Someone close to you has died, and they left you their house. You already have a home, and you might want cold, hard cash instead. Can you sell the property? Almost certainly, but whether you can do so without going through probate depends on exactly how you inherited the house, not whether you've been appointed as the estate's executor. And you can only be the executor if the estate is being probated.
It Depends on the Deed
Who can sell deceased estate property depends on how you inherit it. You can inherit a house through any number of means, and some don't require probate so an executor would never be involved.
- Real property can be held jointly with "rights of survivorship." Maybe you and the deceased were named as joint owners on the deed, and the deed provides that the house automatically transfers to the other by operation of law when either of you dies. There's no need for probate in this case.
- A tenancy by the entirety works the same way, but this type of deed can only be used between spouses.
- Some states recognize transfer-on-death deeds that work similarly to payable-on-death bank accounts. You're named as the beneficiary on this type of deed, but you're not a co-owner of the property. You have no right to the property or responsibility for the house until the owner dies. This arrangement also bypasses probate.
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None of these deeds means that the deceased didn't also have a probate estate composed of other property, but the executor would only have control over those probate assets, not property that was left to you directly, whether you're the executor or someone else serves.
When Probate Is Required
Probate is always required when property doesn't pass to a living beneficiary by operation of law such as in the above examples. A deceased individual can't own property, so the court must transfer ownership. That's the whole purpose of probate, along with settling the deceased's debts.
Probate is required even if the deceased didn't leave a will if the house has no other way of transferring to a living beneficiary. The only difference is that the deceased's property would be distributed to heirs according to state law if there's no will – not necessarily according to the decedent's wishes as stated in a last will and testament.
Alternatives to Probate
Many states offer alternatives for smaller estates. Assets – even houses – can be transferred to beneficiaries without involving the probate court, sometimes simply by affidavit, if an estate's entire value is under a certain threshold. The limit is usually somewhere from $50,000 to $150,000. It can vary by state law. In this case, you're free to sell the home after the property has been transferred to you, just as if it had transferred to you by deed.
Some states also offer homestead exemptions that allow a decedent's home to pass to certain beneficiaries without necessity of probate, but the property must be just that – the deceased's primary home, not a vacation home or investment property. Some states impose value limitations on these types of transfers as well.
The Role of the Executor
The court will appoint someone to act as the executor and manage the estate through the probate process if probate is required, typically the individual cited in the deceased's will. A close family member is usually appointed if there is no will, referred to as a personal representative or administrator rather than an executor. The appointment gives the executor or personal representative authority to sell a house that's included in the probate estate if necessary, although this usually requires court approval.
Beneficiaries can sometimes overrule executors or personal representatives, but this invariably requires court approval as well and the mutual consent of all beneficiaries.
Dealing With a Mortgage
In any of these cases, the house is yours, and you can sell it without the involvement of an executor or probate court when it's been transferred to you. But you might find that you've inherited a mortgage against the property as well, and this must, of course, be factored in if you decide to sell the home.
The good news is that federal law prohibits mortgage lenders from calling the mortgage due in its entirety because the owner has died. The bad news is that payments must still be made – or the mortgage must be refinanced – to prevent foreclosure.
Maintaining Property Expenses
The property's expenses must be maintained until its sale, or you'll risk losing it to foreclosure regardless of how you inherit it. This doesn't just include paying the mortgage. Property taxes and insurance must be maintained as well. The executor should pay these bills from the estate if probate is required, at least until it's transferred to you, but you'll have to personally make payments if you inherit the property directly.
Property taxes continue to accrue when someone dies, and unpaid taxes can create a lien against the property. In the best case scenario, the lien will be paid off from the proceeds when you sell the house. In the worst case, the taxing authority can effectively foreclose on the property – often selling it to the highest bidder – to claim the taxes owed.
Handling of Insolvent Estates
One of the biggest complications that can occur when probate is required is that the decedent didn't leave enough assets to pay off all his debts. This circumstance is referred to as an "insolvent estate," and it might mean that even though the decedent left you the home, you won't get it or its equivalent in cash, either, if it's included in the estate. All the decedent's property must be liquidated in this case to raise as much cash for the creditors as possible.
And the deceased's creditors will know about the death. Executors and personal representatives are required by law to notify them in writing, and most states also require that they publish newspaper notices of the death as well, alerting any unknown creditors to their right to make claims for payment. Creditors usually have a period of several months to do so.
Some state and federal laws exempt certain assets from creditor claims, but these exemptions normally apply to things like retirement accounts, not real estate.
Implications of Reverse Mortgages
There's one last wrinkle to be aware of, regardless of whether you inherit the home directly or it transfers to you through the probate process. The deceased might have had a reverse mortgage against the property. A reverse mortgage lets older homeowners draw cash from the equity in their properties, and this forms a lien against it. They don't have to repay the money until they die, sell the home or move out.
You can refinance the home in this case, paying off the reverse mortgage, or you can sell the property and satisfy the mortgage from the sale proceeds.