Can You sell your property if the estate settlement has not been completed?
How do you sell a property that’s still in the the name of a dead parent if you haven’t done estate settlement? How do we explain to the buyer that the estate settlement hasn’t been done?
Let’s talk about the process that the law requires you to do after a parent passes away so you can sell the property left to you.
Most of the clients we get for estate settlement projects come in with this question or a variation of it:
“We inherited a property from our parents. Now, someone wants to buy it. How can we sell the property if the title is still in the name of my dead parent? I heard that I needed to go through estate settlement. Is this required?”
A lot of families in the Philippines have no idea what the law requires after a Filipino dies. Consequently, a lot of estates remain unsettled. The matter gets resurrected when another person is interested. Then everybody’s in a rush to finish the process so that they can facilitate the transfer.
What is estate settlement
When a person passes away, all his properties become part of his estate. In a way, that estate becomes the temporary holder of all the assets and properties. We say temporary because while the law intends for the property to be owned automatically by the heirs, it must first be determined who deserves to inherit, how much inheritance they will get, how much needs to be paid to the government and other people and who gets what. The process to determine all these things and eventually transfer the properties from the estate of a deceased person to the heirs is called estate settlement.
The process to transfer the properties from the estate to the heirs is called estate settlement.
Why do we need estate settlement to sell properties to buyers?
The general rule is that you can only sell properties which you are entitled to, right? For example, you can’t sell your neighbor’s lot and collect payment on that. And you can’t just point out a random car on the street and offer that for sale. Why? You’re not the owner, and only the owner can dispose of properties the way he sees fit.
In a similar way, you can’t sell yet the properties left to you by your parents because you haven’t gone through the proper process to replace the deceased original owners with the heir (that’s you!). As far as the titles and documentation are concerned, the owners are still the persons who died... not you yet.
The fact that you are not yet the owner “on paper” will lead to many possible issues and complications if you try to sell this property. You’re not the owner “on paper” yet, and that’s what will make it difficult for you to complete the sale.
The fact that you are not yet the owner “on paper” will lead to many possible issues and complications if you try to sell this property.
When you do estate settlement, in a sense you “update” the owner’s status of the property. Let the documentation reflect the fact that you inherited the property, and you now have the power to sell it.
Will buyers continue buying a property if the estate settlement hasn’t been completed?
They could, but probably they’ll think twice.
Here’s why. If you’re a buyer, you’d want to buy stuff with no issues or problems, right? Well, properties which haven’t undergone proper estate settlement are properties that have issues.
In fact, if you’re a client consulting us about buying inherited property that hasn’t undergone estate settlement, we’d caution you against going into the deal. We’ll reconsider if the seller completes the estate settlement before the deal.
3 Red Flags
We see 3 red flags that can crop up when buying properties with incomplete estate settlements. Here are some of the things that might be running in the head of your buyers:
Red Flag 1: Am I talking to the right heir?
Since the estate has not yet been settled, how sure am I that I’m talking to the right heir? How can I be sure that I’m paying the right person? What if I complete the sale and suddenly, a person comes up to me claiming to be the right owner? I don’t want to get in the middle of heirs fighting over inheritance.
Red Flag 2: Who is going to process the papers after I pay you?
After I pay you, how do I know that you’ll complete the process and submit the right papers? At the end of the day, I as the buyer, would like my name on that title. I can’t do that if you don’t complete your family’s estate settlement.
Red Flag 3: Who is going to pay the taxes and processing fees?
To complete the estate settlement, you need to pay estate taxes and various clearances and processing fees. How can I be assured that you’ll uphold your end of the bargain and pay all of these so I can get my name on the title as the buyer.
As you can see, buyers would want to cover their bases and the fact is that incomplete estate settlements make the property a risky investment.
Some Question about about Estate Settlement
“I heard that the property can be transferred anyway without settlement as long as we all agree and put it down in a contract. Is this correct?”
No it can’t. Your consent is not enough to transfer the lot. It would be irrelevant whether the buyers agree. Why? This is not a regular transfer or sale of property where you are already the owner, and therefore, the law requires something else beyond your consent.
As we discussed in the past section, when you look at the title according to government records, the owner is still the person who passed away. It will be difficult to sell it unless you transfer your name as the owner.
The proper way is that you transfer your name onto the property through a process called estate settlement, and then you can do whatever you want with the property (including sell it to other people).
“is estate settlement hard to do?”
No, not if you understand the process and get the proper help. A lot of people let the perceived complexity of the process stop them from taking this head on.
Our advise? Do a little research, ask around, try to soak up as much as you can. That way, the process does not remain scary or impossible to tackle.
Source: Legal Guide