Probate purchase agreements and joint escrow instructions

What is a probate purchase agreement?

The Probate Purchase Agreement is the document through which you agree to buy Real Estate sold in the probate proceeding or a special probate proceeding in the real property sales department of the Los Angeles County Probate Court. The probate sale is the sale of the real property owned by the decedent as part of the probate proceeding required to clear title to the property for the purchaser and their lender. Although the purchaser and the seller may agree to different terms in a typical purchase agreement , the terms of the probate sale are based upon Probate Code sections 10309.6, 10309.8, and 13152. The terms of the Probate code sections control the sale of the property regardless of the terms found in the purchase agreement. Thus it is very important that the parties are familiar with the terms of these sections before entering into the purchase agreement.

Essential elements of a probate purchase agreement

The key components of a probate purchase agreement and the joint escrow instructions generally include, among other things, the following:
Each probate sale is different and the probate purchase agreement will be subject to the same general standard as any other contract entered into by the parties. The terms of an offer are generally incorporated into the probate purchase agreement.
It must be determined if the probate purchase agreement contains a type of "force majeure" clause, which is some form of clause that permits either of the parties to delay the performance of their obligations if events outside of their control cause a delay. Often, a provision will grant an extension of the time for the buyer to close escrow as a result of a delayed hearing date in Court or some other circumstance.

Role of joint escrow instructions in probate sales

Another integral component of any probate real estate transaction is the joint escrow instructions. A joint escrow instructions format gives escrow instructions to the title and escrow companies. The joint escrow instructions are executed by the interested parties in the transaction. The joint escrow instructions contain the following: In conjunction with the purchase and sale agreement, also known as a residential purchase agreement and joint escrow instructions, the joint escrow instructions reference the publication of a notice of proposed action. The order of the Probate Court confirming residential property sale informs the interested parties that the order is final. The joint escrow instructions provide the process by which the probate attorney can have the sales proceeds disbursed to the personal representative. Therefore, the judge approves the sale of the real property pursuant to the residential real property purchase agreement and joint escrow instructions. A sale of an estate asset is much easier when the judge signs the order confirming the sale.

How to do a probate real estate sale

Purchasing a Property Through Probate
When the court approves the sale of a property and the distribution of the sale proceeds, a real estate agent will seek a buyer willing to purchase the property on an "as-is" basis—meaning the buyer is accepting the property in its current condition and will be responsible for any necessary clean-up or repair.
A probate sale typically involves the court confirming the sale of the property. Once a probate purchase agreement is accepted by the court, the buyer must complete his or her obligations in accordance with the terms and conditions of the accepted offer. This means that the buyer is conforming to the purchase price, the deposit, and any contingencies required by the court’s Order Confirming Sale and Order for Distribution of Estate Assets.
The buyer must also, at the time of the full price offer, acknowledge the "All Cash Addendum to the Real Estate Purchase Agreement and Joint Escrow Instructions," which offers the buyer to purchase the property without written investigations or inspections.
It is crucial to complete a purchase agreement and the joint escrow instructions correctly. As a probate sale is court approved and usually in the best interest of a beneficiary or heir, he or she may add to the closing costs by asking for unnecessary investigations, resulting in an overreaching on the buyer’s right to take possession of the property. The sale is not contingent on the buyers’ ability to make repairs or on needed retrofitting (e.g., unpermitted structures , environmental issues). Elimination of buyer contingencies may not be in the best interest of either the seller or the court, so they are always subject to negotiation.
In addition to standard contingencies, the "All Commissions Addendum to the Real Estate Purchase Agreement and Joint Escrow Instructions" require the seller to disclose to the buyer and the court what commissions are being paid to each broker before the sale contract and the joint escrow instructions are submitted to the court. The commission amount is computed on the net sale price of the property offered to the buyer, and it is calculated using the following formula:
In addition, the parties agree that all principals, heirs, and beneficiaries have given written consent to the sale of the property, and each person that has consented to the sale is waiving the right to any further distribution.
A party to a probate real estate sale may sell the property without actually taking possession of the real property, as was the case above. Alternatively, a party may take physical possession of the property. When taking possession, the buyer may execute updated escrow instructions by adding a paragraph that places all brokerage responsibilities solely upon the seller’s broker. The escrow instructions may state that the buyer will not be responsible for paying any brokerage fees to either the listing or selling broker, thus clarifying that the seller is solely responsible for the commission. The reason a seller may choose this option is that the buyer is not benefiting from the sale in any way and is not even taking legal possession of the property after the sale closes.

Legal issues in probate sales

As alluded to earlier, probate sales are governed by a strict set of laws, rules and protocols. The legal requirements for listing a property, obtaining court confirmation of sale even once it is sold, and the closing of an escrow are all different than standard real estate sales with which most buyers and sellers may be familiar.
Moreover, in many cases where the judge approves the sale of the property in court (and it becomes "confirmed"), the judge will also retain jurisdiction over the sale for a period of up to 120 days to give the interested parties an opportunity to obtain the highest price for the property.
Over that period, the judge will allow the personal representative or trustee to conduct an overbid sale by listing the property in the Multiple Listing Service ("MLS") and opening that day to receive offers for the property at or above the seller’s liquidated estimate of value, which must be stated in the court order confirming the probate sale.
The "liquidated estimate of value" is the minimum price for which the court will confirm the sale of the property. If more than one buyer makes a written offer to pay the liquidated estimate of value or more than the liquidated estimate of value, the property can be sold to the highest bidder. Note: There are important deadlines and procedures, including the deposit of a cashier’s check in the sum of 10% of the last and highest overbid and additional deadlines and bidding procedures involved with such overbids. The buyer is well-advised to be represented by a realtor experienced with probate sales in such circumstances.
While there are numerous legal implications to a probate sale that need to be considered, outlined below are some additional examples:

Probate sales tips for buyers and sellers

Buyers and sellers often take a passive approach to the probate process, relying only on the attorney for direction regarding the legal steps that need to be completed. However, to fully protect their rights (and their money), buyers and sellers should seek their own legal advice and be proactive by demanding clear and concise agreements and instructions that govern the sale of the property. Most importantly, buyers and sellers should understand that the California probate process is not like a normal real estate transaction in the county public recorders office . To begin with, the buyer should understand that the Escrow instructions between and the Seller & Buyer must be jointly signed. The escrow instructions must require that the escrow holder wait for the completion of the probate process, however long that may take, before disbursement can be made to the sellers, to the buyer. The Seller should insist on having a "Extended Period of Escrow" provision included in the Purchase Agreement. This form of Agreement will protect the Buyer against having to pay a price that is too high based on the length of the probate process, sets an outside date the escrow will close, will spell out when and how the probate process proceeds, etc.