What Happens to My Deposit at a Probate Overbid in Los Angeles?
Your deposit at a Los Angeles probate overbid depends on who holds it and whether you win. What to bring, who it's payable to, and how to protect it.
At a Los Angeles probate confirmation hearing, your deposit is only as safe as whoever is holding it. If you lose the bidding, a cashier's check that never left your hands simply goes home with you. If you win, that money is committed and you are expected to close. Once the estate has your money, getting it back is hard, so bid only if you plan to close.
What deposit do I bring to a probate overbid?
An overbidder comes to the hearing with a cashier's check for 10% of the bid, made out to the estate. Not a personal check. Not a blank check. You need the estate's exact name and a trip to the bank before the hearing.
On a $500,000 accepted bid, the first overbid under Probate Code §10311 is $525,500, so a 10% check would be $52,550.
Two different buyers, two different deposits
The original buyer. The original buyer can make any deposit both parties agree to, most commonly 3% of the purchase price. Once the buyer has cleared contingencies, they raise the total deposit to 10% and the petition is filed. That's the most common practice. The Probate Code doesn't specifically require the 10%. Most attorneys assume it does because the overbidder needs 10%. Numerous attorneys have confirmed to me that it isn't required, and I've made that case in court and the judge approved the process. Still, there's always a risk that the probate attorney makes it an issue and a judge agrees, so it's something I always discuss with our attorney. Agents who demand no contingencies and 10% up front on day one usually just scare buyers off and cost the estate money.
The overbidder. A buyer coming to court to overbid must bring 10%. That's the legal minimum, no exceptions. Some buyers who are prepared to bid higher bring a check for 10% of their maximum. That's a mistake: it shows your maximum bid to the attorney, who may tell other parties, and it ties up more deposit than required. If you really want to bring more, I recommend one check for the required 10% and a second check for any additional amount.
What happens to my deposit if I'm outbid?
If you bid and someone else wins, your sale isn't confirmed and you leave. Make sure the check you brought comes back to you before you leave the courtroom, and that nothing was signed over.
If you were the original buyer and an overbidder wins, your contract with the estate doesn't go forward. Your earnest money deposit should come back under your escrow instructions. Get the release in writing from escrow, and don't sign anything you haven't read.
Who should hold the deposit?
The deposit check is given to the estate's attorney. The attorney can deposit it into the estate's bank account right away, so it goes straight to the estate and bypasses escrow.
A mistake I've seen attorneys make: the estate doesn't have a bank account yet, so they ask the buyer to wire money to escrow instead of handing over a check payable to the estate. I always say yes, because my buyer is far better off with the money in escrow than in the seller's hands. Once a seller has your money, it doesn't come back easily.
What if I win and want to back out?
Don't. On a probate sale you're already in front of a judge. It takes very little for the court to issue an order holding a buyer responsible to close, which is a lot easier for the estate than filing a lawsuit. I tell my buyers: don't bid unless you intend to close, no matter what.
How do I protect a deposit from wire fraud?
On Probate Weekly, real estate attorney Jennifer Felten's advice was to verify wiring instructions by phone with someone you know, use secure Wi-Fi and strong passwords, and turn on multi-factor authentication. Probate sales involve a lot of parties and a lot of email, which makes them a target.
Frequently asked questions
Is the 10% cashier's check required by law?
For an overbidder, yes. 10% is the legal minimum. For the original buyer, the Probate Code doesn't specifically require it, but most attorneys assume it does, so ask before the hearing date.
Who is the check made out to?
Almost always the estate, using its exact name. Confirm the spelling with the attorney or listing agent.
Can I get my deposit back if the house has problems after I win?
Treat it as at risk. You usually bid as-is with contingencies waived. Do your homework before the hearing.
How long until I close after winning?
Be ready to close 10 days after the court order. In Los Angeles it's typically more like 30 days, because the order has to be prepared and signed first.
Watch the episodes this came from
- How Probate Court Confirmation Sales Work – Probate Weekly, Bill Gross, Aug 12, 2021
- How to Sell Probate Real Estate Without Ending Up in Court – Jennifer Felten, RELAW, APC
Related: How does a court-confirmed probate sale work in Los Angeles?
Going to a confirmation hearing?
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Bill Gross, The LA Probate Expert, brokered by eXp Realty · DRE #01022275 · Licensed since 1989, broker since 2005