Sale, Mortgage, Exchange, or Transfer of a Ward’s Estate

Recently, I was approached by a real estate agent representing a buyer who wanted to purchase property owned by a person who had been declared incompetent and therefore was a ward of another. The realtor's question was simple and precise: what do I need to do to facilitate this transaction?

An incompetent adult is “an adult or emancipated minor who lacks sufficient capacity to manage the adult's own affairs or to make or communicate important decisions concerning the adult's person, family, or property whether the lack of capacity is due to mental illness, mental retardation, epilepsy, cerebral palsy, autism, inebriety, senility, disease, injury, or similar cause or condition” (North Carolina General Statutes (NCGS) 35A-1101(7)). The clerk of court in a special proceeding can make the determination that a person is incompetent and thereby not able to act effectively on their own behalf, and if they do, the clerk appoints a guardian to act on behalf of the incompetent. A "ward" – the person who has been adjudicated incompetent or minor for whom a guardian has been appointed by a court – can own property during the period of incompetency. However, transfers by an incompetent are void or voidable. For a guardian to transfer the property of their ward, a special proceeding is required. 

NCGS Chapter 35A, Article 14 details the procedure to allow a ward’s property to be transferred. It states that a ward's real property may not be sold, mortgaged, exchanged or leased for a term more than three years without the advance approval of the same by the court. For example, in the case of a sale of a ward's real property, assuming the "guardian of the estate or general guardian" (hereafter, guardian) was duly appointed in the county where the ward's real property is located, a guardian who desires to sell all or a portion of a ward's real property must file a special proceeding in the county where the property is located seeking the court's approval for the sale. All the procedural notices relating to special proceedings are required. The guardian's petition will set out the facts relating to the sale of the ward's real estate. The clerk will review the matter to determine that the sale by the Guardian is being made in such a way and on such terms that are most advantageous to the ward's interest. The clerk will note the ward's interest will be materially promoted by the transaction and a) the ward's estate has been exhausted or is insufficient for the ward's care or b) the sale is necessary for the ward's maintenance or to pay unavoidable expenses related to the ward's care or c) the property is needed for public purposes or d) there is otherwise a valid debt that requires the sale of the property. The order will disclose the specific real property involved and the terms of the sale. Assuming, everything is proper, a court order will be entered and then, the property may be sold. 

This means that any contract for the sale of a ward's real property is subject to court approval. It is important to disclose this fact to potential buyers as it could affect the guardian’s ability to complete the transaction on behalf of the ward. After the guardian proves it is in the best interest of their ward to sell the property, they present the contract to the clerk for approval. Once approved, the clerk will hold the file open for ten days to see if any other offers are made on the property. If no other offers are made on the property, the court will allow the guardian to complete the sale. This is important to remember when preparing offers to purchase and contract. The contract should be signed by the guardian as guardian of the ward’s estate and, when setting the closing date, take into consideration the time it will take to get the necessary court approval. Proceeds from the sale will be distributed to the Estate of the Ward as the money belongs to the ward and should be kept separate from the personal funds of the guardian. 

Our experienced team of real property lawyers will be happy to guide you through the process of transfers of a ward’s estate by a guardian. 

Published by Wendy Hughes on March 6, 2017