There are two primary parties to a real estate transaction: the buyer and the seller. Each party has its attendant executors, real estate lawyers or business lawyers, successors, administrators, and more. All these are critical cogs in the wheel of drawing up the real estate contract.
In the best-case scenario, the real estate transactions and handover should go without a hitch. But sometimes, some extraneous circumstances can interfere with the process. And that involves the death of either one of the primary parties.
The contract may be set aside under the common law or doctrine of frustration. This covers any occurrences after the contract formation that make it commercially or physically impossible to fulfill the terms of the contract.
The occurrence may also transform performance obligation to a radically different one from that undertaken at the moment of the contract entry. But, does this apply in the case when one of the parties in the real estate contract dies?
Death of the Seller
As stated in the introduction, the primary parties do not function as standalone. There is a team that assists in the process. In the case where the seller dies, their estate is under an obligation to complete the contract.
The seller’s death does not extinguish the obligation to perform the contract. In this case, it does not fall under the doctrine of frustration.
Transferring the process to the team does not radically transform the performance obligation. As participating parties, they already have a pretty good idea of what has been happening. Thus, it is crucial to have competent estate planning lawyers by your side during property transactions. The team will advise on how to transition without the primary party in the picture.
The seller’s estate must make reasonable efforts to fulfill the contract. In case they are not able to, they must return the buyer’s money. If the surviving sellers do not make reasonable efforts, the buyer has the option of suing them. It can be a complex process requiring expert real estate attorneys to handle it.
There are other special considerations to note.
Delayed Contract Closing
There is an inevitable delay that will come after the death of the seller. The transactions may halt for a while as the survivors sort themselves out. In such a case, the buyer can opt to rescind the purchase, citing the delay in the contract as the reason.
The death of the seller may have been unexpected or unforeseen. But, some deadlines govern any contract. Failure to adhere to them gives the buyer legal room to wiggle out of the sale. The buyer can also cite the doctrine of frustration arising from the unexpected occurrence.
The death can impact the fulfillment of the contract as per the initial agreement at the time of drawing the documents.
Type of Ownership
The rules are different depending on the type of ownership. Take the example where the property belongs to more than one person. They may be:
- Joint tenancy demands that the deceased’s shares go to the surviving co-tenant. A death certificate will be necessary before the property can be transferred to the survivor. The new owner can decide to proceed with the sale or pull out.
- Tenants in common transfer the deceased shares to his estate. The property will become an asset that falls under the terms of the will. The executor must then apply for probate from the Supreme Court. The probate gives the executor permission to execute the will under the intestacy rules. Please note, that the office will not proceed with any transactions without the probate. Indeed, the executor’s signature will have no value without the vital document.
- A sole proprietorship is pretty straightforward and follows the same rules as tenants in common.
The title deed should have the ownership details. But in some instances, the sharing agreement is not in the deed. In that case, the default goes to common or sole proprietor tenants, meaning it lands in probate.
Where There is No Will
The seller may die without leaving a will, or the court declares the existing one invalid. The legal term for that is an intestate estate.
The court will appoint an administrator whose work is to oversee the deceased person’s estate. The appointee takes on the role of the executor and is liable for any outstanding debts.
If the Seller Knew He Was Dying
A seller may have the knowledge that they will soon pass away. They could, for example, be suffering from a terminal illness. If they want to sell the property, they can apply for a transfer-on-death deed.
The seller must, however, be of sound mind or mentally competent to make such an application. If not, the beneficiaries can contest the contract. The transfer-of-death deed removes the need for probate.
Death of the Buyer
Unlike when the seller passes away, the buyer’s estate is under no obligation to complete the contract. Indeed the sellers cannot enforce the agreement against them.
Let’s consider where the buyer signed the contract before passing away. But, the title transfer was not complete. The property becomes an estate of inheritance. In legal language, it passes on to the heirs, who, through the right of blood, represent the deceased. The heirs now have the power to decide what to do with the property closing.
Now, what happens if the seller has already incurred significant costs? Well, he can go after the buyer’s estate by filing a profit claim in the courts. Getting compensation can be difficult, especially if the estate does not have the financial power to pay.
Indeed probate law does not prioritize such claims. Any money the buyer left may need to go to other expenditures, including medical, funeral, or family expenses.
Getting the Estate Planning Right With Your Attorney
From the article, it is pretty clear that a lot happens when a party to a real estate contract dies. The legal rules apply differently depending on whether it is the buyer or seller.
So, when you are about to begin a property transaction, ensure you have competent estate planning lawyers on board. They can explain the nuances of the process and help with the successful resolution of any issues.
