The Ins and Outs of An Estate Sale
Part II: Closing On Time
By Rory S. Clark, Esq, Associate Real Estate Broker, Village Office and Mary S. Croly, Esq., McLaughlin & Stern, LLP
Part I of this series of articles was entitled “Issues Impacting Who Has the Authority to Legally Sell Property,” which reviewed the primary basics of knowing who has the authority to sell property in an estate sale.
This second article will continue the sales process once the estate has determined who has the authority to sell the property and a real estate broker has been hired to market the property by summarizing the documents that are required to transfer title of a cooperative unit from an estate to a Purchaser and the timing requirements involved to manage the sale.
You’ve been looking for that perfect apartment for almost 6 months. The lack of inventory and unexpected low interest rates continue to create large demand from buyers like you and few properties to bid on. You’ve lost a bidding war in the past, despite waiving the mortgage contingency in order to compete with stronger cash offers.
You’re buyer’s agent calls you to tell you the good news. “YOU WON THE BIDDING WAR! The Sellers want you to close as soon as possible, so plan accordingly.”
You immediately get your ducks in order, give your landlord notice that you’re breaking your lease early and get ready to move. Fast forward five weeks and following your Board interview you’ve been told you’re approved! Get ready for closing… or maybe not. You find out you’re purchasing from an estate and the estate failed to obtain certain additional documents required which could take another four to six weeks.
Unfortunately, there’s a new tenant moving into your rental in two weeks, leaving you in a housing crisis.
Your buyer’s agent and real estate attorney failed to ask that critical question – “Is this an Page 2 of 5 estate sale, and if so, has the estate obtained the necessary documents to close?”
While buyers are often aware that an estate sale can involve apartments in poor condition that may require extensive renovations after closing, buyers and real estate agents representing the buyers must be aware of the timing issues that may impact the closing date.
The buyer’s agent should always confirm whether the estate has obtained Letters Testamentary and whether Federal and New
York State releases of liens have been obtained or at least whether this process has been initiated.
Both items may collectively take a minimum of 4-6 weeks to obtain, which should be known and accounted for upfront so the buyer can plan their move-out from their current residence accordingly.
The first step in the closing process is for the Sellers’s attorney to obtain and review the original stock certificate and proprietary lease. This quick review will tell the Seller’s attorney the record owner of the coop and confirm whether the estate is the correct legal Seller. If the record owner is the decedent, the Seller’s attorney (who may not necessarily be the estate attorney), must obtain and produce certain documents to the Purchaser and Managing Agent at the closing.
The executor or administrator of the estate will be required to sign all transfer documents. A power of attorney cannot be used by the executor or administrator to delegate his or her duty to an agent. These documents may include the following:
Original Stock Certificate
Original Proprietary Lease
Original death certificate
Copy of Will
Copy of Codicil, if any
Original letters testamentary
Original letters of administration
Affidavit of Debts & Domicile
Federal Releases of Lien
NYS Release of Lien
The Seller’s real estate attorney must obtain from the Seller’s estate attorney the court Page 3 of 5 appointment, called Letters Testamentary (where there is a Will), or Letters of Administration (where there is no Will). Without the letters of appointment, the executor or administrator cannot represent the estate on the sale of the cooperative unit.
Although letters of appointment are valid for six months, most Managing Agents require that letters of appointment be dated
within 60 days of the date of closing. The Management Agent will require the Seller’s attorney to obtain and produce at the closing Federal and New York State releases of liens.
The Federal Release of Lien is obtained by filing a Form 4422 with the IRS entitled Application for Certification Discharging Property Subject to Estate Tax Lien. In addition, a copy of the signed contract of sale is generally required to be included with this application. Obtaining a Federal release of lien gets a bit tricky because the IRS will not issue a Federal release of lien if the estate is not required to file a Federal Estate Tax Return because the estate’s gross estate is less than the federal exemption amount (currently $5,340,000 for 2014) required to file it.
However, if the estate is not required to file a Federal Estate Tax Return, then the IRS will issue a letter which provides confirmation that no Federal release of lien will be issued because the estate is under the federal exemption amount and not required to file a Federal Estate Tax Return. It may take up to four weeks to obtain either IRS document.
Unlike the Federal release of lien, the New York State release of lien is easier to obtain. It is not contingent on whether a New York State estate tax return is required to be filed ($2,062,500 for deaths between April 1, 2014 – March 31, 2015). The Seller’s attorney obtains a New York State release of lien by filing a Form ET-30, entitled Application for Release of Estate Tax Lien, and ET-117, entitled Release of Lien of Estate Tax, with the New York State Department of Taxation & Finance along with a letter of appointment and copy of the death certificate. It may take up to six weeks to obtain a NYS release of lien.
Lastly, the Managing Agent and Purchaser’s attorney will require (1) an Affidavit of Debts and Domicile, (2) original death certificate, and (3) certified copy of the Will and codicils, if any. The executor or administrator of the estate will be required to sign the Affidavit of Debts and Domicile representing certain facts relating to the decedent’s domicile, debts and status of the payment of the Federal and New York State estate taxes, if any.
As a general rule, the Seller’s attorney should begin the process of obtaining all of the required documents in advance of the projected closing date to ensure a timely scheduled closing. On the sell-side, the Estate attorney, Seller’s attorney and listing agent should all be working collaboratively to ensure timelines are met and the same is accurately relayed to the buyer’s agent and the buyer.
A diligent buyer’s attorney and buyer’s agent is aware of these items and manages the closing date and seamless move for their client by planning ahead and knowing the right questions to ask.
Excerpts from this Real Estate Weekly Article
Thoughts and opinions presented in this post are those of Rory Clark and do not necessarily reflect the opinions of Halstead Property, LLC.