When Strangers Divide Inherited Land
An Asheville Watchdog investigation, as reported by the Citizen Times, painted a very grim picture of partition law in North Carolina this year. Also known as the forced sale, the partition law in most states can be seized on by shrewd investors who know how to grab land from struggling people. These clever investors manage to buy parts of properties that are co-owned — usually by multiple heirs.
Nineteen states have rewritten their partition laws, but North Carolina has yet to do the same.
What Happened in North Carolina?
A niece and uncle inherited family land in West Asheville. The real estate they owned, half and half, was worth something. It had a property tax assessment of $123,600.
Enter the shrewd investors who go around looking for heirs and trying to get them to sell. The goal of these investors is to grab hold of a partial interest in a jointly held title. After they convince a part owner to give up a portion of the real estate, the investors can use their newly acquired share of ownership to ask a court to force the sale of a property with a divided title.
In the West Asheville case, the niece and uncle owed $1,615 in overdue property taxes on the house. Neither had funds. In 2018, the county foreclosed on the property and sent the land to auction. That’s when the investors made their move.
With the foreclosure auction in progress, a certain William Alexander offered a box containing $4,400 to the co-owning uncle in return for half the property. It was a paltry sum, but the uncle believed Alexander was trying to help get the home back for his niece and himself. The uncle received an “Option to Purchase,” signed with a notary by William Alexander, that appeared to allow him a year to reclaim the title for $4,400 — plus Alexander’s expenses.
Alexander’s company immediately sold the interest for $55,000. Then the buyers went to court with a partition filing against the niece. Upon court order, the whole parcel could then be sold — and it would be, to developers. In North Carolina, buyers don’t have to bid from any minimum price to acquire a title from a court-ordered partition sale.
The niece, a cook, didn’t attend the partition hearing. After taxes and court fees, she would get nothing at all for the inherited equity she lost in the court action. Because of the low price paid for the home, she could have asked the court for a new sale. She didn’t know this. She couldn’t afford a lawyer.
The uncle became homeless.
Pro tip: It’s important to hire an experienced lawyer if you believe you could face an unwanted partition sale. A request for a partition sale is hard to stop once it’s filed, because of the principle that tenants in common have a right to sell their individual interests.
How Can Developers Exploit Property Heirs Through Partition Sales?
Some states’ laws leave a lot of room for exploitive investors to take advantage of naïve sellers. To stop some of the worst abuses of partition law, committees working on behalf of the Uniform Law Commission have drafted a model partition law for states to follow. It’s called the Uniform Partition of Heirs Property Act. It has been introduced in North Carolina. It has the support of key environmental, historical, and social groups, including the Conservation Trust for North Carolina, Audubon North Carolina, the Land Loss Prevention Project and the Black Family Land Trust.
If the new model becomes law, here’s what would happen:
- No forced sale could occur unless the divided title harms all co-owners.
- The court would have to consider more than the financial potential of the partition sale. It would have to look at the property’s sentimental, cultural or historic value.
- Potential homelessness of any co-owner would be taken into account when a court decides whether to force a sale.
- The courts would need to give the joint owners a right of first refusal in the sale.
- A joint owner wishing to buy the partial interest at stake would get 45 days to buy out the parties petitioning for the forced sale. The joint owner would have an additional 60 days to obtain financing.
- Courts couldn’t allow sales with no minimum pricing. Independent appraisers would be brought in to assess the market value of the property.
- Forced sale property could only go to developers through a professional real estate broker.
The Conference of Clerks of Superior Court has taken issue with North Carolina’s proposed law reform. For example, the group asks who would pay for the appraisals. Lawmakers are working to address this and other details.
Why Are Forced Sales of Real Estate Allowed in the First Place?
A provision allowing a forced sale of a divided title is important to have. Owning just one portion of a piece of property ties an owner’s hands. What if one owner wants to liquidate or borrow against their equity, but a co-owner says “no”?.
And as a basic principle of property law, people should not be forced to co-own property. Based on this generally sensible principle, courts often grant requests for partition sales. Some real estate lawyers might recommend barring partition through a will when property is bequeathed to more than one heir, although that’s uncommon. The heirs themselves might decide to sign an agreement to ensure no owners individually approach the court with a partition action.
Many states allow forced sales only if it’s necessary to protect people from serious losses. Yet any title holder may file a partition request. A partition action involves summoning the co-owners, and anyone else with rights or interests (such as mortgage lenders), to the court. Lenders can foreclose on properties during the partition sale process.
After a completed sale, owners receive their shares of the proceeds, pay their taxes, and get on with their lives. Yet distributing the proceeds fairly can be a major effort, involving surveys, appraisals, and accountings of co-owners’ expenses and incomes.
Another option the court might order is the partition in kind — an actual dividing up of land so that co-owners wind up with their own parcels and record the resultant individual deeds. This could make sense for tracts of land without homes or other improvements on them. But it’s unlikely to be helpful in the case of a home property, or if the co-owners are warring with each other.
At Its Best…
A partition sale involves a court’s assistance to optimally divide co-owned property. Clearly, the law was not used at its best in West Asheville, North Carolina.
Can the law be modified to protect future property heirs from going through such tragic losses? Stay tuned. The reformed partition law did pass the House in May 2021. It now must pass the Senate. This will be one to watch in 2022.
Supporting References
Citizen Times (Asheville, NC): Equity Erased – Partition Law Exploitation, a Box Full of Cash and an Empty Promise (Nov. 15, 2021). Story by Sally Kestin and Becky Tin; originally published by the Asheville Watchdog, a local, nonprofit news service.
Deeds.com:The Partition of Property (Aug. 6, 2020).
And as linked.
Photo credits: Nicola Barts and Athena, via Pexels.