What You Need To Know About An Heir Buying An Estate Property In Tennessee
This is Brad from ProbateResource.com. We are continuing our Tennessee series of videos with my friend April Jackson, a probate and estate attorney in Nashville, Tennessee.
Today’s question is: What if an heir wants to buy property, whether it’s real estate or another asset from the estate? They may want to keep it. What steps are involved in that process? It is possible to do this, but there are specific requirements that must be met. So, what do you need to do in this situation?
- Determining Asset Value and Ownership
- The Probate Process
- Purchase Options
- Promissory Notes and Financial Considerations
- Setting Deadlines and Alternative Actions
- Seller Financing
- Legal Safeguards
- Probate Decisions
- Finding Creative Solutions
Estate Asset Distribution
It really depends on whether there is a will and what property the individual wants to keep. If there is a will, the administrator, personal representative, or executor—depending on what it’s called in your specific county—will determine the distribution of assets according to the will’s instructions. If the will grants the executor the right to manage the property, typically real estate, it is up to them to either sell the property and distribute the proceeds to the family through the probate process or decide to allocate the property itself to a beneficiary. For instance, the executor might choose to give one family member the house instead of cash. For other items, such as a car or a cookie jar, the executor has the authority to make decisions freely based on the will’s stipulations.
Determining Asset Value and Ownership
What is this cookie jar worth? What is this car worth? Are you receiving those items as part of your inheritance, or were they already willed to you? If there is no will or if the will does not specify the executor’s authority to manage the real estate, Tennessee statutes indicate that the property belongs to the heirs at the time of death. For example, if mom dies at midnight, you become the owner of the property by 12:30.
The Probate Process
If the heirs want to sell the property, one of them, let’s say Johnny, can make an offer to his siblings or the other inheritors. The court will likely require a fair market offer based on the property’s value and comparable sales; therefore, they will probably want you to consult a realtor. If the siblings cannot agree on a sale price and there is no executor with the authority to make decisions about the house, the probate court may encourage you to reach a settlement. They might even suggest mediation. Ultimately, the family or heirs own the property and are responsible for dealing with it.
The probate judge will likely ask whether your names are on the property and suggest adding them. This way, you can sort things out later, unless someone files a partition action. This is probably the course of action the probate judge will take, as they only have control over the house when it is under the executor’s jurisdiction. For example, if the executor decides to sell the house, they may want to ensure that everything is transparent and fair for the family. Another scenario may arise when the estate includes a house but also has significant debts, such as $50,000, while there is not enough property value to cover that debt. In such cases, the executor would file a petition to bring the real estate back into the probate estate for the purpose of selling it. This would allow the estate to pay off the $50,000 debt, and then distributions to the heirs can proceed through the normal channels, after settling any other outstanding creditors.
Brad:
If one of the heirs wants to buy the property from the estate and keep it, they will need to submit an offer and follow the normal closing process to complete the purchase. Essentially, the executor and the other heirs must all agree on the price or the terms before the transaction can proceed.
When facing a situation where a family member is interested in purchasing property from an estate, it’s not uncommon to encounter delays. For instance, Johnny claims he wants to buy the property, but he may be dragging his feet either due to lack of motivation or insufficient funds. For families dealing with this scenario, it’s important to establish clear guidelines. Consider setting a deadline for Johnny to complete the purchase or take specific steps toward it. This could involve outlining necessary actions, such as securing financing or submitting a formal offer by a certain date. This approach allows Johnny the opportunity to buy the property while also encouraging him to take the necessary steps within a specified timeframe.
Let’s say that the property is going to go on the market. It would then be up to the heirs to decide if they want to make an offer. The highest offer would typically win unless there’s something in the will granting one of the heirs the primary option to purchase the property.
Purchase Options
If the goal is for Johnny to buy the house, but the concern is whether he can afford it or get a mortgage, a possible solution is to transfer the property into the names of all the heirs or beneficiaries. They could then create some type of promissory note. For example, Johnny could agree to pay a set amount, like $1,000 a month, split between him and his two siblings. If he makes these payments for a specified number of months, the property would then be transferred solely to him.
Promissory Notes and Financial Considerations
This could be a good option if Johnny is struggling financially. However, if Johnny is simply delaying and this is due to financial constraints, it would be wise to set a firm deadline for him. The family could create milestones, such as requiring Johnny to submit documentation to an attorney showing where he has applied for a mortgage and his progress in that process. They could give him six months to secure financing.
Setting Deadlines and Alternative Actions
If he doesn’t manage to obtain the money by the end of that period, the family would need to decide what to do with the house: whether to keep it, rent it out, or, if they cannot reach an agreement, potentially file for partition.
Brad:
Seller Financing
The concept of seller financing can be a valuable tool in navigating the complexities of inherited property. I love that you brought up seller financing. Last year, I helped a family with this situation. A brother and sister had inherited multiple properties from their parents. The sister moved into one of the houses, while the brother took another, and they had two rental properties. One of these rental properties was being rented out to the brother’s son.
The woman I worked with was facing a cash crunch and felt she had to sell her house to get some quick cash, even though she didn’t really want to. During our conversation, she mentioned that she and her brother were also considering selling one of their rental properties. She shared the story about her nephew renting it from them. I suggested, “Why not sell or finance the house to your son? Have him give you a down payment. That cash goes directly to you, giving you the liquidity you need right now.”
Benefits for All Parties Involved
I explained that this arrangement would allow her brother to give his son a good deal on the property, purchasing it below market value, while she would receive her cash immediately. This way, everyone benefits: she gets her needed cash, and her brother gets to be a supportive dad by owner-financing the house.
Legal Safeguards
To ensure everything was handled properly, I offered to connect her with my attorney to prepare all the necessary paperwork, including a promissory note and a security deed, since Georgia uses a security deed system. This way, if the son defaults, they could pursue foreclosure to reclaim the house. The woman was thrilled and considered it a fantastic idea. She went ahead and executed the plan, and, as far as I know, everything went well. I haven’t heard from her since, but I believe it helped her resolve her situation without having to sell her house outright while still obtaining some cash, and everyone ended up happy.
Probate Decisions
It really is important to consider. If something falls under the jurisdiction of the probate court and the family is in agreement, the court is likely to support that agreement. However, sometimes it’s essential to think outside the box and consider what each person truly wants and what outcomes they can live with in this situation.
Communication and Intentions
As we discussed previously, if you own property and expect it to go to your children, it’s crucial to understand what they want to do with it, based on their awareness at that time. For instance, let’s say you have two children. If they inherit one property each and potentially share ownership of two other properties, it’s important to determine their intentions. Does one child want to sell their property, while the other wishes to maintain them as rental properties? Clear communication about these preferences will help in managing the situation effectively.
Brad:
Dealing with Inherited Property in a Trust
In that case, they had unfortunately passed away. They placed all their assets into a trust. The trust then sold one property to the sister and another property to the brother, which became his home, while her property was established as her residence. There were also two additional rental properties: one was rented out to the nephew, and the other was leased to some other tenants, though I’m unsure who they were. The siblings wanted to sell the rental properties, as they no longer wanted to be landlords.
Finding Creative Solutions
They aimed to sell the property where the nephew lived, but the sister was hesitant. She expressed her concern, saying, “I love my nephew. He’s a great kid, and I don’t want to kick him out of the house, but I need cash. I’m financially tied up in that house right now.” That’s when I proposed a solution to her, and she responded, “That’s genius.”
There are solutions to situations like this. Sometimes, it’s helpful to consult with a creative real estate professional or an experienced attorney who can offer insight into potential solutions. At the end of the day, everyone has their own needs, wants, and desires, and finding a way for everyone to achieve those is how we reach solutions.