Your in Escrow and a Principal Dies: What Happens?

Usually there is a period of time between the signing of a real estate contract and the close of escrow. What happens when one of the principals passes away before the deal closes?

Generally speaking, if the seller dies the contract they signed is still in force. The seller will not be able to execute any final documents; however, the contract the seller signed is still valid. Their estate is responsible for the seller’s obligations and the buyer has the tight to take ownership of the property at closing according to the terms of the contract.

Before any closing, property rights must be determined before the contract can be fulfilled and upon death the estate of the deceased must be administered. If the property is headed to probate that could cause a huge delay, tracking down heirs and giving notice. The buyer may have to wait weeks or months for probate to wrap-up and in most cases the contract can be terminated. The buyer usually will have their earnest money returned.

Generally speaking, if the buyer dies before the property closes the contract they signed is also binding. The buyers estate is responsible for contractual obligations entered into before their death. Usually the seller can not enforce that. Many contracts state that the seller’s only remedy is to keep the earnest money deposit. While the seller reserves the right to file a claim against the buyer’s estate for lost profit it is rare for such sellers to prevail.

In a nutshell, if a seller dies before the contract closes the deal does not necessarily die with them. If it’s the buyer that dies the contract is very likely just as dead.