Selling Real Property Out of a New York Estate
The rule almost everyone has backwards
Selling a house that belonged to someone who has died is not an ordinary sale, and the difference shows up at the worst point — after a buyer is found, when the title company asks who has the authority to sign the deed.
We act for executors, administrators and families in these sales, from the letters that make them possible to the closing.
In New York, title to real property does not go to the estate. It passes at the moment of death — to the beneficiaries named in the will, or to the distributees under the intestacy rules if there is no will. The executor does not own it. What the executor has is a power over it, and that power exists so that the property can be sold to pay debts and to distribute what is left.
That has a practical consequence courts have enforced: where the beneficiaries take the property in kind and behave as its owners over a long period — managing it, letting it, treating it as theirs — the property stops being an estate asset and the fiduciary's power over it can be lost. In one Surrogate's Court decision the beneficiaries' conduct over twenty years extinguished the executor's authority to sell entirely.
For a sale happening in the ordinary course this is not a problem. For an estate that has been sitting for years with the family living in the house, it is the first thing to check.
Does the executor need a power of sale in the will?
Usually not, and this is the second point routinely stated backwards. New York gives every fiduciary — executor, administrator, preliminary executor, trustee — the power to take possession of, manage, lease, mortgage and sell the estate's real property, at public or private sale, on whatever terms are most advantageous to those interested. It is the default. It applies unless the will, the decree appointing the fiduciary, or a later court order takes it away.
A will therefore does not need a power-of-sale clause. It is good drafting to include one, and it reassures title companies, but its absence is not the obstacle it is often described as.
The real limit is a different one, and it is the one that catches people. The default power does not reach property that has been specifically disposed of — that is, a house left in the will to a named person. For specifically devised property the fiduciary needs the devisee's cooperation or the Surrogate's approval.
When the court has to be involved
Where the power of sale has been cut back, where the property was specifically devised, where a beneficiary is a minor or under a disability, or where the parties cannot agree, the route is a proceeding in the Surrogate's Court to dispose of the decedent's real property.
The grounds are broader than the usual description suggests. It is not only a sell-to-pay-debts proceeding. The court may authorize a sale to pay administration expenses, funeral expenses, the decedent's debts and liens — though not mortgage liens — any death tax, any debt or legacy charged on the property, for the payment and distribution of the shares of the people entitled to them, and for any other purpose the court considers necessary.
There is also a provision that is regularly overlooked and can be very useful: the court may entertain an application of this kind even where the sale already appears to be authorized by the will or by statute. When a title company will not accept a fiduciary's signature and no amount of argument moves it, a decree ends the discussion.
Nothing can be sold before letters issue
An executor named in a will has no power to dispose of any part of the estate before letters testamentary or preliminary letters have been granted. The only exceptions are paying reasonable funeral expenses and taking steps necessary to preserve the estate. A nominated executor holding an unprobated will cannot sign a contract of sale.
Where probate will take time and the property cannot wait — a buyer in hand, a building deteriorating, a mortgage running — preliminary letters are the answer. They can be applied for once a probate petition has been filed, and they give the preliminary executor the powers of an administrator apart from paying legacies or distributive shares. A preliminary executor can take possession of, manage and sell real property. One qualification travels with that: specifically devised property may be sold only with the written consent of the devisee or by court order.
What a title company will want
In practice a purchaser's title company will want one of three things: a fiduciary conveying under a power of sale that has not been cut back and does not run into the specific-devise limit; the people in whom title actually vested joining in the deed; or a Surrogate's Court decree.
Working out which of the three applies is the first thing to do, not the last. It determines who has to sign, who has to be found, and whether a court proceeding needs to start now or not at all. It is also the point at which a sale that looked simple turns out to need a kinship proceeding because one distributee cannot be located.
The rest of it
There is more to these sales than authority. Estate transfer tax returns and the transfer report have to be prepared. Where the decedent was not a New York resident, or where a distributee is not a United States person, withholding questions arise. Where more than one beneficiary owns the property and they cannot agree, a partition action may be the only route. Where there is a mortgage, a payoff letter has a shelf life and expires — which is a scheduling problem, not a legal one, but it delays closings more often than anything else on this page.