It is difficult to admit it, but we are all getting older – day by day. For many of us, and for our family members, we must actively think about how we may want to distribute our assets when we pass away. Our assets may include personal property, financial accounts, investments such as stocks and bonds, and real property – just to name a few. For this article we will concentrate our discussion on real property.

Unless there is a legal tool established to have an asset avoid probate, typically when a person holds title to real property and passes away, their interest may be addressed through a probate of that person’s estate. From formal, informal, summary administration, or ancillary administration of a person’s estate, a review of the written wishes of the decedent’s distribution of assets or through the intestate succession laws of the state will identify the heirs and beneficiaries and how to correctly distribute any real property.

As an example, in Florida, under Chapter 5 of The Uniform Title Standards, Estates of Decedents, Standard 5.1 discusses an intestate decedent and homestead property.  Here is one comment from that standard:

Section 732.101(2), Fla. Stat. provides that the decedent’s death is the event that

vests the heirs’ right to the decedent’s intestate property. However, for title to be

marketable, Florida probate or similar judicial proceedings are necessary to

establish the identity of the heirs. In addition, in order to preserve a permanent

record of the probate proceedings for future marketability purposes, it is strongly

recommended that certified copies of the pertinent excerpts be recorded in the

official records of the county where the real property is located. …

Under §§ 733.607(1) and 733.608, Fla. Stat., the decedent’s real property, except

protected homestead, is subject to the possession and control of the personal

representative for such purposes as the payment of devises, estate and inheritance

taxes, claims, charges, and expenses of the administration and obligations of the

decedent’s estate.

Protected homestead does not become an asset within the possession and control of the personal representative. Spitzer v. Branning, 135 Fla. 49, 184 So. 770 (Fla.

1938); Public Health Trust of Dade County v. Lopez, 531 So. 2d 946 (Fla. 1988).

Therefore, during the administration of the estate, a conveyance from the heirs

would not create a marketable title unless: (1) a final order determining the

property to be protected homestead had been entered, or (2) the personal

representative relinquishes control, or potential control over the asset by quitclaim

deed, certificate of distribution or other similar instrument, and estate taxes cleared.

So, in Florida, beyond just being the decedent’s asset, there is also an evaluation of whether the real property was their homestead property. Such a determination matters and may necessitate different steps for the distribution of the real property.

For a person that has a will (i.e. testate) which is duly admitted to probate and does not specifically identify the property as one to be devised, then the distribution of the real property most likely will have to be addressed through the probate court to determine the rightful heirs or beneficiaries of that property.

It is also worth mentioning that depending on your state, there may be other statutory mechanisms to assist with the distribution of real property without probate proceedings, when done properly, such as an Affidavit of Heirship, Life Estate / Beneficiary deed, Trusts, Survivorship deed, and others.

From a claim’s perspective, the team typically addresses heir and beneficiary issues that involve someone who was not identified in the probate proceedings, the person was not named in the nonjudicial evidence of an Affidavit of Heirship, or the person was named but a conveyance deed was not obtained and recorded.

To avoid missing an heir or beneficiary, it is important to review an obituary (if available), ask questions about the decedent’s family, and if heirs or beneficiaries are identified, obtain a deed from each person. To expand on the last-mentioned situation, we occasionally see that a decedent’s heir or beneficiary is also deceased. However, you cannot ignore their particular interest as their interest goes to this person’s heirs and beneficiaries and deeds still need to be obtained to resolve their interest.

Here are a few scenarios involving a decedent’s property:

Scenario #1

Q: A family member of an intestate decedent who passed away a year ago enters your office and says that he has a Power of Attorney to manage and sell the property. Will the Power of Attorney work in this situation?

A: No.  A power of attorney automatically terminates upon the death of the principal. Thus, a probate must be open to determinate the heirs and the distribution of the asset.  

Scenario #2

Q: The daughter of an intestate decedent visits your office. She states she is the only child that her single father acknowledged at the time of his passing. However, her two brothers have been “disowned by the family” and there is no need to probate her father’s estate. Is the daughter able to convey full fee simple title without her brothers?

A: No. To address any interest in the asset a probate proceeding should be open in that state or non-judicial evidence of heirship provided, if available in your state. In either case, it would be necessary to have all decedent’s heirs execute a conveyance deed.

Scenario #3

Q: The nonresident decedent owns real property in Florida. A probate of the decedent’s estate was handled in Nevada.  A son comes to your office with the Nevada probate proceedings and states that he can sell the property. Can you proceed with only a Nevada probate?   

A: No.  Nevada does not have jurisdiction over the Florida property. A probate should be filed in Florida to address the distribution of the asset and a conveyance deed obtained from the heir(s).

Conclusion

This article provides a broad, high-level discussion of a limited area of estate and probate as it applies to real property. As you can see, the complexities of estate administration for each state must be analyzed thoroughly and accurately to ensure that the proper parties are conveying title and to prevent ownership challenges. Remember to check your state resources, speak with your underwriter, or discuss with your legal counsel to properly identify and resolve any interest being held by an heir or beneficiary.

Resources:

Justia. 2024 Colorado Revised Statutes, Title 15 – Probate, Trusts, and Fiduciaries, Colorado Probate Code, Article 11 – Intestate Succession and Wills – .

Justia. 2023 North Carolina General Statutes, Chapter 28A – Administration of Decedents’ Estates; Chapter 28B – Estates of Absentees in Military Service; Chapter 28C – Estates of Missing Persons; Chapter 29 – Intestate Succession; Chapter 30 – Surviving Spouses; Chapter 31 – Wills  – .

Justia. 2024 Texas Statutes, Estates Code, Title 2 – Estates of Decedents; Durable Powers of Attorney, Subtitle E – Intestate Succession, Chapter 203 – Nonjudicial Evidence of Heirship – .

Missouri Revisor of Statutes, Title XXXI Trusts and Estates of Decedents and Persons Under Disability, Chapter 461 Nonprobate Transfers Law – .

The Uniform Title Standards, A Publication of the Florida Bar Real Property, Probate & Trust Law Section – Chapter 5 – Estates of Decedents (September 2010) – .

This blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on this blog.

The post Estates And Probates: Are All The Heirs Present? appeared first on ĐÇżŐ´«Ă˝ ĐÇżŐ´«Ă˝ Title Insurance Co..

Contract for deed agreements are frequently not recorded in the county land records. However, as an example, Texas requires executory contracts be recorded by the seller within thirty (30) days from the date of execution or the seller may be liable for damages to the other party for noncompliance. In Texas, such a recorded executory contract is treated as a deed with a vendor’s lien. See Tex. Prop. Code § 5.076 and 5.079. Other states also have statutes addressing executory contracts.

Contract for deed agreements have been the subject of many lawsuits. Generally, a lawsuit can be the first opportunity for a non-party to know that an unrecorded contract for deed agreement exists. A claimant is either sued or discovers the conflict through other communication, typically from the equitable interest holder. The claimant, at times, files a notice under its title insurance policy seeking coverage for such disputes. As each case is different and depending on the specific title policy, a coverage determination will be unique to the situation. Therefore, it is important to be aware that contract for deed agreements exist and that they may impact a new buyer’s title or a lienholder’s interest in the property.

The claims team has encountered situations involving contract for deeds. For example, a lender may be preparing a foreclosure action involving a recorded mortgage or deed of trust when it discovers a lawsuit naming the lender’s borrower. The plaintiff alleges it entered into a contract for deed agreement with the prior owner several years earlier. The plaintiff states the prior owner failed to execute the deed to the plaintiff at the completion of the terms of the agreement and now seeks a recordable deed to the property, free and clear of the lender’s lien. The plaintiff also argues it timely satisfied all obligations under the contract for deed agreement before the seller sold the property to another and the lender’s lien attached to the property; and thus, alleges that the subsequent transaction is clouding the plaintiff’s title and is void.  There may be various legal and equitable defenses for the lender in such a lawsuit, but the time and expense incurred may be significant.

Practical Pointers

Before closing on a home, there may be ways to uncover and address a contract for deed agreement before the issue culminates into contentious litigation for new buyers and lenders. Here are some steps to consider:

• If the seller asserts there is a tenant occupying the property, ask if there is or has been any contract for deed agreements (a/k/a installment purchase/sale land contract) with the tenant or any other party.
• If there is a contract for deed and the intended purchaser has defaulted or violated the agreement, request written documentation identifying that the contract for deed agreement is cancelled. In certain cases, this may require legal action by the seller to establish that the equitable interest is extinguished. It is recommended that this documentation be recorded.
• If the terms of a contract for deed are still in effect, however, the seller and the intended purchaser mutually agree to terminate the contract, it is recommended that a written termination of the contract for deed agreement between the parties be obtained and recorded.
• Last, if the intended purchaser under the contract for deed is unwilling to release their equitable interest or asserts that the legal titleholder has violated the agreement, then contact the anticipated title underwriter and the proposed lender prior to the closing date to discuss what options may be available for the situation.

A contract for deed remains a resource to help some with the home buying process. However, the impact of such an agreement can later result in a challenge to the title and impact others when a dispute arises between the parties in the agreement. If you have questions, reach out to me or any member of the ĐÇżŐ´«Ă˝ ĐÇżŐ´«Ă˝ claims team.

Resources:

• Myslajek, C. (January 1, 2009). ĚýRisks and realities of the contract for deed.Ěý.
• Texas Property Code, Title 2 – Conveyances, Chapter 5 – Conveyances, Subchapter D. Executory Contract for Conveyance.Ěý
• The Office of Minnesota Attorney General.ĚýContract for Deed.Ěý
• Vockrodt, S. and Ziegler, L. (March 2, 2022).ĚýContract for deed: The promise of homeownership that often leaves Midwest buyers out in the cold.Ěý

This blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on this blog.

The post A Contract for Deed: Who else may have an interest in the property? appeared first on ĐÇżŐ´«Ă˝ ĐÇżŐ´«Ă˝ Title Insurance Co..

Let’s consider a scenario:

Mr. and Mrs. Smith are the previous owners of property located at 123 Main Street, Anywhere, USA.Ěý The owner has two loans secured by the property: a $150,000 traditional mortgage and a $300,000 HELOC mortgage. Mr. and Mrs. Smith sell the property to the buyer, Tim Jones, for $475,000. As part of the closing process, the title company sends the payments to the lenders by wire transfer.

Two years later, Tim Jones receives a notice of foreclosure from the home equity line of credit lender. The lender asserts that Mr. and Mrs. Smith’s HELOC loan has a balance and was never closed. The HELOC loan once again has a balance of $300,000, and the loan is now in default. Tim Jones submits a claim.

The lesson:

A HELOC loan typically includes a clause that gives the borrower the ability to “borrow, repay, and reborrow” from time to time, up to a maximum credit available, through a maturity date.  

In our scenario, the lender may have applied the payment on the HELOC loan as a “pay down” on the loan and did not close down the account and cancel the loan two years earlier. 

For a HELOC loan, the lender may require additional steps be taken to close out the loan and have the lien released from the property. In certain cases, the lender requires that the borrower execute a “Close out / Close Down” letter. Not only does the borrower(s) have to sign the letter authorizing the account to be closed, but the signed letter has to be delivered to the lender instructing the lender to do so. In some cases, a lender may even have a specific form to be used to effectuate the closing of the account.

Practice points:

If you are planning to mail or wire payoff funds to a HELOC lender, as a best practice, if you see that the loan is a HELOC –

• carefully review the lender’s instructions to close out the account;Ěý
• ask questions to ensure all requirements are met;
• deliver the borrower’s signed close down the account letter concurrently with the payment; and
• keep a copy of the letter along with evidence on how and when you sent the “close out / close down” letter to the lender.Ěý

Even if there is a zero-dollar ($0) balance on the borrower’s account on the day of closing, you still want to ensure that the account is properly closed, and the lien released. 

When you come across a HELOC mortgage, be aware that only requesting a loan payoff statement from a lender may not be enough to obtain a cancellation and release of the HELOC mortgage. By recognizing that there is a difference between a traditional mortgage versus a HELOC mortgage when it is time to pay off the loan, you will be well on your way to having the lien properly cancelled from the property.

The post A Claims Tale: All Mortgages Are Not Created Equal – HELOC Mortgage Payoff appeared first on ĐÇżŐ´«Ă˝ ĐÇżŐ´«Ă˝ Title Insurance Co..