Selling a House in Probate in Indiana

Probate properties can be a valuable opportunity for real estate investors and buyers seeking discounted deals, but what steps must a homeowner take to sell a property undergoing probate? This article serves as a helpful guide for those managing the complexities of the probate process. It will outline what probate entails and provide strategies for successfully navigating this often complicated procedure to sell a probate property while ensuring a profitable outcome.

What is a Probate?

When an individual passes away, their assets are transferred to the executor of their estate or the Court, regardless of whether they left a will naming specific beneficiaries or died intestate without one. Probate can be classified into two categories: formal and informal. The informal probate process typically involves minimal court supervision, often because a valid will is present or there are no disputes over who the heirs are. This article focuses on the more complex formal probate process, which becomes necessary when the estate has significant debt, the will is contested, or if the original will cannot be found. When a will faces contestation, it can significantly prolong the probate process and the sale of the property, potentially extending these delays for many months or even years. This can further complicate the overall situation. In such situations, court intervention is required to resolve these issues.

Can a House Be Sold While in Probate?

Absolutely! Depending on the state of the estate at the time of the individual’s death, a property in probate can be sold by one of three parties: the executor of the estate or a person designated in the will to handle its distribution; the estate administrator, appointed by the Court in cases of intestacy where there are heirs or beneficiaries; or the Court itself when there is no will and no heirs seeking administration. Once the executor, administrator, or Court determines who inherits the property, the heir(s) or beneficiaries may initiate the process of petitioning to sell the probate property.

What Does it Take to Sell a House in Indiana While in Probate?

An executor’s main responsibility is to protect the estate’s assets for distribution to the heirs or beneficiaries according to the will’s instructions. However, there are situations where the estate might be burdened with substantial debt, or the property could have fallen into disrepair, leading to unpaid back taxes. In these circumstances, the executor, administrator, or the Court may decide to sell the property to settle these debts, even if heirs have been designated. Often, probate properties may also have liens or other encumbrances that need to be resolved before the sale can proceed.

Consider the case of an elderly woman who passes away, leaving her estate in the hands of an executor. She has two heirs, but at the time of her death, she has accumulated a total of $90,000 in debt from hospital bills and credit cards. Her only significant asset is a house valued at $150,000, with no liquid funds available. She owes $80,000 in medical expenses and $10,000 in credit card debt. Despite her passing, the estate remains responsible for settling these debts. If the heirs are unable to cover these liabilities, the executor will be required to sell the property to pay off the $90,000 owed. After the sale, the remaining $60,000 would be distributed equally between the two heirs.

If the deceased did not leave behind a will and there are no immediate heirs, a probate property can still be sold. Under these circumstances, the Court may permit the sale of the property, and the resulting funds will be distributed to the closest living relatives.

Steps for Selling a House in Probate

If you have a property in Indiana that is tied up in probate and you’re finding it difficult to sell, don’t worry—there are solutions! The process of selling a probate property can typically be broken down into four steps, depending on local and state regulations. Some states have streamlined probate processes specifically for small estates, facilitating a quicker sale of properties. The initial step is to have an executor or administrator appointed, if one was not designated by the deceased prior to their passing.

If you have been designated as the executor, or if you and the executor are in agreement on the course of action, you hold the authority to decide whether to retain or sell the property. This choice may depend on various considerations, such as the estate’s financial obligations or the impracticality of managing an inherited property located out of state. Should selling be the preferred route, the initial step is to obtain a professional appraisal. Following this, you will need to request approval from the Court to move forward. Once granted, you have the option to either sell the property yourself (FSBO), collaborate with a skilled realtor who specializes in probate sales, or sell directly to an investor.

Important Note: If an heir resides in the property undergoing probate, it can complicate the selling process. This situation often necessitates extra legal measures to evict them before the sale can move forward.

Determine the Best Approach for Selling the Property:

Market Evaluation or Appraisal 

The first step is determining the property’s value. This requires getting an accurate valuation from a reliable professional or hiring an appraiser who is well-versed in local regulations related to assessing the property’s current worth. In numerous states, the Court mandates that the property be sold for no less than 90% of its appraised value. For this reason, it’s crucial to select an appraiser experienced with probate properties to ensure the valuation is accurate and not inflated.

Putting the Property on the Market

After obtaining the appraisal, you, the executor, or your attorney will need to submit a notice of intent to sell the home and any other assets to the court. This document should detail the appraised value of the property and the chosen method for selling it. Options for the sale include an auction, a traditional market listing, a direct sale to an investor, and more. Once the court grants approval for your petition, you can move forward with advertising the property for potential buyers. Whether you decide to handle the sale independently, enlist a knowledgeable real estate agent, or negotiate with an investor, it’s essential to have someone with probate property expertise supporting you throughout the process.

Offers

Regardless of whether offers pour in quickly or come in slowly over time, you’ll ultimately have to determine which one best meets your needs. Assessing your priorities for the sale is crucial at this stage. Do you require a speedy transaction to settle the estate’s debts promptly? Are you willing to wait longer in hopes of securing a higher price? Or is the property in such poor condition that it requires a buyer capable of undertaking a full renovation? All of these factors must be carefully weighed when deciding the timing and strategy for listing a property that’s in probate.

Understanding your objectives for the property sale is key in determining which offer to accept, allowing you to progress to the next phase…

Notice of Proposed Action

When a buyer submits an offer, it’s essential to let them know that the transaction can only be finalized after receiving court approval. This should be expected under disclosure laws, but those unfamiliar with probate sales might be deterred by the extra time required. This extended process often leads potential buyers to choose other properties, even if the probate house is competitively priced for a quick sale. The longer timeline may make them feel that it’s not worth the wait. However, if a buyer is willing to be patient and moves forward with an offer, the Court will assess the bid and, if everything is in order, issue an order to authorize the sale of the property.

Bidding

For auction sales, a probate property can be advertised as available for purchase even before the Court issues an Approval to Sale, helping to attract potential bidders. In such cases, the Court typically oversees the bidding process. Due to the stringent rules and regulations involved, this method is generally considered a last resort. After a winning bid is secured, the executor must request the Court’s permission to finalize the sale. However, if any heirs raise objections, the transaction can be halted, and the property may be placed on hold until the Court determines the appropriate course of action.

Completion of the Transaction

Ideally, the process of selling a house, condo, rental property, or parcel of land will be seamless and uncomplicated. However, even if there were a few bumps along the road, once the Court approves an offer, it’s time to complete the transaction. The executor or attorney must submit a final accounting and a petition for the final distribution. After receiving the Court’s approval, the necessary title documents can be signed, officially completing the sale.

Mistakes to Avoid When Selling a Probate Property 

Rushing the Process

After someone passes away, their family might want to sell the property quickly to allow themselves space to grieve. Alternatively, if the estate is burdened with debt that accrues monthly interest, the executor or administrator may opt to sell the home rapidly, often pricing it below market value to settle those obligations. A rushed sale can also occur if the property is in disrepair or requires costly renovations that the beneficiaries are unwilling to finance. Properties in probate are frequently sold in their current condition, which tends to restrict the buyer market to individuals prepared to take on necessary repairs or renovations. In such cases, they might choose to list the house at a lower price to sell it in its current condition.

Failing to Provide a Proper Property Disclosure

Real Estate Disclosure laws can be just as complex as navigating the probate process, and they vary depending on your state. These regulations require sellers to inform potential buyers of certain property issues, like the presence of lead paint or asbestos, before the transaction is finalized.

In the majority of states, both sellers and their agents are obligated to provide written disclosures of any “material defects” associated with the property. The National Association of Certified Home Inspectors defines material defects as “…a specific issue with a system or component of a residential property that may have a significant, adverse impact on the value of the property, or that poses an unreasonable risk to people. The fact that a system or component is near, at or beyond the end of its normal useful life is not, in itself, a material defect.”

Seasoned real estate agents are skilled at handling these complex situations, but what if you’ve inherited a home you’ve never resided in? How would you be aware of what needs to be disclosed? In certain states, the executor, seller, or real estate agent might be exempt from completing local disclosure forms for a property in probate. This exemption exists because the individual responsible for selling the property has never lived there and, therefore, cannot reasonably be expected to know specific details that need to be disclosed to potential buyers.

If you’re uncertain about the specific laws in your state, consulting someone knowledgeable in probate real estate—such as a realtor or an investor with experience buying probate properties—can provide valuable guidance through these legal complexities. Should you choose to sell directly to an investor, make sure they are well-versed in handling probate transactions and comfortable with the risks associated with purchasing a property from a seller who may not be able to provide full disclosures. Remember, you do have choices!

Neglecting to Retain Legal Counsel

We cannot stress this enough—a seasoned real estate attorney with expertise in probate matters can significantly simplify and expedite the probate process compared to handling it on your own. They possess the knowledge to file the necessary petitions with the Court, allowing you to list the property for sale more efficiently. Moreover, they can navigate the legal complexities of selling an inherited property, reducing the stress and emotional burden involved. Even a consultation with such an expert can help you avoid potential pitfalls and ensure that you are not overlooking any crucial aspects of the probate process.

Delaying the Initiation of the Probate Proceedings

After losing a loved one, the grieving process often leads us to pause and put everything else aside as we cope with the loss. However, what becomes of the probate property during this period? Property taxes keep accruing, utility bills still need to be paid, and the bank will continue to expect regular mortgage payments until the estate is settled. When a property stays on the market for an extended time without selling, the ongoing expenses can impose a significant financial strain on the estate. Delaying too long can result in a rapid accumulation of expenses, depleting the estate’s assets and potentially creating a challenging financial situation.