Welcome to episode 20 of The Gordian Knot, I’m Rick Harmon and I’m your host and we talk about all the matters concerning inherited property, tangled trusts and estates in the chaos. And this episode 20 I want to talk about a little bit of the truth and the truth is sometimes hard to get. So we’re going to talk about Black Swans and Catalysts as they come up with your new client matters.
So in one case that I had over 20 years ago, an attorney referred me his client who was administrator of her mother’s estate. And the story gets crazier and crazier, but it seemed like the client who really wanted us to just do a basic administrator loan, was metering out the truth. It seemed like every week I was getting a little more, but it’s getting longer and longer and longer. And she kept wasting a lot of time and she was not very straight forward.
Actually, it ended up being an advantage for me because at some point in time I recognize this client was really going nowhere and I made some real decisions and the way we take on new clients and what we require from them, and what we will not accept in dealing with a new client. So it’s the facts of the case started evolving, it turned out her father was in fact the person who murdered her mother. And this made it even more difficult and I’m sure an emotional state for this woman because this had happened some time ago and the father was already in prison. But the fact of the case was, I was dealing with an administrator who was not being very forthright.
And she was quite emotional at the same time, which is rare because most of the time when people come to us and they want to do something and it’s an attorney referral, they’re past the grief point. Certainly sensitivities, a fact of life, but they’re dealing with the stuff, they’re dealing with the house. In this particular case, they were dealing with trying to get a loan, provided liquidity and deal with a lot of legal bills that were a result of these cases, including the criminal case with their father and the civil case involving her father’s dealing with the trust and now the probate.
So in this particular case, as it get worse and worse, and I found more information I don’t really need to know about the inter family matters, but what I do need to know are the basic facts as the effect the title to the property. So I discovered in this case the worst part in that was not only had the father murdered the mother but he had hid her in her body, in the kitchen wall, only to be discovered by another family member.
A real tragedy, normally I wouldn’t hear that and normally I would not bring that up on a podcast, but truth be told people care, houses don’t care. And that’s what I was really dealing with is to try to make a loan so that this estate could go forward. The woman was pretty traumatized, understandably. In another case, I had a client who was referred to me, administrator of her adult daughters of state, and the adult daughter had been tragically killed in a motorcycle accident.
Now, this by itself is not unusual. What was even particularly strange though were two facts. One was that the adult daughter was the result of a, I guess a rape by the brother and so there was an incestual birth and the adult daughter was in fact raised by the grandparents.
I could understand that and so we were actually dealing with two estates. We were dealing with the trust, we were dealing with the adult daughters of state, and as it turned out we were able to salvage the grandparents of state. Are you following this so far? Not easy. Now, here is the other part where it did get unfortunately problematic and that was that the so-called administrator who was now determined to be the successor trustee, despite all the help we had given her, she was in fact actually the other sister of the adult of the decedent and was impersonating her mother. Although her mother was involved in this and her mother wanted this loan, we were not getting factual representation.
We did not learn about this until quite a long time later. It didn’t really affect us in the end but it was a terrible thing. Truth be told, I haven’t met with clients in person since about 1996, so we’re dealing with people over the telephone nowadays with emails and sometimes even texts through other parties, through the escrow company, through the title insurance company. We always get title insurance and through others who facilitate and work on the team. But we don’t always know what’s going to be the case when somebody brings something to us.
So I’m going to refer to my friend Chris Voss who wrote a book called Never Split The Difference. In that, Chris talks about what he refers to as the Black Swan. Those are all the unknowns that we’d never even anticipate, the unknown, unknowns, if you will, and things that we just never expect to deal with. So when you’re dealing with a new client, it’s not unusual for a client to not be forthright. It’s not unusual for a client to lie where the problem becomes significant is where the client attempts to either deceive or omit significant facts.
You are the attorney, I’m not an attorney, and I’m not a tax advisor of course I’m not qualified for either one, but I do see your messes, and your clients that you refer to us and we do have to clean up these messes. So thank you to Chris Voss for putting a name on the Black Swan problem. When I use the Petito formula, property, equity, title, interests, threats and opportunities. Most of the time it starts off pretty clean, pretty straight forward. Somebody comes to us and we talk about the property and it’s typically a single family house somewhere in California. And we’ll look at the title of the property, kind of the quick look version to determine if there’s equity. Yes, we have a little mortgage on it, we have some back taxes, we have a couple of little liens, but we had determined that yes there is lots of equity under 50% loan to value. Most of the equity is still there. So now we’ve established the property part, the equity part, and we look at the title part and then we discover that, “Oh my gosh, mom and dad are on title and mom and dad fortunately held the property as joint tenants,” and that’s pretty easy to do if we have certified death certificate for the predeceased spouse.
Sometimes the property is held tenants in common and that become more problematic, sometimes the property, if the last to die was mom, sometimes the property was never in mom’s name at all and that we’re having to do a probate for the owner, typically death, another relative, perhaps a parent or grandparent. But even another situation is when we’ll pull up the title of the property and realize that what the property ownership we thought was going to be mom as an example, turned out to be mom and Uncle Fritz or something like that, or maybe just Uncle Fritz or maybe multiple generations as our last podcast episode 19 talked about cascading estates where there’s multiple generations.
So some of the things that we look at a title are pretty straightforward to see, but not so easy to fix without having some time in involving the courts. Continuing with our Petito model, we’ve looked at property, we’ve looked at equity, we’ve looked at title, now we’re looking interests. Sometimes these interests are not clear and in the case of this one situation, where the relationship was based on an incestuous relationship, the breakdown in the family tree, people used to make jokes about limited branches in the family tree.
This one was difficult and since we’re not really making loans based on the equity of the individual heirs or beneficiaries, we don’t really need to know that, but from the dynamics of putting a transaction together, it is important to know who is going to become an issue, if they’re locatable, if they’re even alive or if they’re way too fractionalized, it may not be practical. In other words, it may not be juice, may not be worth the squeeze. On the threats part is where typically the clients come to us, they come to us with these particular issues and we look at these known issues and talk about the client and then we provide them two things, we provide them the transaction they asked for and we provide them some level of clarity as to their planning.
But of course the unknown threats are the threats that the clients don’t see or they don’t want to talk about, they don’t want to reveal, and we do our best to protect the attorney as well as ourselves and the client from these threats when at all possible when at least there can be that determined during the process of the transaction. But the last thing, what people really want is the opportunity side of Petito, and that is where they came to us. They came to us for a loan or they came for certain benefits they wanted to receive. They wanted to resolve a dispute and one person’s getting money and other person’s getting an asset separately alone as an example. But at the end of the day, the opportunity works both ways, it’s an opportunity for you as the attorney or real estate professional to be of service.
In our case, it’s an opportunity for us to provide the services that we do in both providing the clarity as well as helping the client get the transaction done, they need to typically alone to the estate or trust. Enjoy this episode. I had fun. We’ll see you on the next episode of The Gordian Knot.
This episode is brought to you by closeprobate.com loans and solutions for cash for California estates and trusts. You are listening to The Gordian Knot with Rick Harmon.