What Happens to a House in Probate? 3 Common Paths for Estate Property

A house can avoid probate if it’s automatically passed on to survivors via a living trust, joint ownership, community property law, or transfer-on-death deed. If it doesn’t fall into one of these exceptions, the general rule is that if someone dies and owns real estate, any property they own is headed for some kind of probate process—will or no will.

So what happens to a house in probate?

Step one: Talk to an expert!

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Probate and the house: Transferring property after someone dies

Probate is a court-supervised legal procedure where beneficiaries legally obtain the financial and physical assets promised to them in a will and clear the debts of an estate.

The probate process may be a lengthy emotional rollercoaster that lasts anywhere from three months to several years, depending on the complexity of the estate, family relations, and directions left by the decedent.

Probate law varies from state to state, though many follow the “Uniform Probate Code.” (Curious about your state’s probate policies? Consult this list of the probate laws in every state).

A will makes probate more straightforward and may even allow the process to be a swift formality. Even without a will, dealing with the house in probate could be as simple as the judge conveying the house to family members per the decedent’s wishes. Other times the personal representative of the estate (also known as the executor) will need to sell the house with probate oversight.

But when you think about probate, remember the whole point of it is to prevent fraud after someone dies. Jewelry, money, heirlooms—it’s all in the mix and not all families are quite like what you see on Full House.

So you can bet the court will keep a close eye on what’s usually an estate’s largest asset: the house.

What happens to the house when it enters probate?

Let’s walk through a few common scenarios for a house in probate.

Scenario 1: Property transferred in probate to heirs named in the will

In the event that the decedent left a will to transfer the property to their family (this is called testate probate), the executor named in the will will then need to carry out the decedent’s final wishes—including conveying any property to beneficiaries—in probate court.

The executor must file a petition with the probate court and set a court date before he or she is granted the legal authority to access, alter, or administer the estate. This first step can take weeks or months, so it’s important to file the petition and get a court date set as quickly as possible.

Then, per the instructions of the will, the judge will convey the property to the beneficiaries who can choose to keep or sell the house.

In many cases the spouse receives the house as the sole beneficiary. Other times, surviving children will receive the house and split the inheritance equally.

If the surviving children are under the age of 18, the courts will typically appoint a probate guardian to act as the executor of the estate (oftentimes an immediate family member) regardless if there is a valid will or not.

Scenario 2: Property conveyed to surviving spouse, children, or next of kin in intestate probate

In an intestate probate scenario, there is no will left to name the beneficiaries. If the house hasn’t been transferred through a living trust, transfer-on-death deed, or joint tenancy law, then it must be conveyed through probate court after the judge names an immediate family member to be the executor of the estate.

In this case the judge may transfer the property of an estate to the surviving spouse, children, or next of kin depending on the individual state’s intestate succession laws.

Scenario 3: Executor of the estate sells property with probate oversight

In other intestate probate scenarios—when the decedent named no specific beneficiaries of the house in the will—the executor of the estate will need to sell the property in probate.

This process varies from state to state but generally follows the same steps: the executor partners up with a top real estate agent to handle the transaction, orders a home inspection, and then the house goes on the open market like a traditional home sale to bring a buyer to the table.

When you’re selling property in probate, it’s especially critical to hire a listing agent with experience handling probate sales and who’s familiar with the probate processes of your state. The right agent will have relationships with vendors (e.g. home inspectors, contractors, residential appraisers) who also understand the nuances of probate.

Why does that matter? Well, In probate sales, vendors may be paid at the closing of the sale, rather than upfront.

Nevertheless, many homes in probate require some serious TLC before buyers will consider making an offer. Problem is, the funds to pay for those repairs could be tied up as part of the estate. Few vendors, however, will accept delayed payment without a strong working relationship with the right agent.

“At closing, a lot of people get paid from the proceeds of the sale, so having a good Realtor with good vendors can be important,” says Rob Kittle, a top-selling agent in Fort Collins, Colorado and a probate real estate specialist. “Any old Realtor might not have the experience or relationships with vendors who are willing to be paid from the proceeds of the sale and not immediately from when the work is done.”

At the same time, your listing agent will be handling the biggest asset or liability of an estate—depending on whether the property is loaded with equity or strapped by debt. Your agent will be working fast to get the home to market and negotiate offers to maximize your net profit and reduce your tax burden.

“The key is to sell the home right away in order to avoid the capital gains tax,” explains Kittle. “So if the state ends up holding onto the property for two, three, or four years while they deal with family issues, and the property goes up in value, now the estate is going to have to pay capital gains.”

Your agent will be paid from the proceeds of the sale, just like in a traditional sale. However, if the estate is upside-down on the mortgage and the proceeds will not satisfy the outstanding loan, you may be presented with a short sale or foreclosure scenario.

Just as you picked an agent with probate experience, you’ll also want to pick a lawyer with the same experience, too. Your lawyer will be spearheading the probate process with the courts while your listing agent prepares the home to go to market.

Your lawyer will be responsible for filing documents with the courts, orchestrating with other beneficiaries, collecting life insurance, and handling taxes.

Once the home is listed and an offer is accepted, your probate attorney will coordinate a court date to finalize the sale. (Depending on the state, the waiting period between the offer and court date may be four to six weeks.)

States will vary on how to handle multiple offers, but generally, there is an opportunity for other interested buyers to present their offers to the judge. However, unlike in a traditional sale, in an intestate probate bidding war, bidders must raise their offer in predetermined increments. For example, in California, a bidder must increase their offer by 5% with an additional $1,000 on top.

If you are the executor you also become the home seller, so it is up to you to choose which offer to accept. Always review the offer and contingencies with your listing agent before negotiating. Once you address any contingencies and place the funds into escrow, there is a final waiting period before the court declares the home legally sold.

If you find yourself in a probate sale scenario, make sure to research and choose a real estate agent with probate experience. Intestate probate closing procedures vary by state. The right probate agent will have hands-on knowledge, the right network of vendors, and the expertise to navigate the courts alongside your probate attorney.

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What happens to the personal belongings inside the house?

Due to the monetary and sentimental value of an estate, probate is designed to prevent the executor from making hasty, emotional decisions. (In fact, probate does not start until you are present for the first court hearing which may be several weeks after the death depending on court availability.)

In potential probate scenario, nothing should happen to the home (or the contents in it) upon the death of the homeowner, and the home should remain physically untouched until an executor is named.

Once you are named the executor, you can take inventory and appraise assets, including the home’s contents and market value.

“Personal belongings in the property will be distributed among the heirs or the personal property will be sold off in an estate sale prior to the closing of the home,” explains Kittle.

Two paths for a house in probate: Conveyance to survivors, or a probate home sale

Ultimately, what happens to a home in probate varies from state-to-state but generally one of two things will happen: survivors of the estate will inherit the property or the house will need to be sold through probate court.

Let’s recap few quick things to keep in mind about inheritance and real property:

• Death does not release a mortgage. Those who inherit the property will assume the monthly payments.
• Beneficiaries may be responsible for capital gains tax if the home in probate goes up in value. The faster the home can get to market, the better.
• Probate processes differ from state to state. For example, if you own multiple properties in other states, probate does not transfer property in those outside states. Your survivors will have to go through probate for each home.
• Probate takes time and energy. Even with legal representation, large amounts of your attention and bandwidth will be consumed.
• Homes can be titled so beneficiaries or co-grantor can inherit your home automatically upon death.

Looking to avoid probate? Check out our list of 11 little-known estate planning tips.

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