First a little information and explanations might be helpful.
A probate loan is a loan made and secured by the assets of an estate in some stage of probate. Probate is a court procedure where the court determines or complies with the last wishes from a person who died, known as the decedent. If the decedent owned assets and/or liabilities then the totals of all assets and liabilities are known as a probate estate. When a person dies and has an estate valued at over $100,000.00 in California the estate must go through court and be probated. This is the process of overseeing all aspects of the distribution of assets and payment of claims of the estate.
Many people unfortunately die every day and some of these people owned real estate that has been be directed in their last will and testament to be inherited by another party. Since the time necessary to finalize a probate in California can take many months or even years the need often arises where the estate or a beneficiary of the estate might require money prior to the final distribution of the estate.
Some of the uses of the money from a probate loan can be:
- Paying immediate expenses of administrating the estate
- Paying ongoing monthly contractual estate obligations
- Paying court costs and expenses
- Paying attorney fees
- Paying off creditors of the estate
- Getting money for a beneficiary
The normal lending sources such as banks, credit unions or mortgage banking companies just don’t fund loans to probate estates. The procedure of making a loan to a probate estate is simply using the assets of the estate to secure a loan. The loan is not qualified as to credit and income as the decedent of the estate is dead. The beneficiaries do not YET own the assets of the estate since a probate requires a Writ of Final Distribution prior to ownership being transferred to the ultimate beneficiaries. When the estate is in the probate process, ownership to the assets remains vested in the estate.
Any probate loan that is funded is not the obligation of any of the beneficiaries, but may become a liability of them if at such time they inherit a property that is secured by a probate loan. However many probate loans are often structured to have the loan paid off prior to the distribution of the asset to the final beneficiary.
When an application for a probate loan is made it is typically extended to the probate estate under authority of the executor or administrator as part of their appointed duties. The normal procedure is for the executor or administrator of the estate to sign on behalf of the estate. The party signing is not personally liable as they are only signing in the course of their designated responsibility.
When applying for a probate loan value is everything. So it is requirement that there be adequate equity in any real estate offered as security for a probate loan. As such equity is everything when it comes to obtaining a probate loan.
It is very common for people to die with free and clear property or properties that have very small mortgages and thus have substantial amounts of equity. Beneficiaries designated to inherit real estate can take comfort in the fact that if time and money is an issue then taking advantage of a probate loan to get the money now just might make life a little easier.