Kathleen Daniels, Probate Realtor and Trust Real Estate Specialist was hired by a successor trustee to list a multi-family home in San Jose. As a standard of practice, among the first things Kathleen does is open escrow and obtain a Preliminary Title Report.
Note: We understand and acknowledge how real estate business is conducted throughout the state of California may vary from county to county. What we discuss in this post relates to Kathleen Daniels’ best practices as an independent real estate broker in Santa Clara County.
Pitfalls of Failing to Examine a Preliminary Title Report
Over the years Kathleen has received calls from real estate agents in various California locations asking for help with their probate transaction and/or clarification and understanding of the probate process and trust process.
One agent who called had listed a probate home and the estate representative accepted an offer. It was at this point that escrow was opened, and when they received the title report they discovered that the person selling the home did not have the authority to sell it. The title holder had died, and the estate needed to go through the probate process.
If that listing agent had asked the right questions and understood probate, they should have known the person that signed the listing agreement did not have the authority to sell. The authority to sell comes from the court when Letters Testamentary or Letters of Administration are issued.
If the title to the property had been in a family trust, probate would not be necessary.
If the title is held in a trust, the successor trustee needs to record an Affidavit – Death of Trustee which shows the title in the name of the successor trustee of the trust. The title company needs proof of the trust and proof that the person acting on behalf of the estate is the person named in the trust.
People who hire real estate agents who are not trained, educated, and skilled in listing probate and trust estate properties may learn the hard way that real estate agents are not created equal, and one size does not fit all. Things can get ugly really quickly. Untrained agents pretending to be experts make great cases for attorneys to litigate.
This certainly could be called into question if the estate representative failed in their fiduciary duty to exercise prudence and great care in choosing who they hired. If it ends up costing the estate legal fees and delays, we have seen estate beneficiaries raise that claim in legal action against the estate representative to have them removed from their role as the estate representative.
What Does a Preliminary Title Report Reveal?
A careful review of the Preliminary Title Report tells us many things if we actually know how to read the report and understand what each item means. Among the items we find on a title report, are the actions that will need to be taken in order for the title company to issue a free and clear title.
The title report will list exceptions to coverage and exceptions and exclusions in the title policy.
Most Common Exceptions and Exclusions on Title
- Property taxes, which are liens that is not yet due and payable, including assessments are collected with taxes to be levied for the current fiscal year.
- A lien of supplemental or escaped assessments of property taxes, if any, pursuant to the Revenue and Taxation Code of the State of California as a result of the transfer of title, changes in ownership, or new construction prior to the date of the title policy.
- Any liens or other assessments, bonds, or special district liens that arise by reason of any local, City, Municipal, or County Project or Special District.
- Easements for things such as (1) light and air (2) public service (3) wire clearance (4) anchor and a variety of other easements may be found.
- Covenants, Conditions, and Restrictions (“CC&R’S”)
- A Deed of Trust securing indebtedness
As a Probate Realtor, we never know what we are going to find on a title report. In many cases, we discover things that the seller did not know about. This is also true of non-probate sales.
Successor Trustee Lists a Trust Estate Property | Case Scenario
- The title was still in the name of the deceased person. The Affidavit – Death of Trustee needed to be prepared, signed, notarized, and recorded showing the title is in the name of the Successor Trustee of the trust. If a successor trustee of the trust is working with a trust administration attorney, the attorney will often prepare the document. If the successor trustee is not working with a trust administration attorney, the title company we work with will prepare the document as accommodation and record it. A certified copy of the death certificate is required.
- A Deed of Trust was recorded in 1978. As of the writing of this post, that was 44 years ago. The term of the payoff was 30 years. The loan was from a private party, not a bank. Why is that important to note? Because the title company has zero flexibility in removing the lien even though it is 14 years past the date the note was due. With private loans, the title company has no way of knowing if there were other agreements made between the parties.
- An Assignment of a beneficial interest under the Deed of Trust naming one party.
- An Assignment of a beneficial interest under the Deed of Trust naming another party.
The Successor Trustee had a receipt from the contract service center showing the loan was paid off. However, the release of the mortgage was not recorded. Therefore, the lien remained on the title. This is relatively common with private loans. If it had not been a private lender, the title company has more flexibility in removing it.
The receipt of the loan payoff is not sufficient to remove the lien. So, now what?
- We either need to locate the beneficiaries and get them to sign the Release of Mortgage; or
- The Successor Trustee must get a lost note bond to insure around it.
Typically, a private investigator is hired to locate the beneficiaries. Even if the beneficiaries are found, it does not mean they will sign the release of mortgage.
Requirements for the Title Report
- Statement of Information required for the deceased party. Once the Affidavit – Death of Trustee is recorded this can be waived and removed.
- Certification of Trust pursuant to California Probate Code Section 18100.5 or portion of the trust that names the successor trustee
Actions Taken by Probate Realtor to Update Preliminary Title Report
- Affidavit – Death of Trustee Recorded – Amendment A to title report created showing title vested in the name of the successor trustee of the trust.
- The statement of Information requirement was removed once the Affidavit – Death of Trustee was recorded. Amendment B to the title report created removing the requirement for the statement of information.
- Certification of Trust provided to the title company to verify the successor trustee. Amendment C to the title report created removing the requirement to provide the certification of trust.
- The successor trustee authorized the trust administration attorney to get the lost note bond. Once that is processed the lien will be removed from the title.
Once the lien is removed from the title, we will be working with a clean title report which will be provided in the seller’s disclosure documents. It remains our best practice to manage all the details of the sale and escrow process upfront. This ensures delays, if any in closing escrow, are not caused because we failed to review the preliminary title report or we did not know how to manage a probate or trust estate transaction.
We have had situations over the years where the title report did not connect all of the dots. We could see something was missing. The matter gets escalated to the Chief Title Officer for resolution. A few examples of the missing piece of the puzzle were a marital settlement agreement and a decree of final distribution from a probate estate.
Training, knowledge, and experience do make a difference. Probate Realtor Kathleen Daniels has her clients’ back every step of the process. If you are an estate administrator or successor trustee consult with Kathleen before deciding to hire just any real estate agent. A smooth real estate sale starts with a review of the Preliminary Title Report.