If you’ve recently suffered the sad loss of your last remaining parent, you may be anxious to do all you can to keep his or her memory close — from retrieving prized photos or home movies from his or her home to, in some cases, actually purchasing your parent’s residence from the estate. Often, purchasing your parent’s home can be a great decision from both a financial and an emotional perspective, but this process is not without its complications and potential drawbacks. Read on to learn more about some of the financial and practical concerns that can arise purchasing from your parent’s estate.
What are some of the logistical issues you may run into when purchasing a home from your parent’s estate?
There are a number of advantages for just about all sides of the transaction when a home is purchased from an estate. For the other heirs, selling the home “in-house” without the use of a real estate agent can be a speedy and cost-saving way to finalize the estate, especially for situations in which there’s no guarantee the home would sell within its first few months on the market. For the bank that holds the mortgage (if any) on the home, selling it to a family member at fair market value can quickly satisfy the mortgage and eliminate many of the liability issues that can come with a vacant home. And for the person actually purchasing the home, getting a fair price and being able to take advantage of today’s low interest rates can provide a huge financial boost.
However, there are often some complicating factors when it comes to purchasing from an estate. The first issue arises when the home is worth more than your share of the estate and you’re therefore required to “buy out” the other heirs. Unless you have the cash on hand to pay the estate yourself, you’ll generally need to take out a mortgage on the home. This will usually require you to have an appraisal (and sometimes an inspection) performed so that the lender can be satisfied with the condition of its prospective investment.
In some cases, you may even be required to come up with additional down payment funds rather than using your share of the estate as a down payment. For example, if the estate consists of a home worth $100,000 and $10,000 in cash, with you and one sibling as the only heirs, you may assume you’ll need a mortgage for only $95,000. This isn’t always the case, and you’ll want to speak to a loan officer and a probate attorney before proceeding too far down this path.
Another problem can arise when there is a disagreement among the heirs as to how the home will be liquidated or by whom it will (or can) be purchased. Depending upon the language of your parent’s will, you may be required to sell the home to a third party (or at least list it for sale to the public for a certain period of time) rather than immediately arranging for financing and to take possession.
What should you do if you want to purchase your parent’s home from his or her estate?
If you’re certain you’d like to proceed with the purchase of your parent’s home, you’ll want to make an appointment with his or her probate attorney to discuss your options. Although the probate attorney works on behalf of the estate, not any of the specific heirs, he or she will be in the best position to inform you of the content of your parent’s will and any relevant restrictions on the sale of the home. In some cases, you may need to hire your own private counsel to complete the transaction.
Falling behind on your mortgage payments will lead to your lender starting the foreclosure process. When this happens, you will have to decide quickly what to do. While there are several options, you might decide that a short sale would be right for you. If you decide to do this, or if you would like to learn about other options, you should consult with a real estate attorney before proceeding. Your attorney will help you in the following three ways.
Discuss Your Options
The first way a real estate attorney can help is by discussing your options with you. Your attorney will need to know the details of your personal financial situation before he or she can do this though. As you explain your situation to him or her, make sure you clearly state why you experienced problems paying your mortgage. Your attorney will need to know:
- How much your mortgage payments are
- How far behind you are on the payments
- How much income you have
- What debts and expenses you have
In addition, your attorney will also ask your opinion on what to do with your house. If you really want to keep the house, using a short sale will not be a good option. Instead, your attorney might be able to convince your lender to modify your loan. If you decide there is no way for you to keep the house, using a short sale can be a good option.
Negotiate With Your Lender
The second way a real estate attorney will help is by negotiating with your lender. A mortgage lender will not always just agree to let you use a short sale to sell your house. It may take some persuasion to get this done, and real estate attorneys are good at that.
With the information you supply to your attorney about your financial situation, he or she will make a compelling case to the lender. Your lawyer will also make sure the lender receives all the documentation and information needed to approve the short sale.
During this process, your attorney will act on your behalf to get the short sale approved, and to get the terms of the sale beneficial for you.
Help You Avoid A Deficiency Judgment
Finally, to use a short sale to avoid foreclosure, you will have to understand what a deficiency judgment is. This judgment is something your lender could issue if you sell your house for less than what you owe, which is typically how a short sale works. The amount of the judgment will be the difference between your loan balance and the proceeds from the sale of the house.
If the lender issues a deficiency judgment for this amount, you will be obligated to pay this amount to your lender. This does not occur with all short sales, but it does happen with some. If you are required to pay this difference, you will probably not be in any better financial shape by using a short sale.
This is why you need a real estate attorney. Your attorney, someone like Madigan & Scott Inc., will fight to get your lender to agree to forgive the deficiency amount, which means you will not owe the money. If this cannot be accomplished, your lawyer might suggest going through with the short sale, but filing for bankruptcy afterwards to clear up the judgment amount.
One thing you might not be able to get out of is paying taxes on the deficiency amount. Even if your attorney is able to convince your lender to forgive the deficiency on the sale, you will still typically be required to pay taxes on the amount of the deficiency.
Before you decide what to do about foreclosure documents, consult with a real estate attorney. Through this, you might find that using a short sale is your best option.
Eminent domain is something that you should be aware of if you are a property owner, regardless of where you own your property. You need to be ready in case the government seizes your property so that you know how to react and it won’t take you by surprise. Eminent domain can be complicated, but it is important that you know how it works and what your legal recourses are in the even of eminent domain.
What Is Eminent Domain?
Eminent domain is essentially the power of the government to seize property, specifically private property for public use, under a number of different circumstances. There are numerous examples of eminent domain; one of the most common invocations of eminent domain is the government seizing someone’s property in order to make way for a road, specifically a portion of a highway or an interstate.
This is not to say that the government can do this willy-nilly; they must meet certain conditions. For example, the owner of the property must often be compensated for his or her loss of property and the government must go through several procedural techniques that can take a number of years to enact.
How Does Eminent Domain Work?
As cities, states and in some cases even the federal government make provisions for expanding — particularly with regards to matter that requires land for things like road expansion and sewer systems — they must occasionally use property that they have no access to.
The government can invoke eminent domain on any piece of land, in which they will seize private property for their own use, so long as the property will be explicitly used for public reasons. The first thing the government must do before invoking eminent domain is have the particular piece of property, along with any assets that are endemic to the property – such as free standing buildings, like houses – appraised.
The government will then offer that appraisal price to the owner of the private property. If the owner agrees, then the government will give the appraisal price amount to the owner of the property, and the government can do what it sees fit to the property. If the price is not agreed upon, the owner of the property has the ability to try to haggle with the government and set a higher price, but more often than not, if a price has not been agreed upon, then both parties must enter condemnation proceedings.
Challenging Eminent Domain
First and foremost, the government must give the owner of the property fair notice of invoking eminent domain. What constitutes “fair notice” varies from state to state and county to county, but generally speaking, this time must be enough time for the aggrieved party to seek legal counsel from a real estate attorney so they can dispute the claim or invocation of eminent domain.
A pre-trial hearing will take place in which the aggrieved party can air his, her or their grievances and the government can invoke its justification for invoking eminent domain. It will most likely be the case that the aggrieved party and the government will enter into a condemnation proceeding, however. This process varies from state to state, and the structural differences can be quite different from each.
Each state requires a minimum number of hearings that must take place between the two parties, and various other contingent features that exist between the two parties must be resolved. In many cases, if the two parties enter into condemnation hearings, the aggrieved party can request remedies in which a person’s court fees or lost earnings must be provided by the government.