Take-Away: Twenty states, but not Michigan, have adopted this uniform act which is designed to protect heirs who inherit real estate as tenants-in-common, against forced partition by real property speculators.

Background: A perceived problem for many heirs is when several of them inherit a piece of family (heirloom) real property, as tenants-in-common. Each heir may be in a different economic situation, some who are able to afford their pro rata share of the expenses associated with the commonly owned property, while other heirs may be in no position to contribute towards their share of the common expenses, and who may be in desperate need for cash, not a fractional interest in a single parcel of real estate.

The Perceived “Problem:” Often speculators will approach one of those less fortunate heirs and offer to purchase their fractional tenant-in-common interest for pennies on the dollar (using valuation discounts reflecting  lack of control and lack of marketability) while simply preying on that heir’s immediate need for cash. Many heir/co-tenants do not understand that their consent is not necessary for another heir/co-tenant to sell his or her tenant-in-common interest for whatever they can get for their interests.

Forced Partition Sale: Once the speculator acquires  a fractional interest in the heir-owned real property, they then file a petition with the court to force a partition of the family held real property. If the real property cannot be physically divided among the co-tenants (and most homesteads are not susceptible to a physical division among many owners)  then the real property must be sold in a court ordered sale to the highest bidder, with the net sales proceeds then divided among the former co-tenants. The result of such a judicial partition sale is that seldom will the heirs receive anything close to the fair market value for the real property that they inherited.

Uniform Partition of Heirs Property Act: Back in 2010 the Uniform Law Commission identified the risks family members face when they inherit real property as tenants-in-common, which can either result through the intestate death of the senior family member, or by a simple Will or Trust provision, e.g. “I hereby leave my cottage to my five children as equal tenants in common.”  

State Adoption of the Act: Twenty states have adopted this uniform Act, but not Michigan.

Heirs Property: Under the Act, heirs property means real property that is held in tenancy-in-common, which satisfies all of the following requirements as of the filing of a judicial partition action:

  1. There is no agreement in a record binding all the co-tenants which governs the partition of the real property;
  2. One or more of the co-tenants acquired title from a relative, whether living or deceased; and
  3. Any of the following applies: (i) 20% or more of the interests are held by co-tenants who are relatives; (ii) 20% or more of the interests are held by an individual who acquired title from a relative, whether living or deceased; or (iii) 20% or more of the co-tenants are relatives.

Purpose: The stated goal of the Act is to ensure that each co-tenant in a partition action is treated in a fair and equitable manner. With due process protections, the Act requires notice, appraisal, right of first refusal, and if other co-tenants choose not to exercise their right and a sale is required, a commercially reasonable sale supervised by the court to ensure all parties receive their fair share of the net sales proceeds.

Effect: The Act does not change the law of partition. However, it uses what are referred to as ‘wealth protection mechanisms.’ [Prefatory Note to the Act.] One example is that Section 7a of the Act provides for co-tenant buyout right. “Any co-tenant except a co-tenant that requested partition by sale may buy all the interests of the co-tenants that requested partition by sale.”  The comments to Section 7 go on to note that these ‘wealth protection mechanisms’  are intended to consolidate ownership “and mirrors the best practices used for family property owned by those who are wealthy and legally savvy.”  While the remedy of a forced buyout sounds ‘fair,’ cash-poor heirs will not be protected even when this remedy is available to them.

Other Provisions: The Act requires the presiding court to the partition proceeding “to consider not only the economic but also the social, cultural and historic value of the land as well as the impact on its occupant’s use of the property in the ultimate decision to sell or parcel it out.” If the court’s decision is made to sell the property, the court will then reallocate each co-tenant’s interests if such individuals have met their responsibility of paying their apportioned price into court. The Act also contains provisions to deal with when some, but not all, co-tenants fail to pay on time. In addition, the Act provides for partition alternatives, including a physical division of the real property, i.e. a partition in-kind.

Weakness of the Act: The Act attempts to provide remedies to a bad situation. As noted, the right to buyout the co-tenant who files the partition action is an illusory remedy for a co-tenant who is cash-poor. Moreover, the Act is effective only after a legal action to partition the real property has been filed; it has no impact nor does it confer rights prior to litigation being initiated. Nor does the Act address legal fees; instead it suggests that adopting states use their existing partition laws. [Section 12.]

Observation: The fact that the uniform Act actually exists to address a perceived problem, and it has been adopted by at least 20 states, suggests that much more thought needs to go into a fairly ubiquitous provision in a Will or Trust, “I leave and give my real estate to my children as equal tenants-in-common.” The financial circumstances of the children may dramatically change between when the governing instrument is adopted and when the property owner dies. One may desperate need cash, the other not so much. Or one may have moved back home with their now-deceased parent; the simplistic devise ignores the fact that each co-tenant possesses the right to occupy and utilize the entire property but cannot exclude other co-owners from exercising the same right. These realities make tenant-in-common ownership of a single parcel of real property vulnerable to all sorts of problems and emotional outbursts. Even if Michigan has not adopted the Act, it might be wise if real property is to be transferred on death as tenants-in-common to impose a tenant-in-common operating agreement on all of the heirs which contains many or the ‘due process’ remedies of the Act.

Conclusion: Transferring real property on death to heirs as tenants-in-common leads to a fragile, vulnerable, ownership status. The Act is a first step that seeks to remedy the standard partition action that leads to family property loss when related co-tenants-in-common disagree about the use of their property. The Act does not provide a perfect remedy, but it is a start.