What to Do When Property is Owned by a Person Lacking Legal Capacity

It is an incredibly difficult situation both emotionally and financially when someone you love has become mentally incapacitated and the responsibility for them and their real property lands on you. I recently had a listing where I was dealing with this issue so I thought I would share some pointers.

People with Alzheimer’s disease, dementia, or other debilitating mental conditions do not have the legal capacity to handle transactions. With our society of people living longer, these issues are more and more common in real estate transactions.

If the legally incapacitated adult executed a Durable Power of Attorney while competent, then the designated Attorney in Fact may have the legal authority to sell or refinance property, and of course all proceeds will go to the actual owner.

Otherwise, the relatives or other representatives of the owner will be required to petition the Probate Court for a Guardianship:

1. Guardianship of the Person– a Guardian with the right to handle the everyday affairs of the incapacitated adult;

2. Guardian of the Property – a Guardian with the right to handle mortgage payments, taxes, insurance, and other management issues with property;

3. Guardian ad Litem – a Guardian appointed by the Judge of the Probate Court, sometimes an unrelated party or attorney (often used to protect the assets inherited by a minor child);

4. Guardian with Leave to Sell Specific Property – a Guardian with authority to sell property owned by a person lacking legal capacity. This process may require an appraisal, contract review, an arm’s length transaction affidavit, a draft HUD-1, and many of the components seen in a short sale.

Real property affected by a guardianship must have the Leave to Sell (#4) before a closing. Although the process is complicated and can be time-consuming, the job of the Probate Court is to protect people who are unable to handle their own affairs and assets.