|
|
Real Property
REAL PROPERTY Among the most technically challenging and liability laden enterprises a guardian undertakes is the management of real property. This is almost always the home of the ward. The first consideration the guardian must make is the highest and best use of the property. The assumption is almost always that the ward's preference and best interests are to reside in the property. Legal and financial considerations are always subject to the priority of the wards interest in having the property available for use. Based on this criteria, the guardian has a number of alternatives: to support the ward to live in the house, to hold the house available to enable the ward to move back home, or to treat the home solely as a financial asset after deciding that the ward will not reside there. In the latter case the decision is usually to treat the home as a rental or to sell the property. Whatever approach is taken, the guardian must report his/her plans to the court and secure approval for those plans. Inspection and Maintenance One of the first acts of the guardian should be to go through a house, preferably with a professional, and inspect the condition of the property. Inspection of potential hazards, electric problems, plumbing and so on needs to be done. If the guardianship estate is going to retain the house, decisions must be made as to what work is to be done. At a minimum, the property must usually be rendered safe to enter. If the ward is to reside in the property it must at least have functioning systems and be hazard free. Preferably, it should be rendered comfortable enough for ordinary tastes. If the property is to be rented or sold, the guardian must sometimes make a judgement as to the amount of investment in structural and cosmetic repairs are both within the means of the ward and will produce a return. If there are problems, the condition of the property and projected costs repair and maintenance should be included in the Verified Inventory. If the house is to remain in the guardianship estate, a schedule of routine furnace, gutter and other maintenance should be established. Who performs the inspection, repairs and maintenance is sometimes an issue. For expenses of over about $500 the guardian should use licensed, bonded workers and get at least three bids for work. The guardian is at a disadvantage when letting out work on a house in that, unlike the ordinary home owner, the guardian is not able to keep an eye on the progress and quality of the work on a daily basis. The guardian must be diligent about assuring that work is done in an economical and workmanlike manner; and this duty cannot be delegated. Any significant expenses, and especially upgrades of property, should be approved in advance by the court. Rental The guardian needs to consider very carefully a decision to rent rather than sell a property that will not be occupied by the ward. Renting property is in essence a business enterprise, and the guardian should be informed as to the details of managing this type of business. For example, from a taxation point of view, the house changes character from a residence to a capital investment, and this needs to reviewed. If a decision is made to rent the property, the guardian should consider retaining the services of a firm that specializes in property management. The costs of administration of a rental need to be considered. In addition to the usual costs, and guardian fees, and often attorney fees need to be considered. If there are problems with tenants or neighbors, these costs get magnified. Sometimes the guardian would prefer a sale, but the ward objects. If the needs of the ward can be met without proceeds a sale of the property then this should be considered. If the assessment of the guardian is that the ability of the ward to return to the house is unknown, the guardian may choose to rent the property on a "wait and see" basis. It may be more worthwhile to secure the services of a short term house sitter. Sale of Property Sales of real property by a guardian are subject to the provisions of RCW 11.56.060 through 11.56.110; and RCW 11.92.090 through 11.92.125. These provisions are difficult for a non-attorney to understand. A guardian must be made aware that there are severe restrictions on the agreements into which the guardian should enter, and the guardian must consult closely with knowledgeable counsel. The following assumes that the guardian has decided that a sale is in the interests of the ward and has asked counsel to secure the necessary authority. Attachments 9 through refer to the sale of property. Documenting Value Fair Market Appraisal -- Any real estate agent will be pleased to go through a property, look at lists of recent sales for comparable properties and generate an assessment of the market value of the property. These can get quite elaborate. A Fair Market Appraisal (FMA) from a knowledgeable agent is, in fact, the best that can be done in terms of guessing what a willing buyer will pay at a given time. An agent will do this at no charge. Sellers may want to obtain FMA's from more than one agent. Independent Paid Appraiser -- A guardian selling a property should obtain an independent paid appraisal as soon as the decision is made to sell. Independent appraisers charge a flat fee, usually $350 to $450, to appraise the value of a property. Having no stake in the sale, their appraisal is considered to be more reliable. The training, licensure and standards of professional appraisers make their findings much more credible than any other available documentation. A seller should not set a price solely on the basis of the value assigned by an independent appraiser. Assuming that the real estate agent is talented, the FMA will usually be the better, if less authoritative, predictor of value. Appraisers tend to be very busy, and can take up to a month to get to a specific job. Having scheduled an appraisal, the guardian should call weekly to check on when it will be done. Attachment 9 is a portion of a typical appraisal. Private Sales It is usual for a guardian to be approached by neighbors, family members and friends of friends expressing interest in the purchase of the property. The guardian is usually somewhat receptive to such approaches, as the costs of sale through a real estate broker are usually 5% to 7% of the sale price. Potential buyers, however, are also aware of the savings to the seller, and their estimates of value reflect this knowledge. In addition, it is necessary for the seller to determine the market value of the property in order to assess any offer of purchase. Most people who express interest are bargain hunters who are not willing to pay market prices, even accounting for the savings in commission. It is quite easy for the guardian to spend quite a lot of time talking with potential buyers before any real offers are made. The most important consideration of all, however, is that there is only one reliable method of determining the value of a piece of property, and that is via exposure to the market. The only reliable manner to get this exposure is through the Multiple Listing Service managed for real estate brokers. If a seller has identified a potential buyer who is serious, the seller can usually negotiate a reduced commission from the listing agent in the event an offer is accepted from that specific individual. Usually, the agent will reduce the commission by about half. This can be a significant advantage, as there are a myriad of details in any real estate deal that need the attention of a trained professional. If the seller has located a private buyer and secured an offer at an advantageous price, the statutory provisions referenced still apply, and offer protection from an ill advised sale. Order Authorizing Sale Before signing a listing agreement or accepting an offer on private sale, counsel should obtain an Order Authorizing Sale. See Attachment 10. This order sometimes specifies the minimum price that the guardian has decided is acceptable. The samples in the materials provide that the price is to be within 90% of the independent appraisal, without revealing that value. This preserves the bargaining position of the seller from being known to a buyer who knows to look at the court file. The work of preparing the Petition for Order Authorizing Sale need not be delayed waiting for the appraisal to occur. This is much more convenient to all concerned. The phrase "time is of the essence" is not just legal boilerplate but a way of life in real estate. The guardian becomes the subject of considerable pressure from agents and potential buyers from the moment it seems possible that the property will be sold. The petition for Order Authorizing Sale should document the approximate value of the house, usually using tax records, any liens on the property, include the legal description, and give a thumbnail sketch of the financial status of the ward and the rationale for pursuing the sale. It is very important that this be distributed to any person who may have an interest, particularly heirs. It is a good idea to get the expense of the appraisal approved at this time, also. Listing Agreement Once the guardian has the authority, and not before, s/he can sign the listing agreement. This sets the price, establishes the commission to be paid, including any "excluded" buyers, and causes the property to be listed on the Multiple Listing Service. The listing also includes information on special circumstances, and should include the fact that this is a sale by a guardian subject to court approval. See Attachment 11. It is very important that the listing agent be indoctrinated in the procedures for sale by a guardian. Unless the guardian has had considerable experience with such sales, counsel should speak with the agent once or twice early on. The Guardian's addendum should be given to the agent at least by the time the listing agreement is signed. Form 17 Form 17 is a form provided by the Multiple Listing Service to disclose the condition of the property. This is a standard procedure in most transactions. The guardian must be quite careful in filling this out. The form is a representation to the buyer as to the condition of the property. Often, the guardian has no first hand knowledge of the property, and so should not try to inform others. There is no legal requirement for completion of each item of the form. It is perfectly acceptable for the guardian to elect not to complete the form at all, and it is wise to have the guardians reason for not doing so put into the listing information. See Attachment 12. Purchase and Sale Agreement When the guardian receives an offer, s/he can negotiate the terms of the purchase and sale agreement as can other sellers. It is rare to receive an offer that is completely acceptable in all respects. More often the seller must counter the offer as regards price or terms. The guardian must be very careful to take the first opportunity available to formally disclose to buyers the procedures that apply to sales by a guardian. This will have been communicated verbally, but must be given written form. The Guardians Addendum in the materials is suggested and should be a part of the guardians response to any offer. The guardian will usually have counsel review any offers and counter offers that the guardian receives or makes. The degree of the attorney's involvement in the negotiating should be discussed in advance. Attorneys should try leave the bargaining to an experienced guardian and should avoid rewriting form purchase and sale documents. When the guardian signs the counter offer or acceptance of the agreement, the signature line should state, "signed by guardian on behalf of seller, subject to approval of the court". Guardians Addendum The Guardians Addendum gives written notice to the buyer of the statutory procedures that apply and specifies that the guardian cannot warrant the condition of the property. The procedures that follow the guardian acceptance of an offer are intimidating, inconvenient and sometimes disadvantageous to buyers. It is very important that the guardian disclose these things soon, and that the buyer be assured that there will be no unnecessary surprises. See Attachment 13. Order Directing Sale Once the guardian has negotiated and agreed to terms for a sale, the purchase and sale agreement is forwarded to counsel for preparation of a Petition and Order Directing Sale. See Attachment 14. Counsel must expedite filing of this petition. Once the order is signed, Notice of Sale is published. There is a 10 day notice period within which the sale can be "bumped" by an Offer of Increased Bid. All of the normal procedures of a real estate transaction are placed in suspended animation pending expiration of the notice period that starts with the signing of the Order Directing Sale. Notice of Sale At the time the order directing sale is ordered, the attorney completes the Notice of Sale and arranges for publication of notice in the appropriate publication. In Seattle this is usually the Journal of Commerce. The Notice must specify the date upon which the 10 day notice period expires. The Notice should be faxed to the listing agent immediately, with attention drawn to the closing date of the notice period. Buyers and their agents are always intensely interested in knowing this date. See Attachment 15. Offer of Increased Bid By statute, a bidder offering 10% over the price approved in the Order Directing Sale, and posting earnest money of 20% of the bid, can bump the first offer. A hearing is scheduled of which the buyer making the first offer is given 5 days notice. The first buyer is given the opportunity to better the Offer of Increased Bid. There is no requirement affecting the amount of such an offer. In practice, this is extremely unusual, but it does occur. More often, if the property is sold for an good price, it is not likely that someone will be willing to pay 10% over the market. This should be pointed out to buyers and their agents, who invariably have a lot of questions. It is good to point out that the purpose of this provision is to protect the ward from an unscrupulous or incompetent guardian. As long as the guardian has a good grasp of the process, and once assured that good written notice has been given, counsel should avoid becoming deeply involved in explaining these procedures, Real estate agents and nervous buyers are capable of using enormous amounts of time asking increasingly rudimentary and repetitive questions. The guardian should be warned against giving what may amount to legal advice or making unwarranted assurances to calm people down. Buyers and their agents can always be advised to seek counsel of their own. The guardian should, however, be very patient and open about what is going on. The fact is that, compared to other property sales, the buyer is at a disadvantage in these transactions. In the unusual event that someone wishes to make an Offer of Increased Bid, it is in the interests of the ward to get the additional money, and the bidder should be assisted. Bidders usually do not go directly to an attorney or to the court, but contact the guardian through the selling agent. A form for the Offer of Increased Bid is in the materials as attachment 16. It is very important to review the price, terms and qualifications of the bidder very closely. The decision maker is the judge hearing the matter, but the guardian should be prepared to make a recommendation. Meeting the 20% earnest money requirement usually indicates a serious buyer. Order Confirming Sale After the notice period has expired, counsel presents the court with a Petition and Order Confirming Sale. Once this has been entered, the buyers apply for financing, arrange the inspection and the deal will proceed in a typical manner. This means, of course, that the sale may well not go through. See Attachment 17 Escrow There are seldom problems with escrow. The title company usually monitors the matter closely and provides the escrow officer with the necessary verifications to close. It is a good idea for the guardian to bring a conformed copy of the Order Confirming sale, and certified Letters. It is wise to have the guardian direct that funds be transferred in the form of a wire to the guardianship account. This assures that funds clear immediately and eliminates the possibility of delay or error. The escrow officer will need the name, address, phone, and "ABA" number of the bank, as well as the account number of the guardianship account. In most transactions title is transferred in the form of a Statutory Warranty Deed. It is recommended that the guardian ask that this be done via a fiduciary deed, which bears less liability. This needs to be included in the earnest money agreement. Use of Funds Once the guardian has received the proceeds of the sale, s/he must be very careful to observe whatever bonding or blocking requirements have been established. Counsel can obtain appropriate authority as needed at the same time that the Order Confirming sale is presented. The guardian should keep a copy of the final closing papers for use in preparing taxes. The tax implications of the sale, which often include the taking of the one time capital gains exemption, should be reviewed.
|