Guardianship: What is it and how does it affect your real estate closing?

Thu, 07/19/2018 - 2:44pm

The need for a guardianship in a real estate transaction can arise in several ways.  If someone in title is a minor child (likely through inheritance) a type of guardianship is needed.  We may also need a guardianship if there is a mental competency issue with a seller.  

DEFINITIONS

A guardianship is a court proceeding to protect the interest of someone who is not legally or mentally capable of conducting his/her own affairs. This is the process where a guardian is appointed for another person to handle the ward’s personal or business affairs.

A guardian is the person legally entrusted with the care of, and managing the property and right of, another person.

The ward is the person that is not legally or mentally capable of conducting their own affairs.  This can be someone with a mental competency issue or also a minor child.  

LEGAL REQUIREMENTS

There are two types of guardianship: Guardian of the Estate and Guardian of the Person.  For real estate purposes a guardian of the estate must be appointed.

In general, without a court order, a Guardian has no authority to sell, mortgage, lease or otherwise encumber any property owned by a Ward.  Any act of a Guardian, if done without a court order, is voidable and could be found to be lacking total effect.  This means that they do not have authority to sign a listing agreement so any agent dealing with a potential guardianship should make sure the person signing the listing agreement has proper authority.  That would also mean that the sale of real property, without the appropriate order, is not a valid sale.

SELLING PROPERTY

So how do we sell property? The Texas probate Code is very specific regarding the steps that must be taken before a Guardian may execute a deed conveying real property.  First, a guardian of the estate must be appointed by the court.  Once appointed, we have four required steps to get to funding.

Pre-Closing Required Steps

Step One: Application for the Sale of Real Estate
This application must be filed with the Court by the guardian.  A hearing by the Court must then be held.  

Step Two: Order of Sale
The court reviews the application to sell and issues an order granting the guardian the power to sell the property.  Ideally, step one and two should happen before a realtor begins marketing the property.  Without these two steps the guardian does not have authority to sell the property so any contract signed by the guardian may be unenforceable if the court does not later award the power to sell.

Closing Required Steps

Once step one and two above have happened the guardian can go under contract and work towards closing.  Closing and funding does not occur on the same day with a guardianship transaction because there are two more steps required before funding can be permitted.  Although the documents may be signed by all parties, the parties must realize at closing that they are closing “into escrow” and that we cannot fund the transaction until the steps below have been completed.

Step Three: Report of Sale
Once documents have been signed the guardian files a Report of Sale with the court.  It is important to note here that no changes may be made to the Closing Disclosure once it has been submitted to the court. This means that all parties must consent at closing to not prorate based on the date of funding and only on the day of closing.  

Step Four: Decree Confirming Sale
The final piece is getting the Decree Confirming the Sale.  This is the order from the court that authorizes the sale of the property.  This order is issued by the Court after a waiting period.  The decree will outline the terms of the sale, to which the sale must comply.  The waiting period largely depends on the guardian’s timeliness of getting the documents to the judge.  It is really important for a realtor working on a guardianship transaction to set a reasonable expectation for the customers since the waiting period is up to the court.  It is typically 5-10 business days in larger counties and could be much longer in smaller counties.  Until the decree is issued all parties are in a holding pattern on funding.  

GUARDIANSHIP TIPS FOR REALTORS

Before marketing a property find out how far into the guardianship process the guardian is;

Make sure that the guardian has obtained the Order of Sale (without it they do not have the authority to list, sign a contract or go to closing);

When preparing a contract be sure to allow adequate time to get through all four steps of the guardianship process;

Remember to push the closing date out far enough to allow the guardian to obtain the decree confirming sale and make sure your clients know the date is not set in stone;

Talk to your clients about this process. It is different from what people expect when buying/selling a property and they need to be aware that this process requires court involvement at each step. If you are representing buyers and they have to have a firm move in date you could experience complications if the seller requires a guardianship.

Closing a transaction that involves guardianship can be very complex.  If you are working with your trusted Texas National Title escrow team we can help guide you through the steps and get your transaction closed.

 

The material contained herein is for informational and educational purposes only. It should not be used as a substitute for legal advice. If legal advice is required or desired, the services of a competent attorney should be sought. Except as noted or contained in any third party links, the contents of this document are the property of Texas National Title, Inc. Reproduction without prior written permission from Texas National Title is prohibited.