Death and Selling Property

Thu, 12/14/2017 - 10:39am

When there has been a death in the chain of title, the transaction can be very complex. If not handled properly a realtor could find themselves with some serious issues. A realtor’s best bet is to have a general working knowledge of the issues and then partner with a title company that can handle the transactions properly.

SOME TRUTHS ABOUT ESTATES

Title to property owned by the deceased person (called the “Decedent) passes to the heirs immediately upon a death. Administration of the estate is still necessary to document the transfer of title. Dealing with probate will be discussed in future Closer Corner articles.

In Texas we have two scenarios where state law will mandate how a decedent’s estate passes. The applicable state law is called “Intestate Succession.” Intestate succession will apply if a Will is not probated. A Will has no effect until it has actually been submitted to probate. Intestate succession also occurs when the decedent passes without a Will and in Texas we have a surprisingly large number of people that do not have a Will.

TEXAS ESTATES CODE

When someone dies without a Will (or the heirs do not probate the Will) passage of property is governed by the Texas Estates Code. In many cases intestate succession does NOT pass title the way most people would think and people end up being very surprised as to who really owns the property. The rules of intestate succession are set up to address both separate property and community property as well as personal and real property. In this article we will only address separate and community real property.

To help understand these rules we have created an intestate succession chart. Click here to view the chart.

Let’s look at a few scenarios:

Scenario #1

Jane and John get married in 2011. Jane and John buy a house in 2012 and they live there with their two children. Jane passes in 2015 without a Will. The home is community property and Jane’s interest passes to her husband John. This is a fairly straightforward set of facts.

Scenario #2

Jane and John get married in 2011. Jane and John buy a house in 2012 and they live there with their two children and Jane’s child from her first marriage. Jane passes in 2015 without a Will. Most people looking at these facts would think that John is Jane’s heir since they were married and the house was their community property. That assumption is incorrect. John does not inherit Jane’s interest in the house due to the rules of intestate succession. In fact, John does retain his 50% ownership in the property but the three children are now Jane’s heirs when it comes to ownership in the home. This scenario occurs fairly often and in most cases the surviving spouse is very surprised to learn that they only own 50% of the home now.

REALTOR ISSUES

Why does a realtor need to understand intestate succession? There are two main issues for a realtor when there is a death in the chain of title.

First, think about contract law issues. To be valid, a contract must be signed by all parties that own the property. It is not uncommon for us to find out that there are more owners of the property than originally thought after we produce the title commitment when there is a death in the chain of title. If those heirs did not sign the initial contract then you do not have a contract that binds all owners to sell. If the realtor cannot get the remaining owners to sign the contract and agree to sell there is no deal after all.

Second, the process of getting to closing with intestate succession can be complex and time consuming depending on how many decedents there are and how many people are required to sign. It can take time to document intestate succession which could result in you not hitting your targeted closing date.

GETTING TO CLOSING

When the decedent passes, the property passes to the heirs of the decedent immediately, but we have to document this passage in the real property records by recording Affidavits of Heirship. For a title company to rely on Affidavits of Heirship, we must be provided with three separate affidavits wherein each affiant actually knows the requested information. The affiants must include two disinterested parties (who have no potential for profiting from the property) and one party with knowledge of the estate facts. The affiants must be able to swear to the facts regarding the decedent’s marriages, children, parents, and siblings. One of the affiants must also be able to swear to facts regarding the decedent’s financial matters related to property ownership and estate taxes. It is critical that each affiant know all of the information that is required by the statutory form. It is not acceptable for one person to fill in all of the information in on the affidavits for the other two persons. To rely on this process, the title company must believe that the facts are in fact true and that the affiant’s statement of the facts is genuine.

To obtain the needed facts, an information gathering form is sent to each affiant by the escrow team. Those forms are then returned to the legal department for review and preparation of the affidavits. When the affidavits are ready, the affiants will acknowledge them in the presence of a notary.

These affidavits will list the heirs of the decedent. It is these heirs that will sign all documents at closing. If any of the heirs are married, it is possible that consent to sell (or encumber) the property could be required from the spouses of the heirs. If the decedent died in the last 12 months we also have to have a copy of the death certificate for our file.

FINAL THOUGHTS

Working with a knowledgeable title company is the key to success! These issues are ones that can be resolved as long as your file is in the right hands. The best thing a realtor can do is (1) select a closing team at Texas National Title to close the transaction and (2) be available to help us walk the heirs through the necessary steps to get to closing. There are many tasks that must be done to get to closing and often times the clients need our support and guidance in getting the necessary documents completed. Our escrow teams and legal departments are experts in handling complex estates issues and we are here to help you get your deals closed.