Last week I came across a great post from Rachel over at mobilehomegurl.com where she took a commonly used word in the Mobile Home world and defined and explained what exactly it was. I thought that was a splendid idea and I’m going to steal…err…borrow it (hope you don’t mind Rachel). Just to throw a little more love her way, her latest Terminology Tuesday post was about the term “Deck”. It’s another excellent post, so go read it!
Word: Probate
A good portion of the content on my blog is about Probate investing so I figured it would be a great word to explore. Many of you probably can figure out that probate has to do with death, which it does, but there is more to the story. (please note that this information is based on how i interpret the New Jersey Probate laws)
Official Definition: Probate is the legal process of administering the estate of a deceased person by resolving all claims and distributing the deceased person’s property under the valid will. A surrogate court decides the validity of a testator’s will. A probate interprets the instructions of the deceased, decides the executor as the personal representative of the estate, and adjudicates the interests of heirs and other parties who may have claims against the estate (from wiki).
In simple terms Probate is the process in which the deceased’s will and last testament is carried out. An executor is appointed either by being named in the will or if there is no will by the a judge. If a judge appoints the executor then that person is referred to as an administrator. Even though an executor (or administrator) is appointed, the ultimate authority of the estate is in the hands of the courts. For example, if a house needs to be sold in order to pay off the estate’s debt the executor must go before the probate judge and ask for the house to be released from the estate in order to sell. The executor just can’t go off and sell it on his own. The executor is like the manager of the estate while the Judge is the CEO.
Contrary to what you might think, not everything may be eligible to pass through probate. Many items such as homes and insurance policies will be transferred to other people based on a contractual agreement. When my grandmother passed away about 6 years ago, her house went directly to my mother. The reason for this was because they had tenancies in common (or joint tenancy) with right of survivorship. They had set this arrangement up prior to my grandmother’s passing for the sole reason to avoid having the house included in the probate process. What joint tenancy says is that if one owner where to “go to a better place”, the remaining owner(s) will gain rights to that persons share in the property.
The probate process can last for as little as 2 months, but can also last for many many years. The more people and assets that are involved the harder and longer it takes. During the probate process any one can come forward to put a claim on an asset or dispute a portion of the will. When one of these two things happens it must be brought before the courts and decided on a case by case basis. You can only imagine how that could drag out for years when arguing relatives are involved.
What Probate Means in the Investing World: Although it is a good idea to understand the probate process in your state (though it can vary greatly from one state to another) it is not of high importance when it comes to investing in it. You aren’t really investing in probate, what you are doing is obtaining a list of deceased names and executors in probate (because it is public record) and advertising your home buying services to the executors. Simply put, it’s just a list like pre-foreclosures and absentee owners.
After saying what I just said, I will however mention that it can be a big advantage to understand your state’s probate process so you are able to talk intelligently with the sellers and or their attorneys. Knowing the steps to get a house released from the estate would be helpful information to pass along to any potential seller if for some reason they were unaware that could happen. Just remember knowledge leads to trust and trust leads to a sale.
Helpful Probate Information Links: here are some places I’ve gone to to learn about probate in New Jersey.
- http://www.morrissurrogate.com/
- http://www.njlawnet.com/wills.html
- http://njprobatelitigation.njlawfirm.com/
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Thanks for the plug, Scott!
I think it's great you've started to introduce and define words as related here to real estate investing. I remember reading in one of Kiyosaki's books that in order to play the game, you need to know and understand the vocabulary used. That's why I started “Terminology Tuesday” on my site.
In my earlier posts, I noticed that I was using terminology that I understood yet some did not. It's definitely helped as now people can understand the terminology used just by going back to the “Terminology Tuesday” type posts.
Nice job on the post, thanks for sharing!