Few lay people understand the importance of legal representation and the added complexity when selling real estate from a probate estate. Wisconsin statutes set forth certain limitations on the sale of real property from probate estates that are often ignored. While Wisconsin law provides broad power to sell real property from an estate without notice or a court hearing,1 it also contains provisions to help protect the probate administration process and the personal representative. Unfortunately, estate planning and probate attorneys can attest to seeing sale after sale in which the statutory provisions meant to protect the estate process and the personal representative are not implemented.
Real Property Sales from Probate Are Not Standard Transactions
Unless a lawyer versed in probate or real estate law is involved, real property sales are often completed by personal representatives and their realtors using unaltered standard forms. Few lay persons and, it seems, few realtors understand the importance of invoking statutory provisions intended to protect probate estates and personal representatives from unnecessary liability.
Except in very limited circumstances2 a personal representative has no power to give warranties in any sale, mortgage, or lease of property that are binding on the personal representative personally or on the estate of the decedent.3 This provision helps prevent other assets in an estate from being encumbered or put at risk from liability resulting from the sale of real property containing warranties.
In addition, the no-warranty requirement helps prevent the situation where a warranty issue surfaces after most or all of the estate assets have been distributed, leaving the personal representative to defend an estate without funds. Finally, failure to negate representations and warranties in the sales process could expose the personal representative to personal liability from a claim of an upset buyer who thinks the personal representative personally made the warranty or representation, or from a claim of an estate beneficiary who thinks the personal representative exceeded his or her statutory powers by granting warranties.
Negating Standard Offer-to-Purchase Language
The standard offer-to-purchase forms contain numerous warranties and representations that should be negated in probate situations. If property is to be listed with a realtor, the listing contract should be tailored to include language to provide that any future offer to purchase will negate all warranties and representations, so that the listing agent is aware that any offer must not contain warranties and representations.
At the offer-to-purchase stage, warranties and representations should be struck from the standard offer-to-purchase form, or at least negated by an addendum to the offer-to-purchase form. Doing both is ideal.
The inclusion of a simple clause, such as the following, can provide a great deal of protection for the estate and personal representative:
“Buyer acknowledges and understands that the personal representative, John Doe, is not personally the Seller and that the personal representative is selling this property in his capacity as the court appointed Personal Representative for the Estate of Jane Doe.”
“Buyer and Seller agree that this is an ‘as is’ purchase and that Buyer does not rely on and agrees that Seller has made no representations or warranties with respect to the property or the condition of the property. Buyer shall rely on his or her right to inspect the property as provided for in the Offer. Any representations and warranties previously made by Seller or contained in the Offer are struck and shall have no binding force or effect.” It does not hurt to include a provision for personal property as well, such as “Buyer and Seller agree that any personal property being transferred to Buyer is being transferred in an as-is condition without warranty, except that any personal property transferred to Buyer shall be free from any liens and encumbrances.”
At a minimum, the insertion of a clause such as the above complies with the intent of Wis. Stat. section 860.07.
If a realtor will be listing the property, inserting a clause such as the above in the listing contract stating that any offer to purchase shall contain this language puts the realtor on notice and should help ensure that the offer to purchase contains the appropriate language.
Additional Formalities When Selling from a Probate Estate
Personal representatives should be informed that they should not provide a real estate condition report unless they have personally occupied the property being sold, and thus have personal knowledge of the property’s condition. A lawyer can accomplish this by adding a provision to the listing contract addendum, offer to purchase, or counteroffer stating that no real estate condition report will be provided per Wis. Stat. section 709.01.4 Adding a clause such as the following to the listing contract addendum puts the listing realtor on notice this sale is not a standard sale:
“Buyer understands that Jane Doe is deceased and that this Property is being sold by her probate estate and therefore pursuant to Wisconsin law, no Real Estate Condition Report will be provided to Buyer from Seller.”
Using standard real estate forms without modification can hamper the probate process and expose the estate’s personal representative to liability.
In addition, a personal representative’s deed should be used to pass title without warranty. Fortunately, unlike the other situations discussed above, title companies are usually involved and understand this requirement. However, it does not hurt to also place this provision in the listing addendum, offer to purchase, or counteroffer because it is not fully set forth in the standard offer-to-purchase documents:
“The conveyance shall be by Personal Representative’s Deed, without warranty, as required by Wisconsin law, because Seller is an estate.”
Sales Without Warranty from Trusts of Decedents
Similar reasoning applies to transactions from trusts of decedents. Ideally, property should be sold without warranty and representation. If the trustee has not occupied the property, a real estate condition report should not be provided.5 The initial documentation should also state that a trustee’s deed that passes title without warranty will be used.
To do otherwise increases the risk that warranty or misrepresentation issues will arise after trust assets have been distributed or even after the trust administration has been completed. This in turn opens up the trust and trustee to potential liability and claims by buyers and trust beneficiaries.
Lawyers should become and stay involved in sales from estates, to protect the fiduciary and the administration process. These transactions are often carried out without legal counsel, using standard forms that result in violations of statutes and best practices. To ensure that these transactions are conducted appropriately, the lawyer should emphasize to the personal representative that any real property documents should be reviewed by a lawyer before the documents are signed. In addition, if a property is to be listed with a realtor, establishing immediate contact with the realtor and making sure that the listing contract requires that the appropriate provisions be made part of any future offer and closing, is strongly advised.
1 Section 860.01 of the Wisconsin Statutes provides that a personal representative who has valid letters “may sell, mortgage or lease any property in the estate without notice, hearing or court order.”
2 Wisconsin Statutes section 860.09(2) provides that “[i]f the contract for a conveyance required the decedent to give warranties, any instrument given by the personal representative or order by the court shall contain the warranties required…,” but these warranties “do not bind the personal representative personally.”
3 Wis. Stat. § 860.07.
4 See Wis. Stat. § 709.01(2)(a).
5 See Wis. Stat. § 709.01(2)(b).