Preparing for court confirmation
Tomorrow our team will take the Metro bright and early to the Los Angeles County Courthouse to oversee court confirmation of a property in probate. This is an opportunity for interested buyers to show up and over-bid the current offer in escrow on the property. There are often interesting negotiations happening in the hallway outside the courtroom and tomorrow we'll report on anything remarkable that we experienced.
A little background for the uninitiated: when the sale of property requires Court Confirmation, your real estate agent prepares the property for showings, prepares "list to sell" documents on California Association of Realtors Probate forms, lists it on the MLS stating that it is a probate sale, and whether or not it requires Court confirmation, and markets the property to all potential buyers.
After the property has been well advertised, all offers are reviewed. A buyer is chosen by the executor or administrator of the estate, the buyer wires in his Earnest Money Deposit -- usually 10% of the offer price -- and escrow opens. The buyer performs his/her inspections and then either signs off on all contingencies or drops out of the offer.
Assuming the buyer is satisfied and wishes to complete the transaction, the attorney or executor or administrator schedules a court date. Once at court, other potential buyers can offer to purchase the property at a higher price that is pre-formulated by the County of Los Angeles. The formulation is this: The first overbid must be in the amount of 10% over the first $10,000 offered, plus 5% of the balance of the price. As an example, let's say the accepted price is $500,000: the first overbid would be 10% of $10,000 = $1,000, then 5% of the rest, 5% of $490,000 = $24,500. We add the $1,000 + $24,500 + $500,000 and show that the first overbid needs to be $525,500. The second overbid, if there is one, follows another formulation, and the judge has some leeway in what that might be. There is much more involved, but this gives you a brief summary of what takes place.
There are advantages and disadvantages to requiring a probate property go through Court Confirmation, and in many instances, it is decided by probate law. In other cases, the executor, the administrator or the attorney sees it as a way to increase the profit. It does have its disadvantages, though. Many buyers who would otherwise be interested in purchasing the property, are dissuaded by the distinct possibility of time wasted going through the court confirmation process while their 10% down payment is sitting in escrow, only to potentially be overbid in court.
