California Special Administration: When Letters Take Too Long, with Aaron Feldman

0:00 I know I got thanks. So many probates are basic and common and ordinary, but as I would say, you never have a problem until you have a problem, and then you have a problem. If you don't prepare for that, if you didn't start with the right attorney, you probably have a problem. And so, I'm really excited to have a real experienced probate attorney who does administration and gets involved in litigations related to that and the court matters, Aaron Feldman from Feldman Law Group, a returning to Probate Weekly today. Aaron, thanks for coming back to us.

0:33 Yeah, thanks for having me, Bill. So, you know, problems, I mean, I'm sure some percentage of probates, 80, 90% are relatively routine, but really where the choice of the right attorney is important is both so that doesn't happen, those non-routine ones, or when you start off with the non-routine ones. So, let's talk about a couple common or more common problems that arise. For example, emergency sales. There are times when people say it's too late to do a probate because of this problem. We're going to lose the property because of X, maybe a foreclosure. Talk about what the situations look like and what are some of the possible tools or remedies you have to help solve that problem?

1:13 So, one of the problems we see it comes from reverse mortgages. And so, when the person dies, there's a 6-month clock to pay off the reverse mortgage, and a lot of times, people are hiring their probate attorney in month five or later.

1:35 Or six, or seven. Month seven, yeah, that's a good one. [sighs and gasps] So, in terms of what's needed to satisfy the lender is not only do we have to file probate, but we have to get special administration powers. And so, you have to do those on an ex parte basis and for your non-lawyers out there, ex parte just means it's an emergency. You're getting a hearing within 24 to 72 hours and giving you limited authority to handle some special administration issue. And often that issue is authority to sell the house. So that's one of the main areas, but similar to reverse mortgages, there are many situations where the property is in default on a conventional mortgage or property tax liens are pending because those taxes haven't been paid on a regular basis. So there can be other reasons why there is some financial necessity to get emergency powers to deal with real property.

2:58 And then there's a third area can be where there's holdover. There people living in the house. And whether that's the family member that was taking care of mom or dad and really doesn't have the ability and certainly not the motivation to leave right away. And so does the estate have cash to sort of continue to pay a mortgage because they have to go through legal channels, eviction, to remove their sometimes it's their own sibling. Frankly, I can tell you the worst case scenario is one I had this year where gentleman passed away in his house and squatters moved in and started a fire. And [clears throat] so there was significant fire damage to the structure. All of the contents, and we ended up selling that property as a lot rather than as a home. yes, there was also the insurance settlement, but I'm sure that for the estate, we are not getting the full value we would have gotten selling it as a home, even if we had to put some money into it to fix it up a little.

4:30 So, okay, there's a lot to unpack there. So, let me kind of go back to some of the beginning. Reverse mortgages is an area that has been increasingly part of my probate business in that mom and dad get a reverse might and I think these products are increasingly popular, increasingly valuable as people learn about them. I think they're very powerful tools and have a lot of advantages. But, one of the problems is if mom and dad take it out and don't plan properly, somebody and that's not clear if there's no if there's no estate plan, and even a will, it's not clear what happens day one, has to pay off that mortgage. There's really no option. You can refinance with a new loan, you can refinance or sell the property, but something has to be done. You mentioned 6 months. They give them about 6 months from the date passing. And one of the big misnomers is the lenders will say, "Well, we can offer you know, a 90-day extension upon request, or we can give you two extensions, 90 days." And I would I always say to the customer, "Yeah, well, pigs can't fly. They just haven't in my lifetime." And in California today, my experience is the lenders, they just race to foreclose. They sell the servicing to a servicer, which is really a law firm that's just going to foreclose. And you need to protect your rights. And so, the problem arises, as Aaron pointed out that you have this pending foreclosure and you know they may not have even filed a probate yet or may have filed but their hearing date is out another month.

5:57 Or they file and another family member files and now the court has to decide who to give the authority to and that can take months. And so one of the possible solutions as you mentioned is an ex parte hearing on the matter where the attorneys point appoint a special administrator with special powers. In the case of probate they can't do everything, can't distribute the money but they can take this one property perhaps and sell it if that's the what they want to do with it. So let's talk about that for a second. Aaron, if you're representing you know one of the say two parties who want to administer a probate they're arguing over who gets to do it, they hate each other, they both think each other's going to cheat each other. How do you use the special administrator process to at least create enough cooperation so that both parties can at least get the authority to get the property under control and perhaps sell it and then argue over the money later but not face the clock of a foreclosure. How do you work with the other attorney and or the other party to make that happen?

6:58 So first when we're talking about multiple parties competing to have control of an estate as the administrator we're talking about a family that there's not even a will. Because if there was a will a will would designate although even sometimes when there's a will the people who were designated are also now gone either out of the area or they're also deceased. Right. So that's what creates a vacuum. and increasingly what the court will want to do in that scenario is appoint a neutral private professional fiduciary to act as special administrator. And of course the problem with a private fiduciary is that they need to get paid for their services, which is understandable. And so, it ends up costing the estate considerable amount of it unnecessary fees if parties can't cooperate. And that's really the pitch that we make often to another beneficiary or another heir about fighting over something as a simple as a special administration. You know, one way to sort of keep everyone happy is to sometimes use a blocked account. So, we're I know we disagree about a lot of things, but we need to sell the house.

8:23 So, let's sell the house. We'll just park the money in a blocked account. That means nobody can touch it. You don't have to be worried about the money. And let's just then deal with these other issues once we get the house sold. Because in a reverse mortgage every day matters, right?

8:41 Right. The reverse mortgage is just continuing to draw out the equity every day until it's paid off. Mhm.

8:49 That is what makes reverse mortgages in probate tricky. I know that last year we had a property that was If it was in nice shape, it would have sold for 1.6, but maybe 1.7 million dollars. It was in terrible shape. we had trouble selling it for 1.3 million dollars. Just an awful hoarder situation. And no cash in the estate to upgrade the house to sell it. But there was also a reverse mortgage that had been in place for a long time. The reverse mortgage payoff was over a million dollars. And so, at the end of the probate mom had this 1.4 million dollar home. There was a net estate of under $200,000 for distribution. In fact, we distributed by dismissing the probate under a settlement agreement calling it a small estate at that point, which it was.

9:54 Interesting that you could do it that way after the fact. I know there's small estates. I've seen them filed up front and I you know, but I've never seen it at the end if there's a very little left. It sort of cuts down on the paperwork and the legal expenses and all that and helps wrap things up, I would think.

10:09 Yeah, well, that was a There was also contested issues, which made a settlement necessary. Mhm. Because we were presenting that settlement to the court, they were willing to accept it. It was a court-approved process. It wasn't something that was done without

10:25 Got it. the knowledge of the court. I've also seen and been involved with when there were contested probates, foreclosure pending, where I've seen both cases where the attorneys agree on a professional fiduciary to handle the fiduciary work. I've also seen it where they agreed to have one of the other petitioners be appointed special administrator just with the powers to sell the property and they kind of agree on the terms, they kind of agree on the list price, they agree on the real estate agent. And so, really all they're doing is saying, "Okay, we want to kill each other, but let's get the money first so that we can kill each other and win the money at the end." At least they can agree on that. And I think that sometimes both parties are so venomous they can't even agree to that. And sometimes if they're focused on the money, they're going to realize why spend extra money on fees and costs that they don't need to do. So, I imagine you try to encourage your customer to be a little more reasonable when they can, even if the other petitioner is the administrator, I'm sure you can follow it or put in procedures to track the things are being done properly. Is that the way you prefer to go or is it something that you'd rather always have professional fiduciary when there's a special administrator?

11:41 Well, you know, I prefer to have probates that aren't being contested. [laughter] You know, we want nice smooth orderly [laughter] world. I realize [snorts] that's not the world we get to live in.

11:54 No. So, you know, more and more I've been inclined to just go with the private professional fiduciary.

12:04 Got it. And that is what the court prefers. Mhm. Because it's going to mean that there will be less reasons for parties to come back to court and complain about this or that, you know,

12:19 Sure. down the road. The license and bonded it also creates some protection for everybody too, I guess. And they're neutral. You know, they don't have a you know, but the reason why the cost go up is because you have a fiduciary in the case and then the fiduciary has their attorney who also needs to get paid.

12:40 Right. Right, so it's going to get expensive. I mean, you talk about a million dollar deal could be an extra 23,000 for fiduciary, could be another 5, 10, 20,000 dollars for attorney's fees if everything is So, yeah, it starts to add up. But again,

12:53 Any number of costs. Yeah, any number of costs. So, what Alameda County, for example, up here in Alameda County, one of the ways they sort of limited the costs is that they are they're a couple of attorneys that they look to serve as special administrators in some cases because that way there's no extra cost for an attorney for the special administrator.

13:17 Mhm. They're already the attorney. So, that's worked out. One of the cases you talk about that I get regularly, I mentioned where one of the parties doesn't want to leave, you know, the classic is mom and dad have both passed, one of the children, son, daughter, lived there, was the caregiver equivalent, took care of mom and dad, took care of the property, paid the expenses. Maybe they did, maybe they didn't, you know, that can be argued. how they took care of them, that can be argued, did they do it properly or not. But as a result, you know, they're living in the house for free. Takes time to get everything organized to file the probate, takes time for the probate to approve, meanwhile they're living there for free. To the detriment of the other beneficiaries, perhaps. And the other two want to sell, one doesn't. so talk a bit about what the options are there and what kind of tools you've used to help protect the siblings who aren't in the property. They're entitled to some financial remuneration of the value of the property, either for the rent or if they want to be generous and give it to them, fine, but let's get them out of there and sell the property.

14:21 So it comes up a couple of different scenarios. Family members, the trickiest, you know, evicting your sibling, hiring an attorney for the estate to do the eviction process

14:32 Mhm. is is unpleasant, but sometimes necessary, you know. there's a probate that's been dragging on for an extra year and a half because this wasn't a caretaker family member, but it was the daughter and she has some disabilities of her own that make it difficult for her to simply move out into an apartment and pay for it. So that's a scenario that also impacts your ability to sell the house. worst case that I had involved market fluctuation. while we tend to think California real estate prices only go up there are periods where we've had some fluctuation and we were trying to evict this a co-trustee. It wasn't a probate, but similarly, we couldn't sell the house with her in the property. And we were bumping up against 2007 into 2008. And if we had sold it in early 2007, this was a much higher price because people were paying crazy prices back then, as you probably remember.

15:55 And [snorts] when we sold it was about at least 50% less than the peak of the market. I'm not going to disagree with whether the price they that it was ultimately sold for was unreasonable. I thought the peak of the market was totally unreasonable for that area. You know. But that can also be unfortunate when you're you're talking about now, where the real estate market is not as hot, so to speak, as it has been.

16:32 Yeah, people often dismiss the cost of delay. And I think it shows two ways. One is there's unforeseen circumstances. You know, I had a bunch of escrows and probate in escrow when COVID hit. And you know, if they needed court confirmation or they needed something from the court filing or something, and everything just stopped. And so you had properties that couldn't be sold and people who needed money, and it was challenging. And I think that, you know, those things can happen. Rates can jump up, rates can jump down, they can have different effects. And so the other part is just the property sitting there. I think my clients I try to explain to them, you know, you have a million-dollar house you're going to sell. Let's say it's Let's say it's, you $8,000 of equity just to throw a number out there.

17:21 Right. [snorts] And it's sitting there, you know, it's probably worth $4,000 a month or more of foregone interest if you'd sold it and put the money in the bank versus sitting there empty while you're paying property taxes, insurance, and hoping there's no squatter coming in the property. And you know, a month or so is $4,000. Two months could be, you know, 8,000 or more. difference of sitting there and be and I find sometimes that clients will try to cheap out on something for a couple hundred bucks and not understand that when you delay something a month or two, it's very expensive. There's a lot of money involved. And you can complain about the attorney's fees, for example, that's $23,000 on a million-dollar house or estate, but a property sitting for an extra 6 months cuz you do yourself, you've lost at least that much interest on the property.

18:09 Yes. Yeah, exactly. you know, I have a probate currently where it [snorts] was my client's brother's house. He was a bit of a hoarder, but my client is also a bit slow in how she has gone about cleaning the property. And she there's a lot of emotional issues in probates as well. We haven't talked about that, but there are emotional factors that that overwhelm our clients

18:45 Yeah. when they're dealing with a parent or even with a sibling's estate. And so they kind of freeze a bit. And for her, she's going through it page by page. And if you've seen a hoarder house, you know that's a lot of pages.

19:03 Yeah, no, I've seen those and you know, I had a customer the other day ask me about a property and said, you know, do I have to do all this? Said, no, I got a vendor who'll do the whole thing. You know, that that will get all taken out for free cuz they'll they'll sell what they can and they'll have a percentage of the excess, but it'll get done. Like just take out what you want, what's valuable to you or emotionally valuable to you. and they'll take months to get to that point. And then when it's done, you know, within weeks, the relief is amazing. And not only that, financially, they're closer to getting paid. And so I think often times I try to explain to customers that time is money anyway slice it.

19:44 Well, and then to compound it when we're talking probate, so you can't file that petition for final distribution Right.

19:52 Until we've sold the property. Right. We know exactly what the cash is Right. in the estate. And the court system is impacted in Bay Area, Contra Costa County, they're setting hearings right now in December.

20:10 Right. 4 months. Right. So that's an initial delay. And if you've delayed 4 months just to sell the house or more, it really pushes a probate that could have been done in 12 14 months into what I see is usually more 18 to 20 month process.

20:30 He Yeah, you see I see initial hearings continued because the most common thing I think is either the notices weren't done correctly or were done but not filed, at least in LA County, or the publication was not done or the publication was not properly or wasn't filed. All those things are pretty cheap, easy, and people who know what they're doing do them all the time. But when you get continued down in LA, you're talking about, you know, at least a month minimum, but probably 2 months or 3 months. And again, at you know, a million dollar property, it's four $6,000 a month of foregone value just sitting there. it's a very expensive mistake. And this is where you can save money. You can save money and do it yourself. But I

21:24 Right. my experience is they don't save money. They end up spending more on mistakes than they would ever spend on an attorney. Yeah, probate has a lot of procedural rules. The just the initial petition has a lot of boxes to check that and those boxes mean things and then you have to have the correct information

21:43 Right. to fill that out correctly and submit it. And like you said, you have to [snorts] send the notice properly. You have to get the publication done timely. And so if you have to republish then it's a minimum of six weeks continuance and depending on your county, it could just be a three-month automatic continuance cuz they don't have the court space to give you a hearing sooner.

22:08 Right. And so that's an issue that does come up. And but another area I think that has also come up is just the family has a house that's free and clear. And some often times there are houses that it's grandma or grandpa who's the one who died 10 12 years ago. And because of the family dynamics, they had someone living in the house or several people living in the house, didn't want to deal with it. And now another generational person has died and other family members think, okay, now it's time to get our money. But you know, there are among other things, property tax implications.

22:55 Yeah. So we had a case where a supplemental tax bill came in at $30,000.

23:05 I'm seeing that more often than ever now. I think this I think the Prop 19 changed where it used to flow from even grandparents to children. Now, I think if you skip that step, it's subject to retroactive reassessment. And I had one of those where the customer got a bill I want to say in high 20s after you close the property out, after you share the funds.

23:30 Well, you know, I have a client who Contra Costa County, it took them a year to send them the supplemental tax bill.

23:42 Right. This was a trust administration, not a probate, so they had done the distribution not reserving money for supplemental taxes. So, now she has to go back to her siblings and say, "I think we each need to kick in $2,500 to take care of this supplemental tax bill." but the delay, like I said, Prop 19 makes it even worse.

24:08 Yes. Because there's now a limit on that parent-child ex- exemption or exclusion. And if you delay, you are risking even worse property tax problems than ever before.

24:25 That got passed I don't think anybody other than the legislators had any idea what that meant, and it's just creating havoc in families who inherit property, didn't plan properly. You know, is it a primary residence? Is it not primary? Was it mom and dad's primary residence? All these things get litigated and have to be handled properly, and you really need an attorney to set that up properly, or else ahead of time, or else you're spending a lot of money, or you'll be forced to sell property you don't want to sell.

24:50 Well, yeah, like and when Prop 19 was finally starting to when that data it became effective, you know, in leading up to that, there were a lot of people trying to transfer titles to avoid that property tax. And you know, there are certain areas where there's a lot of appreciation, you know, mom and dad bought a house in the '60s in an area that is wasn't considered affluent 60 years ago. It became highly coveted affluent area. So, they're sitting on well over a million dollars in equity. And so, for the child to even consider that as a as their new home, the property taxes are still going to go up because you have $2 million reassessment. $1 million will get exemption, but a million dollar extra property tax valuation is a hardship for some of these children to try to inherit and live in mom or dad's house.

25:59 Yeah, it's an interesting question because on one hand, you know, the positive that is it's going to force people to sell properties that they were only keeping because of low property taxes. You know, you have I live in a neighborhood where we have you know, two types of houses. We have the rebuilds that are worth four or five million dollars. And they're paying 40, 50,000 dollars a year property taxes. Then you have the older like me, older houses that were bought way less and the annual property tax bill might be a thousand bucks a year or less. And you can see how on one hand that that's not workable. On the other hand, you know, to hand the bill to somebody it can be difficult. So, I it's one of those areas that that problem's not going to go away. And the government's not going to say, "Hey, we have enough money." I guess in Florida they're actually considering eliminating the property tax. That's not going to happen in California. We're not They're not going to do that, but okay.

26:46 No, and of course, there's always the unintended consequences of policies. So, what Prop 19 was supposed to do and what it's actually doing are not really lining up.

27:00 Yeah. And you know, I understand also the people who are inheriting mom or dad's house with a super low property tax and turning it into a rental.

27:10 Yeah. Because they didn't have any property tax reassessment to deal with. Right. So, I can see where some tweaking was needed, but you know, things tend to go a little too far one way and then a little too far the other.

27:28 Yeah, well, we have laws and then we have lawyers to help us negotiate those laws and obviously some of these things are difficult and tricky and need to be worked on. Aaron, I come to the end of the time that we have today. I really appreciate as always, you know, talking to you, learning about these things and you sharing. if you want more information, Aaron Feldman is the Feldman Law Group and there's a nice picture of him. So, as I have family and if you want more information, you can go to the page to schedule a consultation. he has a phone number on the page, [phone number shown on screen]. The website's feldmanlawgroup.com. And if you can't get this information cuz you're driving or something, reach out to me. I'd be more than glad to make a introduction. I think Aaron, you service what, all of Northern California? Is that your primary focus?

28:11 Yes, Northern California is my area of focus. I have handled cases in Los Angeles. I'm from Los Angeles originally, so I still have some connection there, but yes, Bay Area Northern California is my core practice area.

28:27 Well, thanks so much coming on today and talking to us about some of these advanced topics. I always appreciate you and learn so much from you. Thanks for participating with us today. It's been great. Thank you for having me.

28:35 And for those of you watching, this is Probate Weekly. We get together every week. every episode we talk to different professionals. In this case, a probate attorney talked about the issues that come up, some of the off-the-track issues and difficult ones we have to negotiate. And this is why you need to have a great attorney on your side and everyone be a good one. if you have any questions, comments, I'd love to see them. Feel free to put them in the social media you're watching or reach out to me directly at Bill Gross Probate on social media. As always, make today your best day ever. Thanks so much. That was great.