The legal transfer of real estate doesn’t happen magically in life, but strangely, it can in death. In some states, real estate vests in a beneficiary named in a will at the time of the property owner’s death There’s no legal reason to change the title. But if you want, or if your state requires, changing the title is usually a simple procedure accomplished in probate.
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Purpose of Probate
Probate is the court process that transfers the assets of a deceased person to beneficiaries. Beneficiaries are designated in a will or, if there is no will, the decedent's heirs are determined by state law. Probate is the legal vehicle used to transfer a real estate title from one owner to the next. If you inherit property, a deceased owner cannot deed the property to you. Instead, the probate judge enters an order that declares you the new owner and titleholder.
Changing Title in Probate
Transferring a real estate title is one of the most common reasons for probate. An executor has the power to sign a deed conveying the property from the estate to the beneficiary. The transfer is accomplished through what’s known as an executor’s deed. Without this legal step, title to the property may be “clouded.” Most title insurance companies will not guarantee a clear title until title transfer has been made in probate. Formally transferring the property to the new owner and filing the deed at the courthouse keeps title to the property clear.
Selling the House in Probate
A beneficiary may choose to sell an inherited house and take the cash instead. It’s not necessary to transfer title to the beneficiary because the beneficiary is not buying the house. Rather, the estate is selling the house to a third party who would obtain title. If the estate is heavily indebted, it may be necessary for the executor to sell the property to satisfy creditors. In this case, the beneficiary would receive any leftover funds not needed to cover the estate’s debts.
Probating Mortgaged Property
Many times, a beneficiary discovers an inherited house comes with a catch – a mortgage. Under federal law, the mortgage company cannot “call” the mortgage -- that is, require the mortgage to be paid in full -- on a home inherited from a parent or certain other relatives. However, you can assume the mortgage only if you plan to live in the house. If you want to rent out the house, the bank will likely require you to refinance.
A property owner can transfer title to a house to a beneficiary during life using a beneficiary’s deed instead of a will. The property owner signs a beneficiary’s deed, which transfers title to the beneficiary, but not until the property owner dies. It’s an easy way to keep property out of the probate process. A beneficiary deed may be revoked at any time by the owner. If an owner makes more than one beneficiary deed for the same property, the last recorded beneficiary deed controls.