A probate loan is often used interchangeably with probate “advance.” The structure under any terminology is using an inheritance to collateralize the loan. The difference between a loan and an advance is semantics.
Unfortunately, some disreputable probate lenders object to using “loan” to not be pulled under the umbrella of consumer protection laws.
However, reputable hard money lenders in Los Angeles openly use the word “loan” and have no problem with the oversight of laws protecting consumers. At this time, California is the only state with laws in place regulating probate loans.
Probate lenders will evaluate the estate and the amount its potential borrower will inherit. The claim on the value of the inheritance is assigned to the lender. The unknown in the underwriting is the length of time for full loan satisfaction. Hence, risk will be measured conservatively to the borrower’s detriment.
What Should the Borrower Consider?
Hard-money lenders offer probate loans. Traditional lenders, like banks and credit unions, will not, and cannot, provide these loans because the borrower does not control or own the collateral. Thus, a borrower must work with a reputable hard-money lender in Los Angeles with a proven track record for a successful outcome.
Probate Loans are Expensive Capital
A borrower will need to consider the risk/reward of a probate loan. If the lender cannot accurately measure risk due to the unknown of time, then the same holds for the borrower.
In the time between receipt of the loan proceeds and the end of probate, the borrower will be servicing the loan with monthly interest-only payments. The borrower may be in a precarious position of paying the lender more than the full amount of the inheritance.
A borrower needs to act upon the advice of a probate attorney and maintain open lines of communication with the executor or the estate’s personal representative.
The Lender Becomes Involved in the Process
There is always the risk that the introduction of a lender could bring disruption to the probate process. This disruption could add time at the expense of the borrower.
How Should the Beneficiary Proceed?
Probate loans need to be based on informed decisions. The more advice an heir seeks, the more informed the final decision. The potential borrower must take as much time as practicable to consider a probate loan fully.
Below are essential steps to take.
Consult a Probate Attorney and a Financial Advisor
The heir needs to fully understand an inheritance loan’s legal and financial ramifications. An attorney cannot give financial advice, and a financial advisor cannot provide legal advice.
Know the Full Value of the Inheritance
This information will come from the attorney for the estate. The attorney will give an estimate of the net amount the heir is eligible to receive and the approximate time to receive it.
Notify the Personal Representative or the Executor of the Estate
It will be essential to keep the lines of communication open and honest. The personal representative or executor must provide the lender with certain documentation. Everyone involved should be prepared for the lender to become involved in the process.
As of this writing, California is the only state that requires probate lenders to file their contracts with the probate court.
Although probate loans are not for everyone, some are grateful for this access to capital. Despite the high cost, some recipients find value in this early access to funding. When comparing the timing of the probate process, the loan has the most certainty. This certainty has value.
If You are Considering a Probate Loan, You Must work with a Reputable and Respected Hard Money Lender in Los Angeles
PB Financial Group is a premier, direct hard-money and bridge lender that has provided quick funding since 2007 and has closed over 2700 loans. We aim to satisfy your financing needs efficiently.