6 Ways to Identify & Prevent Estate Sale Title Claims

Closings on estate sales can be complicated even when everything is in order and the process goes smoothly, but they get really tricky if there are any issues with the title. Good real estate agents know what problems might arise during an estate sale and work with the probate attorney, executor, and escrow officer to avoid potential title exceptions before they cause trouble and delay a closing.

Why Do Title Claims Occur on Estate Sale Closings

Most estate sale title claims come up when a homeowner listed on the legal title dies intestate, which means they didn’t have a will. Without a will, their possessions must be divided up by a probate judge who will hear the facts in court, then make a decision on how to distribute the assets to the heirs. The process can be unpredictable until it’s finalized and a home cannot be sold until the entire process is complete, a personal representative or executor is named, and letters testamentary have been issued.

All of this can take months to clear up, and no transfer of title can happen until the process is complete.  If you were buying the property as a flip or investment, this can kill your deal and cause issues with your lender.  That’s why it’s imperative for agents who list and buy estate sales, especially at auction, to know what could go wrong and how to head it off at the pass before the property goes under contract and closing dates are set.

Here’s a quick guide to common estate sale title issues so you’ll know what to watch out for and how to be proactive to prevent clouded titles so the escrow company can close on time.

Contested Wills and Contentious Family Members

A death in the family is tragic and stressful for all involved, and often brings out the worst in people. When the last will and testament is read, it’s sometimes a big surprise to children, siblings, and spouses who thought they were going to get the house, to only find out that they’ve been disinherited. Not only can spouses and children contest a will, so can anyone who has ever been named in previous wills. Contesting a will is a lengthy, expensive process and, until the probate court makes a decision on the validity, no assets, including the title to a home, can be transferred.

Wills can be contested months or years after death, or even longer if there’s alleged fraud involved. However, if title is held as joint tenants with the right of survivorship, the property shouldn’t be subject to probate the way the other assets might be.  Therefore, living spouses who were jointly listed on the title will probably be able to sell the house even if the will is contested in court. Working with people you know who have obtained deeds properly without adjudication, can help you avoid the nastiness of contested will and heated arguments among the seller’s family over who owns what.

Secret Marriages That Reveal A Different Legal Spouse

Secret marriages aren’t just a made-up plot in romance novels. Many people marry badly or under less than ideal circumstances that they find embarrassing, and sometimes that lead them to abandon their first spouse to start over with a new love. This not only causes personal problems, but it can also change who might legally inherit a property.

Most people in bad marriages seek a divorce to end the marriage before remarrying. Even if they stay single, divorce is the legal means to dissolve the marriage contract. If someone has a legal marriage license but never got divorced, their original spouse is still their legal spouse, which means that a remarriage is void under the law. Legal spouses and children are usually the first in line for any inheritance when heirs are determined by a probate judge. A botched divorce could mean a first spouse gets everything.

Sometimes people think they are divorced when they actually haven’t finished the process to make it legally binding. Maybe a document wasn’t filed correctly or maybe they had a marriage annulled by religious authorities and they thought that was good enough to cancel the legal marriage contract too. It’s even possible that someone doesn’t remember getting married, especially if they have medical issues like amnesia or even substance abuse problems.

However, if a previous marriage that was never ended is discovered during probate, the surviving spouse might end up not being a legal spouse at all which means they may not actually be the heir to the property.  Consequently, someone completely unknown could end up with their interest in the house. Regardless of circumstance, all of the details will have to be sorted out in court and beneficiaries named before a home can be listed.

Finding previous marriages is easy enough that an agent can do a quick search without too much effort. It’s fairly straightforward, because marriage and divorce records are public information kept by government officials. You’ll need to know any maiden names if applicable, and then you can do a preliminary search to discover if an unknown spouse might cause a problem. Try these tips for finding marriage records:

  • Ask the surviving spouse for any legal documents, including divorce records, that affect anyone listed on the title. If you’re worried this sensitive subject might cause awkwardness in your relationship with the widow or widower, have the probate attorney ask.
  • Google the deceased owner’s name with keywords like “marriage” and “divorce”. Many times, marriages are published in newspapers, church bulletins, or other records, which will come up in an internet search.
  • If you know where they’ve lived in the past, try looking up public records in state, county, or city where they’ve resided. The CDC has a list of where to look for marriage and divorce records sorted by location.
  • Check family tree and genealogy websites to see if the homeowner is listed in multiple family trees or connected to families that don’t fit with what you know. This can give you names, dates, and locations to use in your other searches.

Illegitimate Children Impeding the Sale

When the court determines who the rightful heirs to an estate are, spouses and children generally take precedence over other possible heirs. That includes all of the children, even if they were conceived out of wedlock and even if no one else knows about them.

A love child could inherit a portion of the property and might not agree with the other parties about whether it should be sold. Widows might refuse to work with children fathered by their husband with another woman, especially if infidelity was involved. It all adds up to a family feud that will cause headaches for everyone involved in the closing.

Another issue could be back child support. If a child is owed support and the non-custodial parent has a judgment or garnishment, the arrears could be taken out of the estate which can complicate a listing and force a court confirmation sale, which causes even more legal red tape.

Preventing issues with children born outside of the marriage isn’t easy. Birth records aren’t usually made public, and birth announcements for illegitimate children just weren’t done in the past so a newspaper search probably won’t turn up any results. You can check for any child support actions or paternity suits with the court, which might give you a lead. Family tree software might also give you clues to the existence of additional children.

Tax Liens Encumbering an Estate

Unpaid taxes can cause a tax lien on a home, which can be placed by the IRS or any other taxing authority. Liens must be paid in order to get a clear title and sell the house. Tax problems on estate sales are more common than you might think. Lengthy nursing home stays, financial difficulties if the homeowner has health problems and is unable to work, or even early stages of dementia can mean tax bills go ignored.

Keep a tax lien from killing the sale with a simple search. Experienced agents should be able to quickly identify all of the entities where property taxes should be paid, and most tax records are accessible online. Court records for judgments and liens for the deceased are also easily found, although you might have to take a trip to the courthouse where the property is located. Finding out about tax liens early in the process gives the personal representative of the estate or surviving spouse enough time to pay the back taxes and clear the title before you list the home for sale.

Discovery of a Hidden Will

If a homeowner dies without a will, the probate court may sell off real estate holdings in order to liquidate all of the assets and distribute them to heirs that have been identified. Even if the current homeowners are alive, if any of the past owners died while they owned the home, sellers could be blindsided by the discovery of a hidden will that name unknown heirs to the estate, clouding the title until a court rules on the matter.

There’s no way to be absolutely sure that there are no secret wills tucked in a file cabinet or a drawer but obtaining a full ownership history can help you determine if a problem could exist, and if more research needs to be done. Look to see if the property has been part of the probate process, which means there wasn’t a legal and binding will found during the proceedings. This should give you names and leads for further investigation. Current family members might also know some information that might help. Is there a family story about a missing will or secret documents that have never been found? If so, take a closer look at all of the paperwork and make sure you have a good title policy in place and a reputable title company to protect the new owners after purchase.

Married Couples Who Have Broken Joint Tenancy and Are Tenants-In-Common

This problem could arise if both spouses are named on the deed but one has placed his or her interest in the property into a trust, which severs joint tenancy. This makes the owners tenants-in-common, which means that upon death, the surviving spouse won’t automatically inherit the property, and a judge will decide who the rightful heirs are based on the will or state laws. Joint tenancy for married couples means that they both have an interest in the property and survivorship rights so if one spouse dies the other inherits their share of ownership without having to go through probate.

Sometimes well-meaning homeowners are trying to protect their spouse but don’t seek out qualified estate planning advice, creating a trust structured in a way that accidentally affects joint tenancy. Even if the deceased spouse meant for the widow or widower to inherit the home, if the title is in a trust it will have to go through probate court which can take weeks or months to clear the title before the home can be sold.

Real estate agents can get a heads up on this problem by getting a complete history of all of the documents, wills, and contracts that have to do with the title. If you are planning to list a home from a widowed seller, ask them specifically about if there were any trusts created involving the property’s title.

Estate sales can be great listings, especially with experienced agents with the knowledge to prevent clouded titles. By having open communication with the sellers, gathering as much documentation as you can, and knowing how to find records, you can nip problems in the bud and get that estate home sold.

Get More Tips Like These

If you like this post, you'll love our monthly newsletter! You'll get a new theme with ideas for your real estate business from marketing tips to legal advice. Subscribe today!

Get An Instant Quote!