Atticus says you can choose your friends but you sho' can't choose your family, an' they're still kin to you no matter whether you acknowledge 'em or not, and it makes you look right silly when you don't.
- Jem Finch, To Kill a Mockingbird
For those who inherit real estate, it is not uncommon to find yourself a joint owner with one or more family members who – let’s just say – you do not always agree with. Frequently, parents will simply leave property to their children without much thought as to whether unloading ownership on the children is necessarily a good thing. Real estate, while a valuable asset, comes with burdens as well as benefits. Often, one inheriting family member is “frozen out” of the property by the other, or the family members cannot agree on what to do with the property. Such disputes come in all shapes and sizes.
The same concerns apply to unmarried couples who have purchased property together and later separate. For married couples, the divorce process necessarily includes dividing assets fairly. But where there was no marriage, and if there was no joint-ownership agreement made when the property was purchased, the parties often have little guidance on how to separate their real estate interests.
When we handle these matters, we emphasize maintaining good relations and fairness throughout the process of separating ownership. We are conscious that relationships should not be ruined over real estate, no matter how impassioned either side may be. While our first priority is always to protect our client’s best interests, we attempt to negotiate settlements in a friendly and cooperative manner wherever possible. This often means working with appraisers, real estate agents, and the adverse family members to agree upon fair values and to structure separations – whether by sale, buyout or otherwise – to achieve the best result for our clients. In doing so, we work to preserve our client’s financial investment and integrity.
Regrettably, sometimes joint owners simply cannot agree on how to separate ownership. In these cases, we resort to a lawsuit called a “Petition to Partition.” The basic idea behind a partition action is to have the Court order what to do with the property in the best interests of both parties. This usually ends with the Court ordering that one party buy-out the other, that the property be physically split if possible (such as with a two-family property), or that the property be sold and proceeds divided among the parties. Every joint owner of real estate in Massachusetts except for married couples who hold property as “tenants by the entirety” is entitled to file a partition action.
Here is how it works. Say Anne and Bart, both in their 50s, have just inherited their childhood home, now worth $500,000, in equal shares from their parents. Bart has lived there with his parents rent-free for his entire adult life while Anne has lived independently since she was 22. Bart informs Anne in so many words that “Mom and Dad wanted me to be able to live here my entire life, so it’s my house and I’m not leaving.” Unsurprisingly, Bart refuses Anne’s overtures for a fair buy-out and refuses to acknowledge that Anne is now a half owner. Meanwhile, Bart will not let Anne in the house. What is Anne to do?
As a half-owner, in this case known as a tenant in common, Anne can file a Petition for Partition with the Court. The Court will issue a summons, which a Sheriff serves upon Bart. Anne also records a notice of partition in the Registry of Deeds to prevent Bart from trying to sell the property and making off with the proceeds. The Court will hold a hearing to decide what to do with the property and may appoint a commissioner to take charge of the property and arrange for its sale.
Practically speaking, at some point in this process, Bart will wake up to the reality of Anne’s ownership interest. Typically, the vast majority of these cases settle prior to going into Court. Bart may get a loan or find other funds to buy-out Anne. Both parties will probably obtain their own real estate appraisals and agree to a fair price for Anne’s interest, about $250,000. Before long, Bart will have purchased 100% ownership and Anne can go on her way with her $250,000.
If Bart cannot afford the buy-out or fights or refuses to participate in the partition action, the Court will order the commissioner to sell the property. The commissioner then engages a listing agent to find a buyer. When a suitable buyer is found, the Court will order the sale and division of proceeds. Moreover, the parties are entitled to offsets for certain contributions they have made to the property, such as improvements or payments towards the mortgage that the other party did not make.
As you might expect, the partition action involves substantially more cost and time than a mutually agreeable settlement. Moreover, it is likely that a sale by a commissioner will not obtain as favorable a sale price as a regular private sale. For these reasons, the partition action should always be a last resort option.
Do you have questions about separating your ownership from a family member or former partner? Please contact us for a free consultation: (617) 737-9100.