BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Probate Sales Under the
Independent Administration of Estates Act (“IAEA”)
Q: I am a listing agent on a probate sale. The executor told me that she is selling the property under the Independent Administration of Estates Act, or IAEA. She also said that therefore the sale is not subject to court confirmation and overbid. I don’t much know about the IAEA. Is this true, and what else do I have to know about an IAEA sale?
A: That is true – sort of.
A probate sale under the IAEA is a sale that will not be subject to court confirmation and overbid IF the estate representative has full IAEA powers, AND there are no objections to the IAEA sale by any of the heirs (if there is no will), beneficiaries (if there is a will), creditors, etc., but more on that below.
BACKGROUND:
The Independent Administration of Estates Act (IAEA) is a portion of the Probate Code which allows the personal representative of a probate estate (the Executor, if there is a will, or the Administrator if there is no will) to administer most aspects of the decedent‘s estate without court supervision – including selling real property.
The authority for the representative to administer the estate under the IAEA can be given: (a) by the decedent‘s will; or (b) by the court upon petition to the court by the personal representative. The IAEA is usually initiated when the probate proceeding commences, but can be done at any time during the proceedings.
FULL OR LIMITED POWER:
The court can grant the personal representative full or limited authority under the IAEA.
1. LIMITED AUTHORITY: If the personal representative has limited authority, court supervision is required for the sale or other disposition of estate real property.
2. FULL AUTHORITY: If the personal representative has full authority, court supervision for the sale or other disposition of real property is only required (a) if objections are made to the “Notice of Proposed Action” as outlined below; or (b) if the personal representative or estate‘s attorney is the principal acquiring estate property. If there is Full Authority, then:
A. A sale of estate real property may be made at the price and on the terms determined by the personal representative;
B. The sale is not subject to court supervision or the overbid process (but, read below if there is an objection by an heir/beneficiary);
C. The requirement that the price of estate real property to be at least 90 percent of the appraised value does not apply;
D. The sale can be for cash or on credit.
LISTING AGREEMENTS:
As with all probate listings, the personal representative has the power to list the property for sale for an original period of up to 90 days. Any extensions are also limited to 90 days; and the total listing period and all extensions cannot exceed 270 days unless the personal representative provides a Notice of Proposed Action to all interested parties to the will.
Regarding commissions under the Full Authority IAEA, a broker and a personal representative are free to contract as to the amount of the commission without court approval.
NOTICE OF PROPOSED ACTION:
When selling estate real property without court supervision, the personal representative must give a “Notice of Proposed Action” (“NPA”) to each of the following persons, unless they have waived in writing such Notice, or have provided written consent to the sale:
A. Each person named in a will;
B. Each known heir entitled by law to property of a decedent dying without a will;
C. Other interested persons requesting notice, such as creditors; and
D. The Attorney General, if any portion of the property is to go to the State.
The NPA must be delivered to these persons no later than 15 days before the proposed action – meaning the close of escrow of the property. The parties receiving the NPA can respond with an objection or approval at any time before the date for the proposed sale, or the actual date of the sale, whichever is later.
The NPA must describe the terms upon which the personal representative proposes to sell estate real property, including:
A. The name and mailing address of the personal representative;
B. The name and telephone number of the person to contact for additional information;
C. A reasonably specific description of the property, the material terms of the sale including the price, and amount or method of calculating the brokerage commissions; and,
D. The date on or after which the proposed action will occur.
Remember, even though the court has granted the personal representative the authority to administer the estate under the IAEA, the representative is not required to sell the property in this manner if, for example, the representative thinks it is not in the best interest of the estate.
PRACTICE TIPS:
LISTING AGENTS
1. When taking a probate listing, check with the estate representative as to whether the property will be sold pursuant to the IAEA. If so, determine if the representative has Full or Limited Authority under the IAEA. Tell the representative to check with the estate’s attorney if there are any questions. Document your file.
2. Ask if the representative is required to post a bond and, if so, has the bond been obtained. Bonds are required of all executors and administrators of estates unless waived by either the will or all of the beneficiaries. However, a majority of wills do waive this requirement. But, in many cases where a bond is required, the estate representative is unable to secure the required bond because of poor credit. In that case, it would be unwise to proceed with marketing the property, particularly as “no court confirmation” until this matter is resolved.
3. If the property is to be an IAEA sale, ask if all of the persons who are entitled to receive the NPA have already either consented to the real estate sale or have waived in writing receiving the NPA. If so, then no court confirmation is required.
4. In most cases, there will likely not be a waiver or consent by all persons entitled to receive the NPA. In such case, the NPA will be sent to those entitled to receive it once the Probate Purchase Agreement is ratified with the buyer and they can object any time up to the actual sale.
5. If any such person has objected, then the sale must be subject to court confirmation and overbid, and the purchase contract must reflect that.
6. MLS AND ADVERTISING: When advertising the probate sale subject to the IAEA, do not state in the MLS or marketing materials “Not subject to court confirmation” as this may be inaccurate if there is an objection to the proposed sale. Instead, it is best to advertise or put in the MLS confidential agent remarks: “Sale subject to IAEA and court confirmation not required unless there is an objection by an heir or beneficiary.”
7. PROBATE PURCHASE AGREEMENT: Always use the CAR Probate Purchase Agreement form for all probate sales including IAEA sales. If you have been informed that this is an IAEA sale, be sure that paragraph 4.B(3) is checked. This paragraph provides that there is no court confirmation required unless there is an objection by an heir/beneficiary in which buyer will be notified and buyer will have 3 days to cancel the contract.
8. If it is not clear whether the sale will be pursuant to the IAEA, then you cannot check any box in paragraph 4.B and the default 4.B(1) “Court Confirmation Undetermined” will apply. If this is the applicable contract clause, be sure to give the buyer the notice as required by that paragraph in a timely manner.
SELLING AGENTS
9. When representing a buyer on a probate sale, try to determine the answers to each of the above questions. Don’t assume that the listing agent has asked all of the right questions.
10. Discuss with your buyer that even if the property is being advertised as “Court confirmation not required,” there could be a court confirmation if an heir/beneficiary objects to the sale.
11. Always use the CAR Probate Purchase Agreement form for ALL probate sales. If the property is being sold pursuant to the IAEA, then be sure that paragraph 4.B(3) is checked. Go through that paragraph with your buyer so that they understand that there could be a court confirmation if an heir/beneficiary objects to the sale.
For more information on this subject and probate sales in general, see CAR Legal Memo entitled, “Probate Sales of Real Property”
For information on probate commissions and overbid commissions, see Weekly
Practice Tip entitled “Probate Sale Commissions”
DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.