Investors and Probate Real Estate

Why do investors target probate homes?

  • Properties in probate are perfect for investors, because they’re possibly in need of serious updates and repairs, and the Personal Representative doesn’t have the time or money to spend making it ready to sell on the retail market, making it lucrative for real estate investors to buy these homes below the market value.
  • A Personal Representative cannot sell estate property without either an order permitting the sale or an order determining homestead status of real property. 

•   Real Estate Investors – probate leads represent the very best residential real estate-related lead source available today. Within 4-6 months of the probate filing, 40% of the properties found will be sold.

  • Realtors will find that many of the residential properties in probate will be listed within the first year after the filing.
  • Wide Range Of Properties – Commercial, Acreage, Duplexes, Condominiums, Apartment buildings, Strip malls, Office buildings, Ranchland, Farms. These are not rundown foreclosures, bankruptcies, or condemned properties that are complex deals and need costly repairs. These can be beautiful homes with no mortgage or debt attached, making them some of the cleanest and easiest of all real estate to buy low and sell high quickly.

 

The Florida Probate Process and Property

What is probate?

Probate is the legal procedure in which the probate court assumes jurisdiction over the assets of someone who has died. The court supervises the payment of debts, taxes, and probate fees, then supervises the distribution of the remainder to the person(s) named in a will, or to the heirs if there is no will.

Florida probate law varies depending on the type of property. It is important to get guidance from an experienced Florida Real Estate Probate and Homestead Property Attorney. 

A Florida probate can include:

  • Proving to the Florida probate court that the deceased person’s will is valid.
  • Identifying and preparing an inventory of the deceased person’s property.
  • Determining the value of the deceased person’s property.
  • Paying all debts and any taxes due.
  • Distributing the remaining property as the will or the law directs.
  • Attorney and court fees which are typically paid from estate assets.

PERSONAL REPRESENTATIVES are under no obligation to use the same law firm that wrote the will. Nearly all probate procedures in Florida involve paperwork drafted and filed by probate lawyers. Unlike some other states, Florida law generally does not allow “do-it-yourself” probate except in some cases involving very small bank accounts, refund checks, or similar assets.

Types of Probate Administration in Florida:

  • Formal Probate Administration – The Normal Probate Process

This is Florida’s traditional form of probate administration. It requires APPROXIMATELY 12 months to complete.  It is usually used for complicated issues such as challenges to the Will, disputes between beneficiaries or heirs, or supervision of the Personal Representative. 

The following is an over-simplified description:

The process starts with a petition for administration and the appointment of one or more personal representatives (executors). After that, a Notice to Creditors is published in a local newspaper, and creditors generally have three months in which to file their claims.

Once the period of time for creditor claims has passed, the personal representative can pay the debts (in a certain order) and distribute the remaining estate. Once all debts are paid and the remainder of the estate has been distributed, a petition for discharge is filed, and the Florida estate is closed upon entry of an order of discharge.

While this may sound simple, probate is a fairly complex system of required and optional tasks by the personal representative, the attorney and sometimes a tax consultant (often a CPA). Of course, the simpler the assets and the deceased’s plan of distribution, the simpler the Florida probate will be. 

  • Summary Probate Process for Small Estates

The state also provides a “short form” of probate for certain smaller or older estates, which is quicker and cheaper than the “formal administration” used for most Florida probate administrations.

Summary probate administration is available for estates with “non-exempt” property of less than $75,000 and the decedent has no outstanding unpaid debts, or in cases where the decedent passed more than 2 years ago. The value of “homestead” real property is not counted in totaling the value of the estate, nor is any other proposed exempt property.  Summary administration can also be used in any size estate if the deceased has been dead FOR more than two years. Summary administration does not work in certain cases, such as those with minor or missing heirs, or where the assets or debts of the deceased are unknown.

FLORIDA HOMESTEAD PROPERTY PROBATE RULES

If the deceased’s real estate is considered their “homestead,” the state of Florida applies certain unique rules to the transfer of the property. The homestead property exemption was created to protect families from being displaced from their home; however, there are many special rules to this probate property law.

Silver Tsunami vs. Millennials in Real Estate

Silver Tsunami

Are you ready for the Silver Tsunami?  Wikipedia describes it as a metaphor used to describe population aging. The silver tsunami metaphor has been used in popular media and in scholarly literature to refer to the late-twentieth century demographic phenomenon of population aging in major media platforms including The Economist, Forbes.com, and multiple news outlets.

Millennial

In real estate, we see that the millennials are the demographic group that is trending now for home purchases, but millions of baby boomers aka Silver Tsunami could seek to downsize in the coming years as they approach their 60s and 70s. It is expected that by the year 2050, the seniors 65 and older will make up nearly 20 percent of the U.S. population compared to the 15 percent today.  Not only will the demand for senior living increase, but the style and manner will as well. With the large increase in this demographic market, you can expect to see senior living communities popping up everywhere, especially in Florida. These types of communities are expected to rise in in both rural and urban settings alike.

Today’s baby boomers, now the Silver Tsunami to come, look at life a little differently in regards to aging. They expect accessibility and convenience with personalized care and amenities.  These future seniors reflect a change in the way our older generation currently resides. They are active, empowering, and believe that senior living should not be institutional.

Then we have the seniors of today that were born between 1931 and 1947, who are staying in their homes longer and aging in place, the result being higher homeownership rates than the previous group of seniors.  It is estimated that 1.6 million existing homes were held off the market in 2018 due to the aging in place occurring. The trend of these seniors aging in place is only expected to grow as the number of seniors increase with the impending Silver Tsunami. To put this in perspective, the 1.6 million existing homes that are being held off the market due to aging in place, the Urban Institute estimates that 3.4 million millennials are missing out on homeownership.

Sam Khater, Chief Economist at Freddie Mac, stated in Freddie Mac’s February Insight  “We believe the additional demand for homeownership from seniors aging in place will increase the relative price of owning versus renting, making renting more attractive to younger generations.” “This further highlights the importance of addressing barriers to the production of new housing supply to help accommodate long-term housing demand,” he added.

https://www.leisurecare.com/resources/silver-tsunami-senior-living/

https://dsnews.com/daily-dose/02-06-2019/how-aging-in-place-is-restricting-first-time-homebuyers

https://freddiemac.gcs-web.com/news-releases/news-release-details/freddie-mac-insight-seniors-who-are-aging-place-hold-16-million?_ga=2.143892016.483936937.1549379288-957113108.1544712385

DIGITAL TECHNOLOGY & ITS IMPACT ON REAL ESTATE TRANSACTIONS

PRESENTED BY MICHELLE GARCIA GILBERT, ESQ.

GILBERT GARCIA GROUP, P.A.  | SAPPHIRE TITLE & ESCROW COMPANY

 

 DIGITAL TECHNOLOGY

Bitcoin, virtual currency, example of blockchain (or distributed ledger) technology

  • Released at time of financial crisis, due to advances in software, communication and encryption
  • Established set of rules that ensured integrity of data exchanged among computers globally, without use of government or other trusted third party
  • Ledger recording transfer of bitcoins resides on virtual network which uses encryption and secure keys for transactions; each transfer is recorded in a block of information
  • Each block has time stamp and link to prior block which creates permanent record that is almost impossible to alter
  • Technology is being used for other distributed ledgers

APPLICATIONS

Digitally record tangible and intangible assets in a system that is more trustworthy, transparent and verifiable than any other

  • Private blockchains, not public like Bitcoin, participants  verified against pre-approved list
  • Collaboration among many participants required
  • Common technical standards and processes required Participants must share information
  • Resource intensive
  • Legal concerns regarding intellectual property, data privacy, data security, anti-money laundering, settlement finality and securities requirements

 

REAL ESTATE TRANSACTIONS NOW

Old-fashioned industry with paper contracts, manual escrow deposits, hard files, and in-person closings

  • U.S. net worth totals $89 trillion, household ownership of real estate is $27 trillion out of a total of $33 trillion of  nonfinancial  assets
  • 2016- outstanding real estate debt was $11.5 trillion residential and $2.6 trillion nonresidential
  • Industry has long history of state and local regulation, lobbying power of real estate agents, and interaction with laws, tax code and American culture of home ownership
  • Establishing property rights involves navigating lawyers, insurance agents, realtors and title agents
  • Current state of affairs: brokers and realtors facilitate transaction for a fee; parties can use an attorney in addition to an agent or in lieu of an agent, to prepare a contract;  contract uncertainties exists with contingency for inspect ions, appraisals, state of title, and financing; title search is performed to determine state of title and requirements that must be met to convey marketable title; title insurance is provided as part of the transaction; 2016- 88% of all buyers financed homes; closing – most take 1-2 months to get to the table, and the closing itself can last hours

 

REAL ESTATE TRANSACTIONS IN THE FUTURE

Blockchain technology has the potential to address uncertainties in real estate transactions by providing more direct, precise and efficient process.

  • Smart contracts: digitally signed agreement, stored on blockchain program would speed closings be­cause payment would trigger automatic transfer of title; limited use for structuring of agreements, and handling of breaches and dispute resolution; also, without common technical standards and processes, suspect to hacking
  • Land records: outdated system in which paper filings are maintained as a chain of title by local government office; manual process with high potential for error and fraud; risk mitigated by purchase of title insurance, though about 5% of premiums paid out in claims in 2016; In September, 2016, Cook County, Illinois launched a pilot program to current system with public blockchain technology; Cook county never completed a blockchain conveyance but reported alter the pilot ended, in May, 2017, “…that blockchain and distributed ledgers are natural fit for keeping land records and stream lining the dozens of intermediate steps needed just to get a deed into public record.”
  • Transaction platforms: Encrypted, secure and distributed ledgers provide a way to execute transactions with little or no intervention by people. Instead of involving many employees, third-party agents and paper processes in a transaction flow that takes days, weeks or longer, huge volumes of transactions will be com­ pleted very quickly and transparently. Financial institutions, in particular, have been struggling with business process inefficiencies, but such inefficiencies exist in other industries, including real estate.
  • States opting in: Blockchain recognized as a legitimate form of ownership.

 

WHAT IS HAPPENING NOW…

  • Countries like Georgia and Ukraine have already implemented blockchain, as the start-up Propy executed the first real estate transaction through cryptocurrency, in which a San Francisco investor bought a house in Kiev for $60,000 in Ethereum tokens (another cryptocurrency)
  • And more examples to be provided

Artificial Intelligence in Real Estate: “Maybe one day they’ll need-homes too.”

 

In 2018, it seems the most promising, and yet most horrifying frontier is artificial intelligence, or (AI). The potentials for computing ability, in short increments of time, are almost unfathomable, while the ethical implications in creating an entity with such a supreme nature are grounds for insomnia. Regardless, even if its potentiality keeps you up at night, artificial intelligence is being incorporated into almost every sector of the market, including real estate; it’s the biggest thing since sliced bread. The effects this technology could have on the traditional methods of real-estate business are still obscure. Companies like REX Real Estate Exchange are offering the consumer an artificial intelligence-driven service that essentially replaces the human agent, and charges less in commission. In this service, the computer runs through hundreds of thousands of data points to identify potential buyers. To accomplish this, the AI extracts and scrutinizes mountains of personal browsing data and flags the individual users who are satisfying the criteria of interest. Once a user is identified, the system advertises the properties, to the potential customers, on their preferred social media platforms, as well as the websites they visit which allow some form of what I would call advertisement metamorphosis.

data miningArtificial intelligence isn’t just the foundation of new startups, it’s being implemented into pre-existing real-estate tools that have been transforming the market for years. ATTOM data’s AVM is a tool which analyzes previous property purchases. The system breaks down property characteristics, compiles them and assigns values, and uses them to set a market value scale. This same process can be applied to a buyer. Artificial intelligence makes it possible to scrutinize personal data and, consequently, base property value on the desired home qualities, income, and personality traits of buyers, not just the characteristics of properties. Even services, like Zillow, will need to adapt greater AI capability. The consumer today shapes their life according to recommendations. Video streaming and food services use AI to suggest future choices to people based on prior activity. It’s a fundamental tenant of psychology that most people desire to be instructed and managed. This same concept applies to how AI is incorporated. Real estate web services, with the help of AI, will be presenting recommendations, to the consumers, based on extrapolated data trails. Has this individual posted about having children? Add a spare bedroom qualifier to their home criteria. Do they like barbeque? Advertise a property in close proximity to something finger-lickin’ good. Do they like reading? Propose a property with abundant natural light.

The future of real estate, with the help of AI, is consumer personalization. The average artificial intelligenceperson, according to a Nielsen Company audience report, spends 10 hours a day consuming media online. That amounts to 3,650 hours, and 41.6% of the average person’s year spent online. This activity produces an incomprehensible mass of data trail to be scrutinized and expressed in your next home purchase. How AI will ultimately transform the real estate business is unknown. Who knows, perhaps one-day artificial intelligence will purchase property for itself. All one can be utterly sure of is that the phrase, “I’ll be back,” will not be vocalized because AI isn’t terminating anytime soon.