What is a Probate Sale?
A Probate Sale is the legal process in which a deceased person’s property is sold to pay taxes and outstanding debts before distributing the deceased person’s remaining property to their heirs. A probate sale of real property occurs in various ways and are often facilitated by the court and a personal representative. A personal representative is the individual appointed to manage the deceased person’s estate throughout the probate process. (Prob. Code, § 58.)
The Personal Representative’s Role in Probate Sales
An estate’s personal representative can facilitate the probate sale of real property in four main instances under the California Probate Code. First, probate sale is proper when it is necessary to pay debts, family allowances, administration expenses, taxes, or other devises in the will. (Prob. Code, § 10000(a).) Additionally, probate sale is proper when the sale is advantageous to the estate and in the best interest of all interested persons. (Prob. Code, § 10000(b).) Probate sale is also proper where the will directs the property to be sold or otherwise authorizes the personal representative to sell the property. (Prob. Code, § 10000(c)-(d).) A probate sale may be proper in additional circumstances such as: when the property is depreciating and will harm the estate without prompt disposal; when the property cannot be partitioned; or when the property is too small that its value cannot be evenly split among heirs using personal property. (Prob. Code, § 10253; see also Estate of Barthelmess, 198 Cal.App.3d 728.) In all instances, the personal representative must exercise ordinary care and diligence. (Prob. Code, § 9600.)
A personal representative’s power to sell is bound by various procedural requirements. Unless a personal representative is granted full authority to administer the estate by petitioning the court under the Independent Administration of Estates Act, the court must confirm sales of real property. (Prob. Code, § 10260; Prob. Code, § 10308, Prob. Code, § 10501.)
Generally, personal representatives must comply with a will’s direction to sell real property. (Prob. Code, § 10002(a).) A personal representative or another interested party can petition the court to relieve the personal representative of the duty to comply with directions to sell the property. (Prob. Code, § 10001.) Courts issue orders relieving personal representatives of the duty to comply when they determine relief is advantageous to the estate and in the best interest of all interested parties. (Prob. Code, § 10002(b).)
The Court’s Role in Probate Sales
Courts must confirm sales of real property before title passes, even if a will directs the sale, to protect the estate from abuses of discretion by the personal representative. (Prob. Code, 10308; see also Estate of Patterson, (1980) 108 Cal.App.3d 197.) Probate sales of real property can occur privately or at public auction, with published or posted notice. (Prob. Code, §§ 10300 et eq.) Personal representatives must file a petition for a court confirmation hearing within 30 days of the sale and provide notice of the hearing to the purchasers of the property and all persons named in Section 1230 of the Probate Code. (Prob. Code, § 10308(b); Prob. Code, § 1220; Prob. Code, § 1230.) The purchaser of real property can file the petition if the personal representative fails to do so within 30 days. (Prob. Code, § 1308(b).)
At the confirmation hearing the court will make several determinations, including:
- Whether the sale is necessary and advantageous to the estate and interested persons, unless the will directed the sale.
- Whether the personal representative upheld their duties to obtain the best, reasonably attainable, sale price.
- If the property is sold by private sale, the court will determine whether the statutory requirements in Probate Code Section 10309 are met.
- Whether notice, if required, was proper.
- The amount of commission agents’ and brokers will receive,
- And any other matters raised by written objections to the sale’s confirmation. (Prob. Code, § 10310; Prob. Code, § 10312.)
In addition to making these determinations, the court will hold an auction during which all interested parties can bid on the property, known as the Overbid Process.
What is the Probate Overbid Process?
At the confirmation hearing courts conduct an auction that all interested persons are entitled to orally bid on the property in. The Probate Overbid Process is the process during a confirmation hearing when the court accepts a written offer to purchase the real property made during the confirmation hearing. (Prob. Code, § 10311.) Because this process “overbids” the original offer to purchase, it must meet certain requirements. (Id.) The court will accept the highest bid by an interested party if:
- “The offer is for an amount at least 10 percent more on the first ten thousand dollars ($10,000) of the original bid and 5 percent more on the amount of the original bid in excess of ten thousand dollars ($10,000).
- The offer is made by a responsible person.”
- And complies with all provisions of law. (Prob. Code, § 10311.)
Though the initial bid and confirmation of sale are made orally in court, the bid must be put in writing and signed by the bidder to be made official. (see Estate of Roberts, (1990) 225 Cal.App.3d 1017.) The overbid process applies to private sales and public auctions alike. (1 H. Miller & M. Starr, Current Law of California Real Estate § 2:63, at 735-36 (2d ed. 1989.)
Because of the nature of the overbid process, interested parties commonly attend hearings with the necessary cash funds in hand to purchase the property. This is because courts often hesitate to accept overbid’s that rely on lines of credit, even if it is the highest offer, unless they have been previously informed the bid is acceptable. (Prob. Code, § 10311(d); Estate of Barthelmess, (1988) 1 Cal.App.3d 728.)
Ultimately, it is within the court’s discretion to accept an offer during the overbid process, even if the bid satisfies all the statutory requirements. When the court accepts a bid, it must order a new sale. (Prob. Code, § 10313(c). The sale then proceeds as if the previous sale had never occurred. (Prob. Code, § 10313(d).)
What is an Example?
“Shawn” is the personal representative of an estate that holds real property, which he was directed to sell by the will. Shawn has acted accordingly and in compliance with all statutory regulations, accepted an offer to purchase the property for $175,000 and has petitioned the court for a confirmation hearing. “Julie” is an interested party present at the hearing. During the confirmation hearing, the court conducts an auction during which Julie bids $184,250 to purchase the property. Julie’s bid is the minimum overbid amount as calculated using 10% of the first $10,000 and 5% of the remaining amount of the original $175,000 offer. The court finds Julie is a responsible person making a bid for the minimum overbid amount in accordance with all provisions of the law and accepts Julie’s offer. The court must now order a new sale and proceed through all procedural requirements as though the original offer never existed.
Conclusion
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