Matthew A. Griffith, Esq. authored one chapter in this book (Chapter Two: Forms of Property Ownership), which we are providing here as an eBook.  The entire book can be purchased on Amazon.  All profits from the sale of this book go to charity.

 

DISCLAIMER

These materials have been prepared by Jason Lucchesi and, in relevant part, Attorney Matthew Griffith. All rights reserved. The information and content provided in this book and any summary or excerpt are for informational purposes and are not legal, tax, investment or financial advice, and may or may not reflect the most current legal developments in a particular area. Transmission of the information is not intended to create an attorney-client or other professional relationship and is not intended to constitute legal, tax, investment or financial advice or to substitute for obtaining legal advice from an attorney licensed in your state. Nor is an attorney-client relationship established, merely by reading this book or any part thereof.

Flipping Out Over Probates: How to Find and Flip Your First Probate Property Without Cash, Credit, or Experience

All Rights Reserved COPYRIGHT © 2019 Jason Lucchesi This book may not be reproduced, transmitted, or stored in whole or in part by any means, including graphic, electronic, or mechanical without the express written consent of the publisher except in the case of brief questions embodied in critical articles and reviews. SBN: 978-0-578-63003-8 Cover design by Sooraj Mathew Edited by Hilary Jastram

FLIPPING OUT
OVER PROBATES

APPRECIATION & PROCEEDS

A huge Thanks to my kids Brady, Gavin, and Cordelia. You guys are a huge part of what I do. You guys can do anything you set your minds to! Never give up and always follow your dreams!

Much love and appreciation to my Mom and Dad!

*****

100% of the profits generated from Flipping Out Over Probate book sales are being donated to the following 501(c)(3) nonprofit organizations:

Beat Kid’s Cancer– Beat Kid’s Cancer is a nonprofit that assists local families battling childhood cancer with living expenses and helps provide Christmas gifts for the families each year. Their goal is to eventually fund a research grant to help end this disease.

Veteran’s Best Friend Indiana– Professional dog trainers partner veterans with rescue dogs in Indiana as pets, at no cost to the veteran. A dog can help ease anxiety, loneliness, depression, even PTSD symptoms. Pet ownership encourages love and acceptance, companionship, responsibility, interaction, and exercise.

CHAPTER TWO: FORMS OF PROPERTY OWNERSHIP

Jason Luchessi’s intro-

It’s important to have an attorney who understands how you, as a real estate investor, will be diving into purchasing properties directly from the heirs’ properties who’ve just lost a loved one. I’ve known my attorney Matthew Griffith since 2009, and I quickly understood that working together with Matt on anything I needed legally as a real estate investor would help me out dramatically. The guy is a wealth of knowledge, and he’s helped a ton when navigating through complicated processes that only an attorney would understand how to execute.

When I first hired Matt, I had him review all my paperwork to make sure I was operating legally. As our relationship grew and he understood my business model he gave me recommendations based on where I wanted to go as an investor. I asked him to write a chapter in Flipping Out Over Probates because I’m not an attorney, and he’s the best in the business when it comes to giving insights on all the legal stuff you need to know. Anyone who has attended any of our seminars over the years knows when Matt speaks, he over-delivers every single time. The next few paragraphs will be in Matt’s words, so I’m giving you a heads up right now that you should change your Snuggies because it’s about to get crazy.

Matt’s Chapter-

When a property owner dies, there is always a change in ownership. That is even true when there are two or more owners. So, for example, if a husband and wife own a home, as joint tenants when the husband dies, the wife automatically becomes the new owner. Or, as another example, when that same wife, now a widow, passes away, the home will pass on to someone else. But, the nature of the property interests that pass on depends on two key factors. First, you need to determine how the deceased owner held the title. Second, you need to determine whether the deceased owner’s property interests passed through a deed, trust, the last will, or intestate. In this chapter, we will explore the different scenarios by which title can pass.

In other words, relevant to this book on acquiring properties through the probate process, you might discover other non-probate ways to make money assisting in the transfer of ownership interests from a deceased person to the next owner. In simple terms, probate is not the only game in town. And if you have a more comprehensive understanding of how people own real estate and how title transfers on death, you will have more tools and skillsets to identify opportunities and maximize your profits.

This chapter serves another benefit because you, too, will eventually die. When you do, assuming you own real estate at the time of your death, you will want to control how your real estate passes on to your intended beneficiaries. If you do not understand the nature of your ownership interests or you do not understand the tools by which your ownership interests in real property will pass, you are less likely to satisfy your estate planning goals. Ignorance is not bliss. But knowledge is power. The more knowledge you have about the different types of ownership and the tools to transfer that ownership, the more control you have to effectuate your estate planning goals.

Let’s start with some basic real property law concepts. First, we’ll outline the different ways that someone can hold title to real estate. Although these basic concepts will apply to nearly all states in the US, there will be variations on state laws, from state to state, which will impact these basic concepts. As always, check with a knowledgeable and seasoned real estate lawyer or an estate planning lawyer to determine if these concepts apply in your state. That said, here are the basic forms of ownership:

• Sole owner using a simple deed to hold title
• Tenants in common
• Joint tenants
• Tenants by the entireties
• Life estate
• Land contract purchaser (also known as a buyer under contract for deed)

In exploring these concepts in more detail, we find that, unfortunately, there is no other way to master these concepts than to study them. So, while this section of this chapter might not be sexy, fun, or funny, you will be glad you studied these important legal concepts. And you will be a better real estate investor for having done so.

Sole Owner Using a Simple Deed to Hold Title

The simplest and most common form of ownership is when one person acquires the title to real estate through a deed. By way of example, let’s assume a young man named Allen graduates from college, gets a great job, saves money for a down payment, and purchases a small cottage home. When Allen buys the home, he receives a deed. The deed, presumably a warranty deed, causes ownership interests to transfer from Allen’s seller to Allen.

There may be liens and encumbrances impacting Allen’s title, such as his mortgage and possibly restrictive covenants for his neighborhood association, but Allen owns the house. He is the fee simple titleholder. He is also the mortgagor, and his bank is the mortgagee.

If nothing else changes, on Allen’s death, his interests in the house will transfer to his heirs. In a section below in this chapter, we will discuss the different ways that Allen’s interests in his home will transfer to his heirs. For now, keep in mind that one person owning one parcel of real estate as the full titleholder is the simplest and purest form of real estate ownership.

Tenants in Common

Tenants in common comprise two or more persons who own a parcel of real estate together. Notice that I did not use the word “jointly.” There is a related or similar concept to tenancy in common, called “Joint Tenancy.” “Tenants in Common” have different rights and responsibilities than do persons owning real estate as “Joint Tenants.” For the purposes of this book, the main difference between tenancy in common vs. joint tenancy is in what happens to your ownership interests on death. Under tenancy in common, the other owner or owners do not inherit the ownership interests of the co-owner if the co-owner dies.

Let’s assume for a moment our friend Allen decides to buy a horse farm with his sister Carol. Neither Allen nor Carol are lawyers or are wise enough to hire a lawyer. They go to an office supply store and purchase a pre-printed deed form. Unbeknownst to Allen or Carol, the deed form they select creates a tenancy in common. Perhaps this is what Allen and Carol desired. Or, they were lucky to pick the right deed form. As a result of selecting a tenancy in common deed forum, Allen and Carol are tenants in common.

Consequently, when Carol becomes ill and suddenly passes away, pursuant to her last will, Carol’s husband acquires Carol’s interests in the horse farm. Now, after Carol passes away, Allen and Carol’s widower are tenants in common. Allen never liked Carol’s husband and certainly never wanted to own anything along with Carol’s widower. But because Allen and Carol selected a tenancy in common deed form and made no arrangements to deal with an early death of either of them, Allen is now stuck with his brother-in-law as a co-owner.

To make matters worse for Allen, Carol owned 65% of the horse farm, meaning Carol’s widower now owns 65%. This leaves Allen as a minority owner relative to a guy he doesn’t like. There are other consequences to owning property as tenants-in-common without written agreements to address things like access, use, and enjoyment of the property, taxes, insurance, maintenance, and other expenses. For purposes of this book, what is relevant is the manner in which Carrol’s interests transferred to her husband on her death.

Of course, as stated above, the tenancy in common concept is often confused with joint tenancy.

Joint Tenants

In simple terms, joint tenants have rights of survivorship. This means that upon the death of a joint tenant, the other joint tenants acquire the ownership interests of the person who just passed away. Let’s apply this concept to Allen and Carol, assuming for a moment they bought the farm as joint tenants. Under this scenario, if Carrol passes away, her 65% ownership of the horse farm would automatically be acquired by Allen. This is good for Allen, yet not so good for Carol’s widower or their three young children. And, assume that Carol (and her widower) borrowed $80,000 from her home equity line of credit to buy the horse farm with Allen. That means Carol’s widower is stuck with an $80,000 debt on his home, and Allen walks off with the horse farm.

As you can see, there are advantages and disadvantages to the various ways to hold title. Most people do not take the time to make the right choices in structuring their affairs. Unfortunately, there are real consequences to making mistakes in acquiring and holding title to real property.

Tenants by the Entireties

Another form of joint tenancy is called “Tenants by the Entireties,” which is joint tenancy of a property by only a husband and wife. There are only about 13 states that recognize tenants by the entireties. Readers in two-thirds of the US will not have this form of ownership available to them. However, many investors purchase property in another state from where they live. Consequently, if you are purchasing property in a state that recognizes tenants by the entireties, this is a concept you should understand.

Before I explain this concept in any more detail, let me discuss an issue that is not yet resolved. Specifically, most of the states that recognize Tennessee by the entireties have state statutes that define tenants by the entireties as husband and wife. However, many states now recognize same-sex marriages. Traditionally, the term “husband” refers to a man, and the term “wife” refers to a woman. I am unaware of any case law determining whether a same-sex couple may hold property as tenants by the entireties. So far, the courts that have looked at state rights that apply to same-sex couples have extended state rights to those same-sex couples, rather than invalidating the state laws that grant rights. In other words, so far, the courts have given same-sex couples the same rights as heterosexual couples, rather than invalidating state statutes creating rights. I am of the opinion that, sooner or later, the courts will recognize same-sex couples as having rights to hold title to real estate as tenants by the entireties. I feel that the courts will not invalidate Tennessee by the entireties, simply because the state statutes refer to husband and wife rather than the term spouse.

With that particular issue aside, the concept of estates by the entireties, for purposes of this book, is essentially the same as joint tenancy. In other words, joint tenants are joint tenants, whether they are married or not. If one tenant dies, the other tenants shared the deceased tenant’s ownership percentage. 

In most states that recognize tenants by the entireties, the courts will treat a deed containing the husband’s and wife’s names as creating a tenancy by the entireties. If, for example, John and Cindy are married and buy a home together with both of their names appearing on the deed, that creates a tenancy by the entireties. Presumably, if, for example, Mike and Josh, two men who are married at the time, purchase a property together with both of their names appearing on the deed, the courts might treat that as a deed creating a tenancy by the entireties. This issue is not yet resolved at the time this chapter was written. But going back to John and Cindy for a moment, it is safe to say that the deed naming John and Cindy as co-owners would create a tenancy by the entireties if their state recognizes that form of ownership. 

If John and Cindy get a divorce, the tenancy by the entireties converts to joint tenancy. The tenancy by the entireties is only available while John and Cindy are married. If John dies while still married to Cindy, Cindy automatically becomes the sole owner. Cindy will then need to file a document with the County Recorder explaining that John has passed away and that the Tennessee by the entireties has dissolved. That document is called a “survivor’s affidavit” or sometimes “affidavit of survivorship.” Often, investors will need to have a survivor execute and record a survivor’s affidavit before that survivor can transfer title to the investor. The survivor’s affidavit cleans up the official title record.

Life Estate

A life estate is a form of ownership, by which a person has the right to live in and occupy a property while they are alive. Upon death, the life estate ends. Normally, legal title is held in one person’s name, and the life estate is held in a different person’s name. For example, Bill might buy his mother’s home, subject to a life estate in her favor. That means Bill is the legal titleholder, but his mother has all equitable title. Bill would be responsible for paying the taxes and insuring the property, and possibly maintaining it as well, while his mother has the right to live there. If done properly, there will be a deed or some other document that is recorded which describes and defines the life estate. There are difficult cases involving undocumented and unrecorded life estates. Again, this legal concept is not often properly implemented because people use bad legal documents. However, this is a common form of split ownership and is an important concept that investors should keep in mind.

Land Contract Purchaser
(also known as a Contract for Deed)

A land contract purchaser is someone who is making installment payments, or possibly a lump sum or “balloon” to acquire the title to real estate. Legal title is held by the seller, while the buyer holds equitable title. In most states, a land contract is treated as a note and mortgage, with the seller serving the role of the bank. The seller essentially is treated by the courts as a mortgage lender, which must go through a long, expensive, and difficult foreclosure process to get possession and title of a property back from a buyer who has defaulted. Many land contract sellers attempt to avoid the state foreclosure laws by drafting favorable contract language. Specifically, sellers will draft land contracts that grant the seller the right to forfeiture, rather than foreclosure. Unfortunately for sellers, most courts in most states hold that those contract provisions granting the seller forfeiture rights are unenforceable. In other words, sellers cannot evict a land contract buyer and are forced to go through the foreclosure process, which ends with a sheriff’s foreclosure sale.

Sometimes, a land contract is not recorded. That scenario poses real risks to investors, because they may not realize they are buying a property that is subject to a land contract. The chances of this scenario happening increase when the land contract seller dies, and his family is unaware of the land contract. I have seen more than a few times situations in which a land contract buyer attempts to purchase real estate—usually a home that is already being purchased by a land contract buyer. This is where good contracts and title insurance come into play. What is important for the purposes of this book is that investors understand the impact of both recorded and unrecorded land contracts.

There are a few other more exotic forms of real estate ownership, but the concepts discussed above represent the most common scenarios that investors will face. It is important that investors study and learn much more about how these concepts and the different types of deeds are used to transfer and hold title to real estate. Now let’s take a look at the four most common ways that title transfers to real estate upon someone’s death.

Transfers by Deeds

We have already discussed above a couple of ways that a deed can transfer the title to real estate. As explained, in most states, title to real estate transfers automatically occur upon a person’s death if that person held title with other people as joint tenants. Generally, transfers from one joint tenant to one or more other joint tenants happen automatically on death. The survivor’s affidavit discussed above merely tells the world that title transferred. There is no requirement that a will be probated, or a trust administered, where there is joint tenancy. Transfers by joint tenancy occur whether a person died with or without a will or trust.

There is another way that title can transfer automatically upon a person’s death through the impact of a deed. In about 13 states, a person can automatically transfer property at death to another person through a “transfer on death” deed (sometimes referred to as a “TOD Deed”). This is not the same arrangement as joint tenancy. For example, we’ll assume Seth owns a property under a TOD deed, and that deed states that Seth’s oldest daughter will acquire title to the property immediately on Seth’s death. Seth’s daughter does not own the property as a joint tenant or a tenant-in-common with Seth. In fact, she holds no ownership interest in the property until Seth dies. However, the moment Seth passes away, title to the real estate passes to his daughter. Again, as is the case of joint tenancy, Seth’s daughter will need to record a survivor’s affidavit to tell the world that her father has passed away and that the title to the real estate now belongs to her. 

The TOD deed is a tool that can be used by tenants in common and even a surviving joint tenant. For example, let’s assume for a moment that Seth owns real estate as tenants in common with his brother, Phil. If Seth and Phil used a TOD deed, and Seth passes away, Seth’s ownership interests would automatically transfer to his daughter. The property can then be owned by Phil and Seth’s daughter as tenants in common. As you might imagine, a skilled real estate or estate planning attorney can use combinations of all these tools to transfer property from one person to another based upon the owner’s wishes. These tools are also used in conjunction with a last will or a trust. Before we turn our attention to the two most common estate planning tools, the last will, and the trust, we should take a look at intestate.

Intestate

Intestate simply means dying without a last will or trust. A person who dies intestate has no direct control over the distribution of their assets at death. Now, that might not be a big deal if that person uses other tools to control when, how, and to whom assets are distributed. For example, a transfer on death deed is a fantastic tool to transfer assets, specifically real estate, to another person at death without the need for a last will or trust. So, a great deal of estate planning can be done without a last will or a trust. Dying intestate does not mean that a person does not have a plan. It simply means that we need to look closer to determine what other planning tools that person might have used to transfer assets to loved ones.

Last Will

A last will often called the “Last Will & Testament,” is a legal instrument, executed with certain formalities, that typically directs the disposition of a person’s property at death. The advantages of a will are that they are easily changed and revoked and are great for younger people who are still buying and selling assets—who will make changes over the years and who might need to create testamentary trusts or pick guardians for minor children.

Because of the many advantages of wills, they are common. Other planning tools, like trusts and the TOD deed, are becoming more popular. There are, however, a huge number of estates governed by a will. Keep in mind that a will only controls real property that was in the deceased person’s name at the time of death. So, if the deceased person used a TOD deed, had joint owners, or placed the property in a trust, they will not impact how that property transfers after death.

Trusts

A trust is a fiduciary relationship in which a trustee holds legal title to specific property under a fiduciary duty to manage, invest, safeguard, and administer the trust assets and income for the benefit of designated beneficiaries, who hold equitable title. The advantages of a trust are that we can avoid the slow, frustrating, and expensive probate process. Trusts generally are preferred by older people who do not intend to alter their asset portfolio, who want privacy, and who want to leave specific items or sums of money for specific persons. Over the past 30 years, largely as a result of marketing by estate planning lawyers, trusts have become more popular. 

For our purposes, there are three kinds of trusts-

• Testamentary Trust- This is a trust created inside a last will. Typically, a deed to real estate will be held in the name of the deceased person, and then must be transferred to the trust after death. So, probate could be required to get a title transferred to the testamentary trust.
• Living Trust- This is a trust that is live and active immediately upon its creation. But, a parcel of real estate is not officially in the trust until a deed is executed to transfer title to the trust. Often, people will use a tool called a “Pour-Over Will,” which causes all assets at death, which are not already in a trust, to be transferred to the trust. Again, probate and a deed might be required to get a title transferred to the trust.
• Land Trust- A land trust is probably the most misunderstood and inappropriately used real estate investing tool ever created. In simple terms, a land trust merely transfers legal title from the owner to a surrogate titleholder. For example, Johnny creates a land trust and executes a deed from him to the “Red River Land Trust,” naming his friend Butch as the trustee. Johnny still owns the property, but Johnny’s name no longer appears on title. Johnny holds all equitable title. A land trust creates limited anonymity for Johnny, but no estate planning benefits and no asset protection. Many land trusts are disguised to appear to be living trusts, which means you need to read the trust documents carefully to determine what kind of trust is at play.

Who Am I Dealing With?

Before you can cut a deal to buy a property after someone has died, you must first determine what you’re buying and from whom. This can get complicated, but you can use this chapter as a reference source to help diagnose the situation. Let me give you an example of how important it is to correctly identify who owns what when you’re trying to do a deal after someone has passed away.

I had an investor client call me once with this fact pattern. The investor was working with the niece of a man (Albert) who had just died. Albert had owned a house with his sister Monica. Monica was my client’s aunt. Monica had owned and lived in this house with Albert, as tenants in common. Monica left her half of the house to my client. Albert dies without a will or trust, or any children of his own. So, through intestate law, Albert’s half ownership of the house went to my client equally with his eight cousins. After Albert died, two of those cousins died, meaning there were other heirs. In the end, 11 people owned half of this house. 

What a nightmare!

My client began the process of negotiating to buy her cousins’ interests but never could get deeds from all her cousins, several of whom wanted to be paid a lot of money to relinquish their interests in the house. Eventually, my client may become the owner, under the doctrine of Adverse Possession, because she is living in the house and paying the taxes, but an investor cannot currently purchase this house. There are too many owners, and those owners do not agree on how to treat the house. And this is, unfortunately, an increasingly common scenario. At least five clients have come to me with eight or more second and third-generation owners of a single home. These are difficult cases to resolve, and usually, there is too much work for an investor. Go find lower hanging fruit. Equally important, in the very beginning, do your title research to determine who owns a house. Far too often, investors waste weeks or months working on a deal, only to learn later that good clean title cannot be transferred. Don’t waste your time. Confirm ownership fast. If you can’t confirm ownership, move on to another deal.

Conclusion:

What Does This All Mean to Me as an Investor?

If you’re going to play a game, you need to know the rules. Before you play chess, you first have to learn how each piece moves on the board. Before you can develop a strategy or learn tactics (moves to further a strategy), you have to understand the basics-the rules. The better you understand the rules, the more likely you are to control your strategy, implement your tactics, read your opponent’s moves, and win. Having a command of the rules is critical to winning any game.

Investing in real estate is not a game; it’s serious business. But just like playing chess or any game really, you cannot expect to win if you do not fully and completely understand the rules of investing. That means you must understand how title is held and transferred at death if you want to be an investor who helps property transfer from a deceased person to the next owner. It is virtually impossible to be a “probate investor,” if you don’t understand the probate process. And if you don’t understand that most real property transfers at death OUTSIDE of the formal probate process, then you are really at a disadvantage if you do not master the concepts outlined in this chapter.

On the other hand, if you take this chapter as an introduction to your education on these topics and you study, read and learn more about deeds, wills, trusts, and probate, then you are going to do better than most probate investors. You will be able to identify opportunities, avoid pitfalls, and maximize profits. Master these concepts, and you’ll be a wiser and richer investor.

End of Matt’s chapter

ACKNOWLEDGMENTS

A ROCK-STAR thanks to my attorney, who wrote chapter two, Matthew A. Griffith, Esq. I appreciate you more than you know, buddy. Thanks for being there and helping out with this book.

ABOUT JASON LUCHESSI

Jason Lucchesi founded the real estate investing company, No Flipping Excuses in 2008 after finding quick success in the real estate industry. In 2002, he worked as a loan officer, then joined the nation’s #1 lending institution, where he rapidly rose through the ranks to reach the #1 position in the country. After resigning his role, Jason pursued his dream of full-time entrepreneurship through No Flipping Excuses. To date, Jason has partnered on over $285M closed real estate transactions. Jason’s expertise includes:

• Working directly with multi-billion-dollar funds
• Distressed Property Expert
• Non-performing and performing notes specialist
• Bulk REO packages
• Wholesaling residential and commercial properties
• Rehabs and new construction
• Multi-Family projects
• Income producing assets
• Tax delinquent properties
• Self-storage facilities

Jason has been married to his wonderful wife, Jamie, since 2007, and they are the proud parents of three children: Brady, Gavin, and Cordelia.

DISCLAIMER

These materials have been prepared by Jason Lucchesi and, in relevant part, Attorney Matthew Griffith. All rights reserved. The information and content provided in this book and any summary or excerpt are for informational purposes and are not legal, tax, investment or financial advice, and may or may not reflect the most current legal developments in a particular area. Transmission of the information is not intended to create an attorney-client or other professional relationship and is not intended to constitute legal, tax, investment or financial advice or to substitute for obtaining legal advice from an attorney licensed in your state. Nor is an attorney-client relationship established, merely by reading this book or any part thereof.