For many families, real estate is their single most valuable asset. This is particularly true of middle and low income families. While wealthy families have more means to create sophisticated estate plans or family corporations in order to ensure that their assets transfer to their heirs, next-of-kin, and beneficiaries, others usually rely on a simple will to transfer their land. A simple will is an extremely important document and we certainly recommend that everyone have a will, but unless there is careful planning, the heirs and beneficiaries will often find themselves a “co-tenant” with family members and even distant family members.
The problem that arises in the instance of co-tenancy is that any co-tenant or “tenant-in-common” may sell his or her interest without the consent or even knowledge of the other co-tenants. This makes it possible where a co-tenant finds themselves owning their land with a total stranger – like a real estate developer. Perhaps even more importantly is that every co-tenant’s potential creditor could try to get a lien against that land and then foreclose on that lien!!!
The most common issue is land that is slowly divided through the process of inheritance over several generations. This is especially prevalent in North Alabama – historically an agricultural center — where farmers with large amounts of acreage that they want to pass to their kids or grandkids and allow them to farm.
As an illustration: our firm recently represented Jane Doe. Jane’s grandfather and grandmother owned 40 acres with a farmhouse in Madison County that they always told their kids they could have. Jane explained to us that this was “family land” and was always supposed to be in the Doe family. When Jane’s grandparents died, their 4 children inherited the land. Now, the 40 acres is owned by 4 people. When Jane’s parents and her parent’s siblings died, the land was owned by her and her 15 cousins. As a result, Jane found herself to be a 1/16th owner of the “Doe family land.” She was a “co-tenant” or a “tenant in common” with her 15 cousins. In this situation it can be difficult to come to a decision as to what to do with the land: sell it, farm it, develop it, live on it, etc… What if one of Jane Doe’s cousins wants to be bought out but no one can? They could sell their interest to an unrelated real estate investor.
In a situation like Jane Doe’s any of the tenants-in-common or co-tenant may file a civil action in court to ask the court to “partition” the property. The court has two remedies: they can either physically divide the property by survey in proportion to the interests held by the co-tenants OR they can have the property sold and the cash divided in proportion to the interests. While raw, flat, undeveloped land can be more easily surveyed and divided, property with a house or improvements on it, often times cannot. This leaves the only alternative being that the property is ordered sold.
Boiled down, the Partition procedure includes one co-tenant requesting partition and giving all the other co-tenants legal notice of that request. Once the co-tenants receive notice, they can either seek to buy out the properties from the others or object to the mechanism of sale (auction, sold by the Court clerk, or private sale). Another objection includes demanding that the property be physically divided rather than sold. Ultimately, if objections are made, the court must decide the procedure for sale and whether the sales price is fair and reasonable. If the Court finds that it is, the closing will take place, costs and taxes paid, and ultimately the proceeds will be divided
In Jane Doe’s example, we petitioned the Court to Partition or “Sale by Division” the land by sale and divide the proceeds. In that case, the Judge felt that even though the land was flat and mostly undeveloped, the existence of a farmhouse made it too difficult to ensure that every co-tenant received their fair share of the property. The Judge concluded a sale was the fairest and safest way to divide the land. But, often times this can be avoided through estate planning or through a family-owned company or trust. And these mechanisms can sometimes be much less expensive than a lawsuit or partition.
If you are a co-tenant or simply a land owner and you want to ensure that the land you own remains in your family or blood line, we recommend you seek the advice of an experienced estate planning attorney. A little bit of planning now can save headaches, heartaches, bad blood, and a lot of money for your future generations. If you are co-tenant or a tenant-in-common of certain land, you have rights to that land, including the potential to force a sale to receive your fair share. If you have questions about a co-tenancy and partition or sale by division, please contact our Huntsville probate and estate lawyers to discuss your legal options.