A fun project and new adventure can quickly turn into a nightmare when life happens, circumstances change, and small disagreements snowball into irreconcilable differences. It’s even worse when one or more of the property owners refuses to sell or buy the unhappy partner out, essentially trapping them in a real estate hostage situation. An exciting investment can quickly turn into a haunted house.
As the founder and president of Underwood Law Firm, a California-based boutique law firm that specializes in partition actions, I have seen the ups and downs of real estate co-ownership. A partition action is essentially a legal avenue that allows a property owner to sue to force the sale of real estate, regardless of the requests of the other title owners. In other words, it’s an escape valve for people trapped in these bad real estate relationships.
Partition action lawsuits can be brought for all types of real estate, and every kind of ownership situation, from joint tenants and tenants-in-common to partnership property and property jointly owned by former spouses. I have seen situations in almost all of these flavors, but they all had one ingredient in common: The chefs in the kitchen could not agree on the recipe.
Owning real estate with others creates numerous shared obligations and, theoretically, shared responsibilities. However, people don’t always step up equally, resulting in resentment and causing these real estate relationships to deteriorate.
Before getting involved in real estate co-ownership, here are 10 important things to know.
- Any other co-owner can lease the entire property without your consent. If you don’t want their sketchy relatives or college buddies renting the place for the summer, too bad. Anyone on the title can act as the landlord.
- What’s more, another co-owner can mortgage the property without your consent. You may have liked the idea of buying a place with cash, but your partner’s finances changed and he needs to unlock cash from this asset. That is your problem now, too.
- Co-owners can transfer their interest without your consent. That sketchy relative who rented the place for the summer could become your business partner if one of your co-owners feels like cutting a deal. Unfortunately, you have no real leverage as a humble co-owner.
- A co-owner can modify or improve the property without your consent. No unanimous consent is required to redecorate or renovate. However, an owner who invested in improvements can get compensated for them in a partition action lawsuit.
- All owners are responsible and liable for the mortgage payment. Your bank doesn’t care if your partner’s business is struggling and he can’t pay half. That monthly installment needs to be paid regardless.
- All owners are responsible for property taxes. Like lenders, the government does not care about your property disputes.
- You can’t hire a realtor without the co-owner’s permission. While one co-owner can modify the property unilaterally, all owners need to sign a listing agreement to hire a realtor.
- If you are gone long enough from the property in certain circumstances, you can lose your interest through something called adverse possession. Technically, it is possible for another owner to essentially push you out by providing enough “notice” of intent to use the property exclusively for themselves without proper pushback. In practice, this is very rare—but worth keeping an eye on in a particularly sticky co-ownership situation.
- All owners are liable if someone is injured on the property. One of your co-owners likes to hold wild parties at the lake house? A bad time for one overly excited guest can be a real bad time for all owners.
- The only way to get out if the other owners do not want to sell is through a partition action. Not all hostage situations have a clear way out, but real estate ones do. A partition action lawsuit filed by one owner can force the sale of the property.
Not every partnership or team effort ends well, but at least with partition actions these real estate ones do end. Fortunately, property owners in California (and in XX other states) have this escape valve.
In real estate, as in life, breaking up is hard to do. Fortunately, partition actions can make it a little easier. Even better, pay attention to these 10 things to know before teaming up on a real estate investment.
Eli Underwood is founder and president of Underwood Law Firm, a boutique law firm specializing in partition actions, with offices throughout California