Probate Estate Loans: How They Work and When to Use Them
The probate process can be long and complicated; it can take anywhere from a few months to several years, especially if there are conflicts or disputes among beneficiaries about the inherited property. With the property being tied up in probate it makes it difficult for beneficiaries to proceed with a sibling buyout or manage expenses related to estate administration, outstanding debts, property taxes, insurance and maintenance. So, a probate loan could be an option worth exploring to cover those expenses.
Keep reading to find out when you should consider getting a probate loan.
When You Should Consider Getting a Probate Loan
A probate loan is a type of short-term financing that helps beneficiaries and executors get quick access to funds during the probate process. Securing a probate loan might be a good idea in the following situations:
Property Tax Preservation
During the probate process, the transfer of ownership might underlie a property tax reassessment. However, getting a probate loan before the distribution of assets can help borrowers avoid a property tax reassessment under California’s Proposition 19 or Proposition 58 (known as the parent-child exclusion).
This exclusion allows for a direct parent-to-child transfer without triggering a reassessment of the property’s value for tax purposes and facing a significant increase in property taxes.
Buyout Other Heirs
When there are multiple beneficiaries inheriting a real estate property, one of them might decide to maintain ownership while others might want to sell their share.
However, those wishing to retain the family home might not have the necessary funds to buy out the share of the other beneficiaries. This is where a probate loan may be a great financial tool since it allows the retaining party to borrow based on the property’s equity to buy out the remaining heirs.
Settle Estate Obligations
Probate can be a lengthy process that can take several months and up to 3 years in some cases. During this time, beneficiaries may face the following expenses:
- Funeral costs,
- Outstanding medical bills,
- Lawyer fees arising from the probate process,
- Estate taxes
- Property taxes and insurance
- Payments for existing mortgages or other estate debts
- Legal and relocation expenses due to tenant eviction
- Property renovations and repairs before a sale, etc.
A probate loan may help in addressing these unexpected costs, allowing the estate to borrow against the property’s equity without waiting for the probate to be settled.
How to Obtain a Probate Loan from HCS Equity
Generally, borrowers won’t find probate loans at a bank or credit union as they are not offered by traditional financial institutions. Only a specialized probate loan lender such as HCS Equity can offer fast and flexible financing at competitive interest rates and terms.
There are certain steps that are typically involved when securing a probate loan:
- The borrower reaches out to HCS Equity to discuss the loan terms, interest rates, and other associated costs.
- Since the loan is secured against a real estate property within the estate, an appraisal may be necessary to determine its current market value and maximum loan amount available.
- Once the loan amount is determined, the lender disburses the funds directly to the probate estate to create the liquidity needed for estate related expenses, or for equalization to avoid property tax reassessment under Proposition 19/58.
- After the probate process is completed, the estate assets are distributed to the heirs.
- The retaining party completes the appropriate form for change of ownership and property tax reassessment exclusion.
- The retaining beneficiary pays back the private loan with their own funds or through a conventional loan.
Since the loan is secured by the estate-owned real estate, the loan amount is typically up to 65% of the value of the asset (real property) with a maximum limit of $3,000,000.
Considering that these loans are short-term in nature, the standard loan duration is one year, however, we can extend the terms based on individual circumstances. Borrowers can expect to receive funds within 7 to 10 business days in most cases.
What factors determine the approval for a probate loan?
- Court approval. Probate loans must be approved by the probate administrator and all beneficiaries must give a written consent, allowing for the loan to be secured against the estate-owned real estate.
- Collateral. Our decision is based solely on the equity in the property.
The Final Words on Securing a Probate Loan Through HCS Equity
Probate loans offer a valuable solution for heirs, alleviating the financial pressure during the probate process. However, as with any financing option, it’s important to consult with professionals such as those at HCS Equity before securing a probate loan.
With years of lending experience, HCS Equity provides probate loan solutions on California properties at competitive interest rates and flexible terms.
Contact HCS Equity today to have your probate estate loan funded fast.