probate expenses such as publication fees, bond premiums, and probate referee fees;
   
3. The house is the most valuable asset of the probate estate, and its multiple beneficiaries don’t want to co-own it together.

The process of selling a house or other real estate in a probate can take one of 3 tracks:

1. Default, with no Independent Administration of Estates Act (IAEA) authority;
2. With limited IAEA authority; or
3. With full IAEA authority.

The biggest difference among them is the number of court hearings required to sell the real estate.  There are 2 court hearings on the default track with no IAEA authority.  There is 1 court hearing for limited IAEA authority, and there are 0 court hearings for full IAEA authority.

Sale Based on Default Rules (No IAEA Authority)

Without any IAEA authority, which is the default, the process for selling probate estate real estate is as follows:

1. Obtain prior court approval to enter into an exclusive listing agreement with a real estate salesperson and to list the real estate for sale;
   
2. Sign the exclusive listing agreement;
   
3. Publish Notice of Sale in a local newspaper;
   
4. File with the court an appraisal of the real estate;
   
5. Accept a purchase offer on the required contract form;
6. Arrange for increase of the surety bond amount (if applicable);
   
7. Obtain prior court approval of the sale; then
   
8. Forward a certified copy of the court order approving the sale.

Court Hearings

Each time you obtain court approval, you need to do the following:

1. Prepare and file a petition with the court;

2. Mail notice of the hearing to all interested parties and file the proof of service with the court; and

3. Appear during the court hearing.

You will receive each court order 3 to 6 months after filing the corresponding petition.

Publishing Notice of Sale

Publishing Notice of Sale is designed to inform potential purchasers of the sale and maximize the sale value.  The sale must occur within 1 year after the sale date indicated in the Notice of Sale.  It must not occur prior to that sale date.

Updated Inventory and Appraisal

When the executor or administrator was first appointed, he filed with the court an inventory of all probate estate assets.  That inventory included a value appraisal of the assets.  That appraisal included the value of any probate estate real estate.

The real estate sale price needs to be 90 percent of the appraisal value of the real estate as indicated on the inventory.  The inventory must be dated within 1 year of the court hearing for approval of the sale.  It must indicate a value of the real estate as of a date within 1 year of that court hearing.

Otherwise, the executor or administrator must obtain a more current appraisal and file it with the court.  To do this, he will follow the same procedure as with the original inventory.

Purchase Offer

The real estate salesperson must receive purchase offers on the correct contract form.  It needs to indicate that the sale is contingent on court approval.

Increase Surety Bond

Sometimes, the executor or administrator has to file a surety bond with the court to be appointed.  If this occurred in your case, the court won’t confirm the real estate sale until the bond amount is adjusted.  Generally, the surety bond amount needs to include the value of all probate assets other than real estate.  The surety bond must also include the anticipated annual income of all probate estate assets.  Some counties include an additional amount that pays for the cost to recover against the bond, should that become necessary.

After the sale, real estate is converted to cash.  Real estate doesn’t need to be included in the bond amount calculation, but cash does.  Now that you have more cash, the original bond amount is insufficient.  The total bond amount needs to increase accordingly, as will the annual bond premium amount.

The court likely won’t enter the order approving the sale until that increased bond is filed with the court.

Court Hearing to Confirm Sale

Be prepared to prequalify overbidders during the second court hearing to confirm the real property sale.  It’s not unusual for strangers to be in the courtroom and prepared to bid the sale to a higher price.  If so, the judge will conduct an auction in the courtroom.  In this case, the sale will go to the highest bidder.

The executor or administrator, or his attorney, will need to prequalify overbidders at the courthouse prior to the court hearing.  Otherwise, overbidders won’t be allowed to participate in the auction, and the real estate may sell for a lower price.

Order Approving the Sale

You should forward to the escrow company a court-certified copy or the court order approving the sale.  Escrow companies normally require it.

Get Help from an Experienced Probate Attorney

The rules for selling real estate in a probate are complex.  They contain many variables.  Each of them is a potential pitfall for the unwary.

Hiring an attorney experienced with probates can help the process to run smoothly and avoid trouble.  The guidance of an attorney experienced with probate court cases is also invaluable for attaining your goals in these cases.

At Meinzer Law Firm, P.C., we have over 20 years of experience helping clients achieve their goals in probate cases.  Contact Meinzer Law Firm, P.C., in Torrance to assist you with your California probate court case.

The next post will discuss selling probate real estate with limited IAEA authority and with full IAEA authority.  It will also discuss extraordinary fees of executors and administrators and their attorneys.