Probate is a possible route to pick up investment properties, but I have some basic questions as to what exactly is probate.
From my limited understanding probate is the legal process to determine validity of a will, so that means the property is from an individual who passed left a will (testate).
But I thought probate was picking up houses through intestate (no living will). When the house is passed along amongst the living heirs ie. wife and children. To avoid the probate court I thought this is where probate houses are sometimes acquired, instead of going through the probate court they sell the house to an investor?
From my limited understanding probate is the legal process to determine validity of a will, so that means the property is from an individual who passed left a will (testate).
But I thought probate was picking up houses through intestate (no living will). When the house is passed along amongst the living heirs ie. wife and children.
I would say the definition of probate investing, in the world of real estate, is the “act of buying property from the heirs of deceased individuals, usually at below market prices”…and I would say it is irrelvant if a will is involved or not. You can still get the property, either way, at a big discount.
To avoid the probate court I thought this is where probate houses are sometimes acquired, instead of going through the probate court they sell the house to an investor?
The laws on what you can do, to get a property from a deceased person or their heirs, vary state to state. I have been told in New York you MUST probate an estate, if there are heirs and there is no will; a matter of fact I experienced this one time when a wife died and the husband was left with a property that I wanted to buy…and that was in her name…and there was no will whatsoever. I just had to wait a month or so to get the property. In Texas, in the same scenario, you could get around doing probate by executing an Heirship Affidavit. For example, see http://www.window.state.tx.us/taxinfo/taxforms/53-111-a.pdf ;note that that same document is not legal in New York though. Interesting, eh?
Generally speaking, property solely owned by a deceased person can only be transferred to heirs by the probate court. The deceased can’t sign the deed to transfer the property, right? Does not matter that there is a will or not, real estate solely owned by the deceased goes through probate.
There are ownership devices that avoid or bypass probate. For exampel, joint ownership with right of survivorship will bypass probate, but joint ownership without right of survivorship does not avoid probate. Having the property held in a trust avoids probate.
Probate investors search for property that the heirs don’t want and offer to buy at significant discounts. Best opportunities are out of state heirs and a distressed property.
Probate investing to me is mainly just a lead source. You get these leads from the courthouse and once you start mailing them and finding the motivated sellers they are basically work the same exact way as any other lead type (foreclosures, out of state owners, evictions, etc…).
There are a couple times during the probate process when you will be able to buy a house…
First, A property that is included in an estate can be sold by the executor/executrix on behalf of the estate in order to payoff debt. The executor will have to get the house released from the estate (by asking the judge) in order to sell it, but that is not usually a problem from my understanding. You will probably have to deal with lawyers here, so the process could take much longer.
Second, you could wait for when the probate process has been completed and the ownership of the house has been transferred to the heir(s).
I’ve had more luck with the second option then the first.
The term “probate” is associated with estate planning and describes the legal process by which a decedent’s will is processed by a special court. An executor of the estate is named to handle the decedent’s affairs and administer the estate throughout the probate process.
Probate court records are public documents, meaning that others can learn about your family’s finances by reviewing these public records. Probate usually requires the services of an attorney, which costs money.
As Dave points out so well above, the key reason for probate is to transfer the ownership of the property when the person who owns it is not alive to sign the transfer documents.
Probate as an investment strategy is more about the motivations of the heirs and the legal steps to transfer the title. Most of the time the heirs are not invested emotionally in the property as much as they are interested in getting cash so they can get on with their lives. The property might need work before it could be used to secure a loan (uninhabitable) and the heirs might not have the cash. That leave more room for a cash investors to get a deal.
After the probate process is completed with accounts closed and assets distributed, are the real property still in the deceased person’s name or the heirs name/s? I have found that the few properties I found in estates are still in the deceased person’s names. Maybe the county records are behind?
With the property still in the deceased’s name, what type of documents would be needed from the heir/s to legalize the purchase?
probate is for estates that fall under the jurisdiction of the probate court. many properties do not go through probate because they are in a trust which is out of the jurisdiction of the probate court, or pass to others through joint tenancy, or total value of the estate does not meet the minimum where probate is required in that state.
Also in my area about 95% will be listed for sale with a realtor. And in some states you need court confirmation and your offer can be overbid if the probate is still active. There are still deals, I like to do drive bys and find the ones needing work. Heirs are more cooperative and Realtors are not as anxious to list it. Of course if your a realtor that 95% is good news.