Can You Sell a House During Probate?
Often, when a homeowner dies, their house is the largest asset in their estate. Family members may need or want to liquidate the property as soon as possible. A house frequently represents more than its financial value, of course; it may hold treasured memories of the deceased and of time spent with family there over the years. From an emotional standpoint, family members may not want to sell the house, even if that is the best move from a financial standpoint. Accordingly, it is often difficult to decide what to do with a house, and when, after a death. One question we often hear in our office is, “Can I sell a house before probate?”
The short answer is, “Usually not.” But there are some important qualifiers to that answer, so let’s discuss what probate is, when a house has to go through probate, and what is involved in selling a house in probate.
When Does a House Have to Go Through Probate?
Probate is the legal process of administering a deceased person’s estate, paying estate debts, and distributing assets to heirs and beneficiaries. However, not all property must go through probate; generally, probate assets are those that are solely owned in the name of the deceased.
A house does not have to go through probate if it is jointly owned with rights of survivorship; in that case, the surviving owner automatically takes ownership of the house. If a house is held in a trust, the trustee can sell or transfer the house according to the terms of the trust without any probate court involvement. (Probate avoidance is one of the primary reasons many people create trusts.) A “ladybird deed” is another estate planning tool that can prevent a house from needing to go through probate. The use of any of the above means that the property can be sold at any time, even if other estate assets do need to go through probate.
However, if the deed to the property is in the sole name of the deceased, it must go through probate, whether or not the decedent had a will. In that case, the house cannot be sold before probate, and there are important steps that must be taken during the probate process in order to sell the house.
How Can the Executor Sell a House That is in Probate?
If a house has to go through the probate process, the personal representative of the estate needs to follow probate court requirements in order to sell it. The personal representative is the person formally appointed by the court to manage the estate. The personal representative is sometimes referred to as the executor or administrator of the estate.
Exactly what the personal representative needs to do depends on the type of probate process the estate must go through. Smaller and more straightforward estates may be able to go through an unsupervised probate process; larger and more complex cases require supervised probate. With supervised probate, the court is more heavily involved in the process of the sale.
The personal representative of the estate may hire a real estate attorney and list the property for sale, but depending on the county in which probate is filed, the probate court may need to approve any sale of the property before it can be final. This is not necessarily the case, approval for the sale of a house varies depending on the county in which the probate is filed. In a probate sale of real estate, the property is usually sold “as-is;” heirs or beneficiaries of the estate are often unable to do the repairs or updates that might typically be done before selling a house.
In some cases, it may be necessary to sell the house during probate in order to satisfy the debts of the estate. However, selling a house during probate often lengthens the probate process. This paragraph is a little confusing to me with the back and forth If you are unsure whether or not to try to sell a house during probate, you should discuss the pros and cons with an experienced probate attorney.
Selling a House in Probate if There is a Mortgage
Another issue to be aware of when selling a house in probate is whether there is a mortgage on the house, and what type of mortgage. Inheriting a house with a mortgage can complicate the sale process somewhat.
If a house has a traditional mortgage, the personal representative can sell it (with any required court permission), pay off the mortgage using the proceeds, and distribute the remaining proceeds to heirs of the estate.
If the house has a reverse mortgage, things operate a little differently. With a reverse mortgage, the homeowner remains in the home and receives a monthly payment during their lifetime, without having to make further mortgage payments themselves. When they die, the reverse mortgage must be paid off in full within a relatively short time frame. This usually necessitates selling the house. Any proceeds of the sale above and beyond what is necessary to pay off the reverse mortgage can be distributed to heirs.
If you are serving as the personal representative of the estate, you may not be immediately aware of whether there is a mortgage or reverse mortgage on the property. Your probate attorney can help you find out whether there is a mortgage and how much is owed, and decide what steps you need to take next.
One word of caution: in Michigan, if family members do not open an estate within 42 days, the nominee of a creditor can be appointed as personal representative of the estate. That means that if there is a mortgage or reverse mortgage, the mortgage holder can nominate someone to serve as personal representative and sell the house so that their debt can be satisfied. That can result in the family of the deceased losing much of the equity in the home.
Here is the bottom line: if your close family member has recently died and owned a home, you should immediately consult an experienced Michigan probate attorney to discuss the situation and your options. Selling a house during probate can be complicated and an attorney’s guidance can help the process go more smoothly, without mistakes that could lead to liability for the personal representative.
To learn more about how to sell a house during probate, contact Suzanne R. Fanning PLLC to schedule a consultation.