• Dominique Higgins

When the Judge is Your Friend

Historically real estate developers and investors could look to foreclosures and REOs to find their next project. However, as these have decreased significantly, probates have emerged as a solid pipeline to source the next or first project.



But Wait, What is Probate?

Probate is a legal process to settle a person’s estate in the event of their death or incapacity that is supervised by the county court system. Through this process the estate’s debts are paid, notices provided to creditors and heirs, and any personal and real property sold. If the personal representative of the estate has full authority, the sale of its property proceeds like any other sale. However, if the estate has limited authority, an entirely different process is triggered.


What Happens Under Limited Authority?

Under limited authority, a sale must be confirmed (aka approved) by a superior court judge, at what is called a Confirmation Hearing. This hearing is the judge’s opportunity to make sure the listing agent, the attorney, and the personal representative have all done everything in their power to get highest and best price for the property.


At this time, the judge will also call for any overbidders, or parties, who are not the original buyer, who are willing to buy the property for more than what the original buyer offered. This is called the minimum overbid amount and is typically (1.05 * Original Price + $500)*.

Should there be even just one overbidder, the fun begins. The courtroom turns into an auction house; the judge puts on their auctioneer hat on, and the overbidder(s) and the original buyer bid against each other for the property. Should the overbidder be successful, they take the original buyer's place in the sale. (Don’t worry -- they'll get their deposit back.)

Below is a generalized overview of what the probate process looks like for a buyer, if the estate has limited authority.



Why Source Projects from Probate?


Benefits

Straight Forward Process – While the process can be long, it is straight forward. Show up to court on time. Bring the money (a 10% deposit of certified funds) and proof of who you are and how you will close the transaction.Transparency – With probates subject to confirmation, everyone is held to a higher standard, the buyer, the attorney, and especially the listing agent. Many of the ‘games’ listing agents may play to give themselves or their clients a leg up are more easily upended in the overbid process. It levels the playing field a lot.Decreased competition – Typically if a buyer defaults on a probate, after confirmation of the sale, they will not get their deposit back. The courts do this precisely to discourage malfeasance that could hurt the estate, and it works in heavily reducing the competition buyers face from fly by night real estate people.


Drawbacks

Limited to No Access – Depending on the condition of the home, access to the interior is not always guaranteed, especially for overbidders. If you want to inspect the property beforehand, try to do so as early on as possible.Limited to No Transfer Disclosures – In most cases, the person who lived in the property has passed away or is otherwise unable to make typical sales disclosures. As such, it is not unusual to receive little or no disclosures prior to the purchase.Time – Depending on where you enter the process, closing on a property subject to overbid can be lengthy. If you are in a rush or have some other pressing deadline, it is important to determine beforehand if the process fits your needs.

To date all of my personal investment and development projects have been probates. I personally enjoy the benefits of the process, and have had incredible partners who work flexibly within the time frames of the court. The process is not for everyone, however, under the right circumstances it can provide incredible opportunities for developers and investors alike.


If you ever have any questions about the process, don’t be afraid to reach out or comment below. 


INTRIGUED?

SUBSCRIBE TO MY E-Newsletter HERE and RECEIVE A LIST OF PROBATES SUBJECT TO OVERBID FREE.


SOURCES:

https://www.learnprobate.com/probate-sales-of-real-property/

http://www.lacourt.org/courtrules/ui/index.aspx?ch=Chap4&ct=TR&tab=2


FORMS REFERENCED:

Report of Sale & Petition for Order Confirming Sale of Real Property

https://www.courts.ca.gov/documents/de260.pdf

Bid in Open Court on Sale of Real Property

http://www.lacourt.org/forms/pdf/PRO009.pdf

Order Confirming Sale of Real Property

https://www.courts.ca.gov/documents/gc065.pdf


NOTES:

The information is specific to California, and based on my experiences in LA, Riverside, San Bernardino and Orange counties. For general reference only.

*(The exact formula is 10% of the first $10,000 = $1,000 plus 5% of the remaining price)

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© 2023 by Demi Watson. Proudly created with Wix.com | Dominique Higgins Real Estate | DRE#01927254 | info@dominiquehiggins.com | 888-205-3213 |

Dominique Higgins fully supports the principles of the fair housing act and the equal opportunity act.  All material presented herein is intended for information purposes only. While, this information is believed to be correct, it is represented subject to errors, omissions, changes or withdrawal without notice. Information is obtained from various sources and will not be verified by Company. There is no guarantee of accuracy of all data including measurements, conditions, and features of property. All property information should be verified by your own attorney, architect or zoning expert.