New Laws for Inheriting Property Jointly

Not long ago, Devin and his brothers inherited some property. Thankfully, this deal went pretty smoothly, because they all wanted to sell it. While they were walking through the process, John was explaining all the ways that this situation could have gone wrong. It could have been a nightmare.

John says that there is an inordinate amount of contested matters involving inherited, jointly owned property. Sometimes one person wants to sell, and the other don’t. Or let’s say one of the joint owners is living in the property – that’s their house, and they don’t want to move.

So What’s The Problem?

Beside family squabbles, there is a huge problem with the old inherited property rules. It’s not uncommon for there to be old property that is now, after several generations, is owned by a bunch of people. They might not even know that they own this little part of a piece of property.

Some “entrepreneurial” person does a little bit of genealogy research, and they find a person who owns this little tiny fraction of a piece of property. They buy that little tiny fraction of the piece of property, and he petitions the court to be allowed out of the property.

The court only has one option: a partition by sale. They sell the property at a public auction, probably with only one announcement that is posted in the courthouse, and the only person that shows up at the public auction is the guy who forced the sale in the first place. He buys the whole property for a very low price.

All the other owners receive a tiny amount of money for the property, and he now owns the whole thing.

The Solution

In 2010, the Uniform Law Commission proposed a set of laws that would prevent these type of situations from happening. The Uniform Partition of Heirs Property Act has been adopted by 13 states so far, and another 10 states have introduced legislation for the 2019. Each state’s exact laws may have minor details that are different, so it’s important to understand the laws that apply to your property, but the laws are generally similar.

Under these laws, there is a different process when a partial owner requests a sale (or a partition.)  The court will start by hiring an appraiser. The appraiser will value the property, and the property will be offered to current owners for the appraised price. If none of the parties with a share choose to purchase the property, then the court has a list of options that they can exercise.

The first option is to hire a real estate agent to sell the entire property for the appraised price.

Regardless of how the court acts, the court is obligated, by statute, for fair market value. The old-style, partition by sale auction on the courthouse steps, is only authorized if the court believes that, using that method, the property will sell for more than the appraised value.

Why Does This Matter To You?

Knowing about these laws, you should go back to your estate plan, and see how you can amend your estate plan to avoid these potential conflicts. This is particularly true if you live in a state that has not passed these rules. Leaving property to children in joint ownership can create many problems, and most of those problems can be avoided if you structure your estate planning correctly.