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Distressed Sellers--Probate Investing
| | Thursday, May 09, 2002 @ 09:01 AM EDT
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Contributed by: Bill Young
Bill Young Properties
Read more archived articles about Law and Legal Issues
We've covered all the major factors that produce distressed sellers and I want to expand on one of the most important,
death.
There is a lot of confusion about what probate actually is.
In the US, and I am sure it is similar in other countries, when someone dies, a legally mandated series of events unfolds.
There are death taxes, also known as estate taxes, to pay and accounts have to be settled.
In the US, if a person owns more than $750,000 (the figure will increase each year until it hits $1,000,000) in assets,
their estate must pay estate, also known as inheritance taxes.
These taxes can exceed 500f the value of the estate. What's more is that the government, IRS, expects to get those
taxes paid in cash within 9 months of the death of the owner.
This produces the first opportunity for investors.
Especially with estates that have little cash, assets must be sold to generate the needed cash to pay the taxes.
Estate sales are just another...
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form of forced sale. Except in the very hottest markets, you should not have to pay more than 700f the market value of a property and maybe
less.
These will be cash sales by their very nature. If you don't have the cash yourself, become a finder or a Bird-Dog for a cash investor. More on that later.
Next, let's look at probate. Probate is a little understood process. Essentially, it is a legal procedure that provides creditors with a last chance at getting what was owed from
someone who died before their property is passed to heirs.
Legal and administrative fees of probate can total 5-100f the gross value of the estate. This means that if the deceased left a house worth $500,000, the probate fee will
be from $25,000 to $50,000.
The problem here is that since the fee is based on the Gross value of the asset and not the net value, there could be trouble:
Mkt Value Mortgage Probate 10% Net
$500,000 0 $50,000 $450,000
$500,000 $300,000 $50,000 $150,000
If there is a sizable mortgage on the property as there are today because of the wave of recent refinances, there may literally be little or nothing left after the forced probate sale.
In addition to paying probate fees, the estate of the deceased may have to pay creditors as well. This could also lead to forced sales.
The administrator of the estate will solicit bids or advertise the property to be sold. This can be a public or private process. He could also list the property with a broker.
The sales for these properties are usually buried in legal newspapers that advertise legal notices, which is why you have probably never seen them. Contact the administrator or
executor of the estate to learn of properties currently for sale.
Your best bet for finding the good deals is to make friends with attorneys that specialize in probate. There is a separate probate process in every state the seller owns property.
Let them know that you are a source of ready cash for good deals. They cannot buy them personally. They will look good to the court if they have a reputation for disposing of
properties quickly.
You can also check the court house and legal papers frequently to find out when new probate cases are opened.
Of course when the properties title has been transferred, the heirs may be motivated to sell quickly and get their cash.
The ins and outs of probate investing are not known to many people. That means opportunity because there is so little
competition.
Take a probate attorney to lunch tomorrow. It could be a great investment.
Note: Bill is a former bank loan officer. He is currently a personal financial consultant and offers assistance to those facing foreclosure. Find out about more of his Foreclosure Seminars here
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