New Funding Resources 
A part of our business comes from refinancing inherited properties. A typical scenario includes an heir who either wants money to pay off other heirs and assume a sole ownership of the house or needs renovation funds to increase the property’s value before flipping it. Often, they want to do both. Private lending criteria fit their needs perfectly. Hard money lenders like us lend on properties that require extensive renovations and are not focused on the borrower’s income or credit scores. Inherited properties often come with plenty of equity, reducing private lenders’ risk and making the pre-qualification process fast and straightforward.
Another common scenario that requires our private financing is helping a real estate investor purchase a property that is part of the deceased’s estate. These types of properties also often come with substantial equity as the heirs might be looking to offload it as quickly as possible and without making any repairs. However, regardless whether you are lucky heir or an investor looking to snatch a good deal, you must understand probate laws and stay compliant with them.
Probate is the legal process initiated after an individual dies, during which their estate is settled and distributed. The primary goals of the probate process are to ensure that the deceased person’s debts are paid and their remaining assets are distributed to the rightful heirs or beneficiaries. The process involves several critical steps supervised by a court.
Probate Process Step-by-Step
It begins with filing a petition with the probate court in the jurisdiction where the deceased person lived. If there is a will, the person named as the executor in the will typically files the petition. The court may appoint an administrator to handle the estate if there is no will.
The next major step is to officially notify heirs, beneficiaries, and debtors of the death. Creditors have a specified period to file claims against the estate for outstanding debts. I am not an attorney, but I believe the statutory period for filing creditor claims in Maryland and Washington, DC, is generally six months; in Virginia, it’s four months.
In parallel, the executor or administrator prepares an inventory of the deceased person’s assets, including real estate, bank accounts, investments, and personal property. These assets are used to pay the deceased person’s debts and taxes. In some cases, this may involve selling assets, including real estate, to cover outstanding obligations.
The heirs and beneficiaries receive their share only after all debts and taxes are settled. At this point, the estate will be distributed among the heirs as specified in the decedent’s will or according to state laws if there is no will. Once the distributions are made, the executor provides a final accounting to the court. The estate is considered closed once the court approves the final accounting, and the probate process concludes.
How Long Does the Probate Process Takes in the DMV area
The duration of the probate process varies based on several factors. It is influenced by the complexity of the estate, the presence of a will, the number and type of assets, as well as any disputes among heirs or beneficiaries. As a Maryland-based private lender, my experience is that the majority of probates in the DMV area are resolved within six to nine months – unless, of course, there is a dispute between the heirs. Both Virginia and Maryland, as well as Washington, DC, offer a streamlined process known as “small estate administration” for estates with a total value below a certain threshold. This process can be quicker than regular probate and may take around 3 to 6 months.
Common Misconceptions Around Probate’s Impact on Real Estate
Probate is Not Needed if There is a Will
The presence of a will does not eliminate the need for probate; rather, the will is typically submitted to the probate court as part of the process. Those who wish to avoid or streamline the probate process often use estate planning tools such as living trusts. Assets placed in a living trust can pass directly to beneficiaries without going through probate.
An Estate Executor Can Decide on Selling the Property and for How Much
In Maryland, an estate executor typically cannot sell real property without obtaining court approval. The process of selling real estate in probate in Maryland typically involves court oversight to ensure that the sale is conducted in accordance with the law and in the best interests of the estate and its beneficiaries.
We are currently working with a real estate investor in Virginia who is an excecutor of her father’s estate and has two sisters who are also heirs. Though our client would like to purchase the property from the estate for the discounted price, his siblings prefer to wait for a better offer that is currently pending. Our client – albeit being an executor- cannot sell the property to herself without approval from her siblings.
Once the Probate Completed, You Can Sell or Refinance Right Away
While you may technically be a new owner, you must transfer the property in your name officially. Transferring property into your name after the probate process involves several steps, and the specific procedures can vary based on jurisdiction. Some of these steps include obtaining a certified copy of the court order, contacting the property records office, and preparing and recording a deed with your name as the owner. You need to allow some time for this new information to percolate through the records. A good title company and a attorney can help expedite the process.
How a Private Lender Can Help You Make the Best Out of the Property You’ve Inherited
We’ve worked with properties just out of probate on numerous occasions. We are currently underwriting a private loan in Washington, DC, where a brother and sister inherited a home from their deceased aunt. There was not much cash involved but the house has a significant value and no mortgage. The sister plans to purchase the property using our funds, pay off her brother, and then borrow some funds to renovate it. Once the renovation is completed, she plans to keep the property as a rental.
Another scenario we’ve worked with involved a renovation loan in Anne Arundel County. Our borrower was a lucky heir of a free and clear property in Glen Burnie. Though the home was structurally solid, it was hopelessly outdated in terms of style and finishes. Our borrower felt that after a cosmetic renovation, he could sell it for a considerably higher price than selling it “as-is” in its current state.
What a real estate investor should be aware of when making an offer on an inherited property
Inherited properties can present unique opportunities for real estate investors, but they also come with challenges. Understanding the specific circumstances surrounding the property is crucial. When a real estate investor is considering making an offer on an inherited property, there are several key factors to be aware of.
Probate Status
Determine the probate status of the property. If the probate process is still ongoing, the sale may require court approval. If the probate is complete, the property may be more readily available for sale.
Other Title Issues
Investigate the title of the property. Inherited properties may have title issues that need to be resolved. Check for any liens, encumbrances, or disputes that could affect the sale.
Communication with Heirs
When possible, communicate with the heirs or beneficiaries of the estate. Understanding their goals and timelines can provide valuable insights and may influence your negotiating strategy.
Funding and Financing
Make sure that you have the necessary funding or financing in place to make a competitive offer. If you plan to use financing, be aware of any lender requirements related to inherited properties. If you are using a private lender like New Funding Resources, communicate the probate status of the property in advance.
Contingencies
Include appropriate contingencies in your offer to account for potential issues that may arise during the due diligence process, such as title concerns or probate delays.
I am not an attorney, so please don’t rely on this article for a legal advice. However, as Mark Twain said, death and taxes are two things that are certain in life. As a real estate investor you need to undestand what probate means for real estate transaction regardless of whether you are making an offer on a recently inherited property or a lucky heir trying to decide how to maximize the value of your inheritance.
Leave a Reply