Don’t Listen To Your Mom About Sharing (Real Property)
Note: This podcast is no longer available, but please see below for the transcript of the podcast.
Today we’re talking about the risks of having more than one person on the title or deed to real property.
Co-Owning Real Estate
Most of us were taught that nice friends share with their friends. (Thanks Mom!) Mom chastised us for taking the doll or the toy sword away from our playmates and immediately gave the toy back to the playmate in question. This brought us to tears. Now that we’re adults, some of us carry that lesson over into the world of real property, thinking that sharing ownership in a piece of real estate with friends or family (or combination thereof) would not only be fun but also would be a nice way to share our mutual good fortune and vacation home. It is not. Your mom was wrong (but probably only on this point).
Different Ways To Own Real Estate With Other People
In fact, without understanding the different ways to own real property with other people, and the legal rights of all the owners to that real property, sharing can “only lead to tears.” And very probably big lawyer bills. Merely knowing the legal rights and responsibilities you undertake as a co-owner of real property will not shield you from tears. Instead, you would be wise either to run away from the proposal to buy that piece of property with friends (screaming is optional) or treat the proposition as a business dealing from the outset, setting down the rights and responsibilities of each of the co-owners in a written document that a court could enforce.
Real Estate Lawyers Often Have To Untangle Deed Issues
You think I’m just fishing for more legal cases? Not so. The caseload of good real estate lawyers overflows with untangling former friends from this sticky situation. The sad solution frequently resolves itself after many tears, months and possibly years of litigation, and irrevocably broken relationships.
Joint Tenancy vs Tenancy In Common In Real Estate In Idaho
Here are the facts. Whether you’re in Bonner County, Ferry County, Kootenai County or Lake County, the law generally provides two ways to own real property in common: joint tenancies with the right of survivorship or tenancies in common. “Joint tenants” usually describes how the title to real estate is vested in spouses buying property. The instrument conveying the real property (usually a deed) may state that the recipients take title as “joint tenants.”
Example of Joint Tenants For Real Estate
For example, say that Uncle Bob conveys his lake cabin property to his favorite niece Sue and her husband George as “joint tenants.” Sue and George will own the property equally. Each will hold title to 100% of the interests in the real estate. This is not a 50-50 split. The law generally understands that “with right of survivorship” applies to these situations. The legal term “With right of survivorship” means that when one spouse dies, 100% of the interests in the title to the lake cabin property automatically will vest in the surviving spouse.
Example Of Tenants In Common For Real Estate
The stickier situation arises when two or more people buy land together, whether as a vacation refuge or an investment. In this case, the conveying deed may not specify how the co-owners will hold title to the property. When this happens, the law generally views the new owners as “tenants in common.” When people hold property as tenants in common, each owner has the right to use and possess the entire property as long as one co-tenant’s use does not exclude any of the other co-tenants.
Tenants In Common Have Equal Rights
This means that, when Dick and Jane and Lily and Logan buy one parcel of bare land together and Lily builds a house on that bare land, ALL four tenants in common have the EQUAL right to use that house even if they didn’t pay for it. Lily may get so tired of Dick, Jane, and Logan using her house without her permission that she wants to sell it, retreating to the solitary life of an RV-dwelling vagabond. However Lily may not be able to do that if a lender financed the property’s purchase. In that situation, the deed of trust or the promissory note may contain a “due on sale” clause. If the bank finds out that Lily sold her interests, it could require Dick, Jane, Lily, and Logan immediately to repay the entire amount of that loan. Without a written agreement between the four owners, nothing prevents Lily from transferring her interests to a complete stranger, instead of to her other three co-tenants.
Logan could decide to rent out the property to weekend campers, or log the entire property, without asking permission of Dick, Jane, or Lily. As tenants in common, the remaining three generally have no legal way to prevent Logan from doing so. The best that Dick, Jane, and Lily may hope for is that Logan give them an accounting of how much he made by renting out the property or selling the timber.
How Expenses Are Shared With Tenants In Common In Real Estate
The law usually requires tenants in common to share the maintenance expenses of property they own. Dick may decide on his own, without talking to Jane, Lily, or Logan to “improve the property” by digging a well or paving the road. He does so at his own risk: the law generally will not require co-tenants to reimburse a fellow tenant in common who did not first get the others’ consent to incur maintenance costs. This could hold true even if Dick, Jane, Lily, and Logan, before they bought the property, agreed in writing on the terms and conditions governing how they planned to maintain and use the property. (You can blame an entirely different legal doctrine called “merger,” for this. Merger may be discussed in a future podcast.)
Borrowing Against Real Estate Owned As Tenants In Common
As a tenant in common, each may have the right to use the commonly held property as collateral for a loan solely benefiting that tenant. For example, the law may allow Jane to borrow against her interest in the property to buy a new home in a different location, without notifying Dick, Lily, and Logan in advance. If that happens, and Jane defaults on the loan, the lender may be legally allowed to sell the entire property to recoup the debt. Dick, Lily, and Logan each likely would receive an equal share of the net sales proceeds.
What Happens If A Tenant In Common Dies
When tenants in common like Dick, Jane, Lily and Logan die, the property does not automatically pass to the remaining co-tenants. Instead, it passes to the heirs of the dead co-tenant. Their surviving co-tenants have no choice in who replaces the deceased owner.
Tenants In Common Lawsuits Over Real Estate
Despite each tenant in common’s right to use the entire property as though only he or she owned it, the law generally requires tenants in common to maintain a trusting, honest relationship with each other. This can cause tensions to rise quickly and the relationships to become increasingly complex. If Dick is excluding another tenant from using the property, sometimes the only recourse available either is to sue Dick to quiet the title to the property, or file a partition lawsuit. In a partition matter, any tenant in common asks the court either to split up the actual real estate between the co-tenants or to sell the entire parcel and split the net proceeds between the tenants in common.
Risks Of Joint Tenants And Tenants In Common In Real Estate
Your takeaway: Do NOT follow mom’s advice and own real property with several other people. If you are tempted to do so, obtain legal advice from a competent real estate attorney before you sign any documents. Ensure that the deed conveying the property passes legal muster BEFORE depositing that earnest money. And as always when dealing with real property rights, remember to CYA: Call your attorney!
At Timely Contract, our primary legal services include: real estate contract review, real estate contract drafting, legal opinions for title insurance exceptions, and research, due diligence, and legal opinions for properties.
Please note that you’ll receive assistance from a local real estate lawyer in Idaho. At Timely Contract we have lawyers who have experience in all areas of Idaho, including Boise, Post Falls, Coeur d’Alene, Lewiston, Moscow and Sandpoint.
Disclaimer: Timely Contract podcasts are meant to be informative; however, Timely Contract podcasts are not legal advice. Legal advice is the result of the application of proper law to a particular set of circumstances. Whether or how the law applies to a particular factual situation is a legal question that cannot be answered by a Timely Contract podcast. In addition, Timely Contract podcasts sometimes differ from their written transcript. Listeners and readers should not rely on a Timely Contract podcast, or a transcript of a Timely Contract podcast, as legal advice. Listeners should seek legal counsel and get a true legal opinion before taking actions regarding real property.