One mistake that California real-estate investors make is signing a purchase contract too soon when a probate is required.
Some real-estate investors try to buy properties when the deceased left real estate to family members or friends who cannot make the monthly loan payments. If the deceased had a trust, generally there is no problem: The current trustee has the power to sell the property.
It is different, though, if the deceased either had only a will, or had neither a trust or a will. In that case there has to be a probate unless there is a will leaving everything to a surviving spouse. (There is also an exception if the assets of the estate, without subtracting any loans, is less than $100,000, but that is very unlikely if real estate is involved.) With a will leaving everything to a surviving spouse, it is often possible to bring a “spousal petition” in the probate court to transfer full title to the surviving spouse without having to go through an entire probate.
Otherwise, usually a probate must be filed or there will not be clear title to the real estate. Basically a probate is a court procedure where the will (if any) and a listing of the assets are filed with the Probate Court, a person representative (executor) is approved by the Court, california contract law creditors and heirs are given a chance to submit claims, a representative of the Court frequently determines the value of the estate, and ultimately the Court issues an order directing how the money and property in the estate are to be distributed. The whole process can take eight months or so, although the time depends on the complexity of the matter.
Real-estate investors should understand that an executor has no authority to sign contracts for the sale of real estate until that executor is approved by the Probate Court as the personal representative for the estate. Also, unless the petition for the probate asks that the personal representative be given “full authority” (and the Court grants it), any sale of real estate from the estate must be specifically approved by the Court. If the Court has to approve the sale, it may be sold for no less than 10% below the fair market value determined by the Court representative who values estate property. Sometimes executors try to handle the probate themselves without the help of an attorney; few know to ask for “full authority” when the initial papers are filed – and if it is not requested initially, the Court frequently will be reluctant to grant it later. On the other hand, once a personal representative has been approved with “full authority”, any agreement signed with that personal representative regarding the purchase of real property should be binding.
Because probate is complex and non-attorneys who try to handle a probate themselves frequently run into problems, if you are dealing with a probate situation as a potential purchaser, try to get the executor to retain an attorney who can handle the probate. This does cost some money (although the attorney is only paid at the end of the probate), but otherwise the property may be lost to foreclosure. This is particularly true since, while many lenders will stop the foreclosure process if they are given proof that an attorney is handling the probate, frequently they will not stop the process if no attorney is involved.