Selling a House in Probate Alabama

Probate properties are a great opportunity for real estate investors and those looking for a discount, but what does it take for a homeowner dealing with the probate process to sell? This article is an informative resource for anyone dealing with the probate process. It will explain what is probate and how you can navigate the often tricky process to sell a property in probate while still making a profit.

What is a Probate?

Whether a person died with a will assigning their assets to one or more beneficiaries, or they passed away intestate or without a will, their assets instantly become the responsibility of the executor of their estate or the Court. There are two types of probate: formal and informal. With an informal probate sale process, there is limited court involvement due to the estate having an original will or there is no dispute regarding the identity of the Heir(s). This article addresses the trickier process of the formal probate process, which can occur when the estate owes a large amount of debt, the will is contested, or the deceased left a will but the original will cannot be located. In these cases, the Court must become involved.

Can a House Be Sold While in Probate?

Yes, it can! Depending on how the estate was left when the person passes, a property in probate can be sold by three entities: the executor of the estate or a person named in the will to manage the distribution of the estate; the administrator of the estate, who is appointed by the Court to manage the estate for an intestate situation when there are Heirs/beneficiaries; and the Court when there is an intestate situation but there are no Heirs seeking administration. Once the executor of the estate, the administrator, or the Court decides who inherits the property, the Heir(s) or beneficiaries can begin the process of petitioning to sell the probate property.

What Does it Take to Sell a House in Alabama While in Probate?

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. In this situation, the executor of the estate, the administrator, or the Court is allowed to sell the property to settle all 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 $90,000. She leaves a home worth $150,000 but no cash assets and owes $80,000 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 the Heirs are unable to cover the debt themselves, the executor will need to sell the property to pay off the $90,000 of debt. Once the house is sold, the remaining $60,000 would be divided between the two Heirs.

A property in probate may also be sold if the person died with no will and there are no immediate Heirs. In this situation, the Courts can order the property to be sold and any profits distributed to the closest relatives.

Steps for Selling a House in Probate

If you own a property in AL that is stuck in probate and you’re struggling to find a way to sell, there is hope! Depending on local and state laws, the process of selling a probate property can be completed in four steps. The first step is having an executor or administrator assigned, if there wasn’t one already assigned by the deceased.

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. But before you put up that For Sale sign, you’ll need to have the property appraised. Once that is complete, only then can you petition the Court so that you can list the property for sale on your own (FSBO) with a trusted realtor who has experience with probate properties, or sell it directly to an investor.

Decide How to Sell the Property: 

Valuation or Appraisal 

First up is finding out how much that property is worth. To do this you’ll need a valuation of the land by a trusted professional, or you’ll need to hire a professional appraiser that understands the law in the area as it pertains to the process of evaluating the property’s current value. In many states, the Court requires the property to be sold for at least 90% of its appraised value. That makes it even more important to find an appraiser with probate property experience that won’t balloon the worth of the land.

Listing the House 

Once you have your appraisal, you, the executor, and/or your lawyer will need to file an intention to sell the house and other assets with the court. This form will include the final appraisal amount and which method you would like to use to sell the property. Methods can include auction, a traditional market sale, selling directly to an investor, and more. When the petition is approved, you are ready to list the property to let buyers know that the property is available. 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.

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.

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…

Notice of Proposed Action

Once a buyer makes an offer, they need to be informed that the sale can only be completed after the court’s confirmation. 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.

Bidding

In the case of auctions, a property in probate can be marketed as ready to sell before the Court finalizes an Approval to Sale to help draw in more interested parties to bid. In the case of auctions, the Court often is the one who handles the bids. There are strict rules and guidelines that must be followed for this type of sale, making it only used as a last resort. Once someone has won the bidding the executor will petition the court to authorize the sale of the property, but if any of the Heirs object the sale can be canceled and the property put on hold as the Court decides the next steps.

Finalization of Sale

Hopefully, the sale of that house, condo, rental property, or piece of land is a smooth and straightforward experience. Even if you experienced a few hitches along the way, once you have an offer that the Court accepts it’s time to finalize the sale. The executor or lawyer will need to file a final account and petition for the final distribution but once the Court approves this, title documents can be signed to make the house sale official.

Mistakes to Avoid When Selling a Probate Property 

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.

Not Completing a Real Estate Disclosure 

Depending on what state you live in, Real Estate Disclosure laws can be almost as tricky as the probate process! These laws are a list of issues (such as lead paint or asbestos) that must be disclosed to the buyers about a home before closing on the property. 

Most states require 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.”

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 your state 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!

Failing to Hire a Lawyer

We can not emphasize this enough – a knowledgeable real estate lawyer with experience in probate 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.

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.