Underwriting a probate deal where the estate is selling to pay a Medicaid estate recovery claim
Looking at this as a capital participant rather than the buyer, so my question is about how much of the file I need before I'd fund somebody else's side of it.
Deal shape: single family, 1,600 feet, small city, PR is selling under court authority. Purchase price 118, buyer's ARV is 205, renovation 42. The reason it's cheap is that the estate has creditor claims filed against it, including what the PR describes as a Medicaid estate recovery claim for the decedent's long term care, and the number he mentioned was larger than the equity in the house. So the heirs get nothing regardless of price, which is exactly why the PR isn't negotiating hard and also why I'm nervous.
What I've read in the file: petition, letters, the inventory, and the buyer's purchase agreement. What I have not seen: the claims register, any order authorizing the sale, and anything showing the recovery claim amount as filed rather than as described on a phone call.
My worry is priority and timing. If a claim of that type has to be satisfied out of proceeds, then the closing has to be structured so it gets paid, and I want to know who's responsible for making that happen and whether the title company has done this before. State practice on how estate creditor claims get handled at a real property closing varies, so I'm not treating anything I've read online as settled. My buyer says the attorney is handling it, which is what people say when nobody is handling it.
The part I keep circling: if the heirs receive nothing either way, is there any actual party on the other side with an incentive to close? The PR has a duty and a fee. The creditor wants the money. Nobody in the family cares. That could mean a clean cooperative deal or it could mean a file that sits for nine months because no human being is pushing it.
I'd fund 118 plus half the renovation on a 65 all-in against 205 if I believed in the timeline. I don't believe in the timeline. What would you want to see in writing before you did.