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The Surrogate’s Court Can Protect You From Deed Fraud

A scale house on some forms for a deed to conceptualize on the financial investment.

{Read in 5 minutes}  As a Trusts and Estates attorney, I deal with the affairs of the recently deceased quite a bit. While the Estate may include many types of assets, it is entirely possible that the deceased owned some real property, whether that be a house with some land attached or as is more common here in New York, perhaps a condo or cooperative apartment.

The laws in New York are interesting in that they treat the title (ownership) of real property differently depending on whether the deceased died with a Will or without a Will

•When one dies with a Will, the ownership of that property is subject to the terms of the Will, which will be determined at the conclusion of the probate process.  

•When someone dies without a Will, present laws in New York allow for the title to immediately vest in the next of kin, who then may collectively gather together to sell the property or have the Administrator of the Estate do it.

There have been many articles in the news lately regarding predatory practices concerning buying out fractional shares of houses in hot neighborhoods — such as many in Brooklyn — which are ripe for gentrification, often at the expense of the communities already there. While these types of potentially abusive transactions are certainly the minority of all estate sales, enough has occurred to take note of the issue.

A typical playbook might look like this: A deceased has a home — for purposes of this example, a brownstone — and died without a Will. So title automatically passed to her next of kin who, for purposes of this example, are her six nieces and nephews.

One of these nieces or nephews is financially hard up for whatever reason and gets approached by a real estate investor who will buy out their one-sixth interest in the property. This may be attractive to that niece or nephew. They do not need to wait to have a discussion about whether or not the family wishes to retain the property in the family or sell it collectively for a higher price. That niece or nephew will receive cash-in-hand very quickly, but that comes at a price as well.

That investor will often (but not always) purchase the property for significantly less than 1/6 of its fair market value. What happens next is that the investor now uses their one-sixth ownership interest as an anchor to file a suit called a partition action against the remaining family members, often causing the auction of the entire property and its sale for significantly less than its fair market value. This has devastated several families and several communities.

The Surrogate’s Court is unique in New York because almost everyone passes through it. Whether we are wealthy or indigent, we are all going to die at some point and the Surrogate’s Court is the Court in New York State charged with handling the affairs of the deceased. Therefore, the judges of the Surrogate’s Court are in a position to help defend against potentially predatory practices like the example I have given above. What some of them have chosen to do is put restrictions on Letters. This means that if the Executor or Administrator wishes to sell the property, the judge must review the potential contract of sale and an appraisal from a qualified licensed appraiser, and enter an Order permitting the sale. It protects all of the parties interested in the Estate and ensures that the Estate can receive the best possible price.

This protection is fantastic, but it can also be frustrating in that there needs to be potentially a second proceeding in the Surrogate’s Court after the Court appoints an Executor, a Preliminary Executor, an Administrator, or even a Temporary Administrator of the Estate, they may need to petition the Court to approve the sale which might delay things slightly. However, this also comes with a great benefit to the Executor or Administrator. Once the Court enters an order approving the sale of the property, the Executor or Administrator need not worry about the beneficiary contesting their decision to sell it at that particular price on a subsequent Accounting proceeding — the Court has already approved it.

For more information on this topic, please contact me.