CONSIDERATIONS IN SELLING REAL ESTATE OWNED BY AN ESTATE

The weeks following the death of a loved one are often a whirlwind of emotion and activity.  Eventually, things settle down and the family turns to the task of dealing with the things left behind.  I frequently have family members come to me needing guidance on what to do with mom’s house now that she’s gone.  Sometimes the answer is simple, and sometimes not.

The first question is whether there is a Last Will and Testament.  If so, then the Will names an Executor, who is the person charged with carrying out the Will.  The Will should also say what happens to the house—it may be specifically given to a person, or it may just be part of the “residue” of the Estate.  If there is no Will, then the house goes to the decedent’s heirs, which are typically a surviving spouse or children.  Either the Executor, if there is a Will, or the next of kin, if there is no Will, must then obtain Letters of Administration from the Surrogate in order to transfer the house.  This is important, because only the Executor or Administrator has the legal authority to sign a contract for sale of a house, and legal authority to execute a deed.

Once it is determined who should inherit the house, the next step is to clear the way, from a tax standpoint, for a transfer of the house.  In some circumstances, the Estate may need to file an inheritance tax return to get this tax clearance; in other circumstances the Estate can file an inheritance tax waiver form, called an “L-9” form to receive tax clearance.  Which method is right for the Estate depends on the value of the Estate and the relationship of the beneficiaries of the Estate to the decedent.  Generally speaking, an estate that is valued at less than $675,000 and in which all beneficiaries are children, grandchildren, parents or grandparents, can file an L-9.  All other estates must file an inheritance tax return.

It my also be prudent to obtain a judgment and open mortgage search on the property before it is even put up on the market.  Oftentimes, the house is the main asset of the Estate; if the Estate has significant debt, including unknown mortgages, liens, back taxes, judgments, etc., it is possible that the house has to be sold for a certain price in order to pay all the debts.  If the sale proceeds are not enough to pay all debt, the estate is considered insolvent.  An insolvent estate is similar to a declaration of bankruptcy, and there are certain court proceedings that must be followed in order to satisfy the creditors of the estate.  It is better to know what the Estate’s bottom line is before placing the house on the market, so that the house can be priced correctly, and the Executor or Administrator knows how much “wiggle room” is available for negotiations.

Finally, it is important that the Executor or Administrator sign any contract to sell the house with her title after her name, i.e. “Mary Smith, Executor for the Estate of John Smith.”  Be careful, too, about any representations the Executor makes about the condition of the house.  Often the Executor has not lived in the home she is selling, or has not lived in it for a long time, and does not have personal knowledge about its condition.  It’s better to say that you do not know the answer to a question about the house than to guess and be wrong.