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  • Amy Privette

How to Prevent a Good Sale from Going Bad!

Are you missing a piece of the HCPOA puzzle?

If you are selling real estate after a loved one's death, do not go to closing without following this timing rule!

In North Carolina, title to real property (that is, real estate) vests in the heirs immediately upon the death of the property owner (see N.C. General Statute § 28A-15-2). Many people interpret this law to say that when Mama dies, her kids automatically inherit the house and can immediately sell it, no probate required. Not so fast, kiddos! That's not exactly the case. In actuality, the passing of title to the heirs is secondary to the right of the Personal Representative (also referred to as the Executor or the Administrator of the estate) to take possession of the land and to sell it to pay the debts of the estate (see N.C. General Statute § 28A-15-1).

Uh...come again?

Well, contrary to urban legend, when you die, your debts have to be paid. Your credit card bills have to be paid. Your medical bills have to be paid. Your private student loans have to be paid. Your taxes have to be paid. You get the point. These debts are not magically erased upon your death.

If there's not enough cash or other financial assets to pay all of your debts and creditors, then the court can pull the real property into the probate estate (in effect, prying the land out of the hands of your heirs) and force a sale of the property to generate funds to pay your obligations. By subjecting the real property to probate, the court is essentially protecting the rights of the creditors and debtors of the estate to get paid above the right of your heirs to inherit the real property.

That brings us to the two-year rule, in all its havoc-wreaking gloriousness:

If the sale of real estate occurs within two years of the deceased's date of death, that sale is void unless the Personal Representative runs a Notice to Creditors in the newspaper and the Personal Representative for the estate of the deceased person signs the deed transferring ownership of the property to the buyer.

Notice that there are two independent requirements to have a valid sale:

A Notice to Creditors must be published in the newspaper. This is a task that must be completed by the Personal Representative of the estate. A qualifying newspaper is one that circulates in the county of residence for the deceased individual. That county may not necessarily be the same county in which the real property is situated. The Notice must run once a week for four weeks and must give creditors at least 90 days from the date of first publication to file a claim against the estate.

The Personal Representative for the estate must sign the property deed. It is the job of the Personal Representative to identify the debts of the estate and to make sure all legitimate debts and creditors get paid. By signing the deed, the Personal Representative is guaranteeing that there are sufficient assets to satisfy the debts of the deceased without needing any of the proceeds from the sale of the property. The signing requirement can be eliminated, however, if a Final Account has been filed and accepted by the court and the probate estate file has been closed.

Let's peel back the proverbial onion one more layer.

Both the signing of the deed and the publication of the Notice to Creditors require the involvement of a Personal Representative. Keep in mind that naming someone your Executor or Personal Representative in your Will does not actually give them authority to act on your behalf. Naming someone in your Will is more like a nomination than an appointment. The only way for that person to gain the legal authority to handle your affairs is for them to open a probate file with the court, submit an application to serve as your representative, and be approved for the job by the court.

All of this adds up to say that, even though title to the real estate vests in the heirs immediately upon the death of the property owner, there still has to be a probate file opened in the county of residence of the deceased in order to sell the property within two years of the date of death. Even if the real estate is all there is and no other asset exists that would require a probate action, there still has to be a court file opened. Otherwise, the sale of the property will be void.

We do a lot of work with attorneys from other states in situations where a resident of their state dies owning property in NC. It is not always easy for the out-of-state attorney to understand that the deceased's family members cannot just sell the Oak Island beach condo or the Blowing Rock mountain cabin. It can also be frustrating for the family to be forced to open a probate file here in North Carolina after they have already born the expense of probate in the home state (this is an area where trusts can be extremely helpful). Yet, if the family jumps straight to a sale without satisfying the requirements of the two-year rule, then that sale is void. The family's only other recourse is to sit on the property until two years have passed since the property owner's death and then engage in a sale.

The sale of real estate after someone's death is best described using Churchill's famous words, "It is a riddle, wrapped in a mystery, inside an enigma." The key to solving this particular conundrum is to consult with an attorney prior to any sort of sale to make sure you have met all legal obligations. The oldest case we have in the firm right now has been going on for about 6 years, and that's because there was a sale 25 years ago that was void and we're still trying to untangle it! Believe us, these problems do not go away or get better in time!

The 2-year rule may be a weird quirk in North Carolina law, but it can seriously mess things up if you don't know about it. It can also get extremely complex if there are subsequent deaths in the line of inheritance since each death brings with it its own need for a probate action to allow for the appointment of a Personal Representative to handle the requirements under the rule.

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