Tricky listings

What to know when you take a listing involving a divorce, death, trust, bankruptcy, and other challenging situations.

by Jerry Prager   Have you ever taken a listing, worked it diligently, generated an offer, negotiated the contract, deposited the contract with the title company, and have everything go smoothly up until closing, only to find out that an owner of the property did not sign either the listing agreement or the contract and refuses to sign a deed?

You will never experience that situation if you follow a few simple procedures.

In most cases, the owner of the property is obvious and there will be no particular special considerations on your part. Still, it is always a good idea to request the owner to furnish you either a copy of the deed or title policy when the owner acquired the property. These documents will give you the essential information concerning record title at the time the property was acquired and the correct legal description to insert in the listing agreement.

There are many special situations that require a little more information and due diligence on your part as a listing agent.

Decedent’s estate

If a death of one of the owners has occurred, then you need to ask whether or not the decedent left a will and if the will has been probated. If a will has been probated, then you need to identify the executor of the estate and obtain the executor’s signature on the listing agreement. You should request a copy of letters testamentary for your file and to furnish to the title company to expedite the closing. Letters testamentary is the authentication by the probate court clerk that the executor has been appointed as the legal representative of the estate and is authorized to act on behalf of the estate.

If an owner dies without a will, the situation becomes slightly more complicated. If the estate is being administered through the probate court by the appointment of an administrator as the legal representative of the estate, then you must obtain the signature of the administrator on the listing agreement. However, in probate administration procedures, the administrator must obtain an order of the probate court authorizing the administrator to sign documents, such as the listing agreement, the contract, and ultimately, the deed and other closing documents.

You will have to coordinate the transaction with the attorney representing the estate, as there is a specific procedure in the Probate Code for authorizing the sale of real property owned by the decedent. The contract must contain a condition in paragraph 11 that the contract is subject to approval by the probate court.

If an owner dies without a will and there is no probate administration pending, then you should suggest that the surviving spouse, surviving children of the decedent, or other close relatives engage an attorney to determine heirship. You will need all of the decedent’s heirs at law to sign the listing agreement and the contract. The title company will require all the heirs to sign the deed and other closing documents. Do not attempt to determine by yourself who the heirs at law of the decedent may be. There are too many variables that can affect or impact the determination of heirs at law.

Guardianship estate

If a guardianship proceeding has been instituted in the probate court for an owner who is either a minor child or an adult who has been declared incapable of handling his business affairs, you must obtain the signature of the guardian of the estate on the listing agreement. The guardian must obtain an order from the probate court authorizing the guardian to sign a listing agreement, a contract, a deed, and other closing documents. You must use the same care and due diligence when dealing with a guardianship estate as with a decedent’s estate. The contract must contain a condition in paragraph 11 that the contract is subject to approval by the probate court.

Pending divorce

If the owners are in the process of getting divorced when you are offered a listing agreement, in addition to obtaining the signatures of both spouses, you must inquire whether or not there are in effect any restraining orders or temporary injunctions enjoining the parties from disposing of the property. You should obtain the names and phone numbers of the attorneys representing the parties and confirm, at least by telephone, that the spouses are free to sell the property without court approval.

If there is either a restraining order or a temporary injunction in effect enjoining the sale of the property, then you must coordinate each step of the process with the attorneys representing the parties. One of the attorneys must obtain an order of the divorce court authorizing the property to be listed for sale. However, any offer submitted under those circumstances must contain a special provision in paragraph 11 that the acceptance of the offer is subject to approval by the divorce court. The divorce court may also require the proceeds of sale to be held in escrow at the title company pending further orders of the court or paid into the registry of the court to be disbursed in an equitable—but not necessarily equal—manner at the time the divorce is granted. The order approving the sale of the property should authorize the escrow agent to pay the brokerage fee and other closing costs of the sellers.

In many situations, owners who are in the process of being divorced cannot agree whether to sell the property. Even when they do agree to sell the property, they often do not agree on the asking price or the selection of a listing broker. If there is a great deal of hostility and recrimination between the parties, the spouse who wants to list the property with you may be required to file a motion with the divorce court requesting you to be appointed as receiver of the property with authority to offer it for sale at a specified price. The attorneys for the parties will appear in court and debate the issue. If the court grants the motion, an order will be signed appointing you as receiver with your authority spelled out in the order. In those cases, it is necessary for you to review a conformed copy of the order with your attorney (not the attorneys for the owners). Your attorney can then guide you while the property is being marketed.

In this situation, you must include in paragraph 11 a condition precedent that any acceptance of the offer is subject to approval by the divorce court. Typically, your fees for acting as receiver will be the real estate brokerage commission that you earn pursuant to the listing agreement. In addition, however, you are entitled to reimbursement for all of your expenses and to recover your reasonable attorney’s fees incurred while acting as receiver. These expenses should be itemized and included in the order approving the sale.

Previous divorce

If you are offered a listing agreement on property owned by a party who has recently been divorced, you should obtain a copy of the divorce decree or the property settlement agreement that addresses the ownership of the property, as well as any property rights of the other former spouse. If you are unable to interpret those documents, you should consult your attorney for guidance.

If the property is awarded to one spouse or the other in a divorce, there should be a deed signed by the spouse transferring his or her interest in the property to the spouse who is awarded the property. If the attorneys for the parties did not have a deed executed, it may be necessary to record the divorce decree (or the property settlement agreement, as applicable) in the deed records of the county where the property is located. If both former spouses own or retain property interests in the home, then both will need to sign the listing agreement, the contract, and the deed.

Homesteads

Texas is a community-property state. Many times, one spouse will own the home before marriage as his or her separate property. After marriage, if the parties live in the home together, then notwithstanding the separate property character of the home, the non-owner spouse acquires certain homestead rights. When taking a listing agreement on a home in that situation, you should always require both spouses to sign the listing agreement and the contract. The title company will require both spouses to execute the deed in order to extinguish the homestead rights of the non-owner spouse.

The non-owner spouse’s homestead rights are possessory in nature. Without the joinder of the non-owner spouse, the owner spouse can only transfer good title to a buyer, but cannot deliver possession. Therefore, it is essential to have both spouses sign the listing agreement, the contract, the deed, and other closing documents.

Trusts

Occasionally, a property being offered for you to list may be owned by a trust. You should obtain a copy of the trust agreement to identify the name of the trustee. You must obtain the signature of the trustee on the listing agreement and on the contract. The title company will require the trustee to execute the deed and other closing documents.

A trust created under a will is referred to as a testamentary trust. A trust that comes into existence during the lifetime of the grantor who establishes the trust is referred to as an inter vivos trust. If the original trustee named in the trust is no longer acting as trustee, you should request the owners to furnish a certificate of incumbency prepared by their attorney identifying the current trustee. The current trustee is the person who should sign your listing agreement.

Bankruptcy

If an owner of the property is involved as a debtor in a bankruptcy proceeding, then you should determine whether the proceeding is pursuant to Chapter 7, Chapter 11, or Chapter 13 of the Bankruptcy Code. Also, you should determine whether the property is claimed by the owner as exempt. In either a Chapter 7, 11, or 13 proceeding, you must insert in paragraph 11 a provision that any acceptance of an offer is subject to approval by the bankruptcy court. You should discuss with the owner’s attorney whether or not the owner is free to sign a listing agreement to sell the property and confirm the nature of the proceeding.

Corporations

If the property you intend to list is owned by a corporation, you should make sure an authorized officer of the corporation signs the listing agreement. You should verify the correct name of the corporation and the title of the officer signing the listing agreement. You can confirm that the corporation is in good standing by checking the Web site of the Texas Comptroller of Public Accounts (www.window.state.tx.us, then select Franchise Tax Account Status on the left side). The title company will require the corporation to furnish a certified resolution of the board of directors at the time of closing authorizing the sale and identifying the officer who is authorized to sign the deed and other closing documents. You may want to request a copy of that resolution at the time you take the listing agreement to avoid any delay at closing.

Special care should be taken when listing property allegedly owned by a relocation company, as many times the relocation company keeps the title in the name of the previous owner. You should ask the relocation company about its policy. When title is still held in the name of the previous owner, if possible, have the previous owner join in signing the listing agreement.

Partnerships and other entities

If the property is owned by a partnership, a limited partnership, or a limited liability company, you should request some evidence of the authority of the partner or manager who will sign the listing agreement. For a general partnership (or joint-venture agreement), you should request a copy of the partnership agreement, as the title company will require a copy to ascertain the authority of the person who will sign the deed. Similarly, in a limited partnership, the general partner should sign the listing agreement.

Many times the general partner is a corporation or other entity. If so, you should follow the applicable procedure as outlined above to have the proper person sign the listing agreement. For a limited liability company, you should request a copy of the operating agreement or other document governing the company to ascertain the name of the manager of the company who is authorized to act on behalf of the company. If the owner is reluctant to furnish you with any of those documents, you might suggest that the document be furnished to the title company who will be handling the closing of the transaction. You can rely upon the title company’s confirmation to you concerning the authority of the person signing the listing agreement.

In summary, it is important that all owners of the property sign the listing agreement. It is prudent for you to obtain the best available evidence of the authority of a person acting on behalf of another entity. You should take the extra time and steps in the beginning to protect your interests, so you don’t find at the end of the day there will be no paycheck.

Jerry Prager is a member and president of Prager, Metzger & Kroemer PLLC. He is also legal counsel for the Arlington, Greater Dallas, and Irving-Las Colinas associations of REALTORS®, and is a current member of the Texas Real Estate Commission’s Broker-Lawyer Committee.

Photo © PictureQuest.

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