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Real Estate Help - Multi-family Land "Fair Use"

Discussion in 'Bad Dog Cafe' started by gusfinley, Dec 1, 2020.

  1. gusfinley

    gusfinley Tele-Afflicted

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    I know how much free advice is worth, but its worth a shot:

    My mother is 1/4 owner of lake-front property with 3 other siblings, which she inherited from her parents.

    She is frustrated because they want her to sign in into an LLC. This doesn't make much sense, being that the property doesn't even make enough money each year to pay for taxes and bills. The idea of the LLC was that they wanted to have some sort of protection against lawsuits should someone get injured on the property.

    She refuses to sign the LLC and rightly so.

    All of the siblings are in their mid 60's to 70s. Two of them have no children. One of them lives on the other side of the country. The last improvements to the property were made over 30 years ago by my grandfather and half of the siblings don't want to make necessary improvements because "grandpa didn't want it that way." There seems to be no provisions for future use of the property, though the owners want to keep it within the family.

    For being 1/4 owner of the property, my mom gets treated as if she has no rights to it and we have to call and check with the person that has designated themselves as the scheduler. None of this is defined in any sort of document.

    I have suggested that she look into forming some sort of "Fair use Agreement" which would define rights ( 1/4 use of land, subletting, etc) and responsibilities (yard maintenance, payment of bills, expenses and carrying insurance).

    What kind of overarching document should I be looking into?

    My mom wants to keep the property for us, but doesn't want to leave us with this mess and is almost ready to sell her ownership to her sister at a price that was only fair 20 years ago.

    Thanks for any help!
     
  2. Whatizitman

    Whatizitman Friend of Leo's

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    How bad does she need ROI from the land? Predicting how bad it will get when trying to do anything regarding property and legal proceedings with other family members, I would more than likely sell ASAP, and remove myself physically and legally from any future decision making with said property.

    NOT. WORTH. IT. I don't care how much ROI. Peace of mind and relationships is priceless.

    I'm not a pessimist. I've just NEVER seen these type of situations end well.
     
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  3. Mark the Moose

    Mark the Moose Tele-Afflicted

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    This is the story of every family co-owned property. Somebody plays the controlling role, somebody is treated unfairly, etc.. The LLC may also help avoid inheritance tax issues in the long run, but you really need a real estate attorney to advise you.

    In any case, the siblings need to decide how the scheduling and use of the property should occur and how it will pass to the next generation. Every detail should be spelled out or there will be friction.
     
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  4. 68tele

    68tele Friend of Leo's

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    I'd sell. Determine fair market price, and skedaddle
     
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  5. Torren61

    Torren61 Poster Extraordinaire Gold Supporter

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    How much land is her part and what general area are we talking about? Could she tell them buy her out at her price or she'll let someone squat on her part? I'm not an attorney but I used to watch LA Law back in the day and I've also been arrested a time or two.
     
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  6. Harry Styron

    Harry Styron Friend of Leo's Gold Supporter

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    The LLC ownership is not necessarily a bad idea, because the LLC’s operating agreement could set out the rights and responsibilities of ownership as well as the right to sell or restrictions on sale. In addition, each owner could provide for a conveyance on death, probably outside the probate process.

    The hard part is reaching an agreement on terms of use, allocation of responsibilities, decisions about improvements, borrowing, selling, maintenance, etc.

    The current situation is essentially that of a general partnership, which is a poor structure for almost any purpose.
     
  7. Wally

    Wally Telefied Ad Free Member

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    +1 on determining current fair market value. Then, either offer to buy the other 3/4 or sell her 1/4. It is a mess that is risking ruining a familial relationship, it seems to me. The errors that are impacting your mother now were put in place by your grandparents’ lack of foresight in laying out the ground rules,
     
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  8. SRHmusic

    SRHmusic Tele-Holic Silver Supporter

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    IANAL, but my understanding that any agreement can be turned into a (legally binding) contract. She has leverage here, as they want her as a member of the LLC.

    Not sure what the hesitation about forming an LLC is? If anything it can help formalize responsibilities and does provide some tax advantages if done right for costs. But I wouldn't enter into it if communication and trust are low.

    If it's too much bother all around then get the land appraised (again by agreement, and with a couple or three appraisals perhaps?), and sell out her share to the others.

    A good attorney could help sort through some options and clarify the questions. Good luck!

    Edit: To clarify, I'm not suggesting they make an agreement without an attorney. Rather they can at least get started on clarifying expectations, assumptions, wants, etc. as part of the process. Then an attorney can advise on what type of agreement/contact etc. makes sense for what they want, and point out other problems or options. She should have her own to talk with, by the way, not just the one drafting the agreement(!).
     
    Last edited: Dec 1, 2020
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  9. Festofish

    Festofish Tele-Afflicted Silver Supporter

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    It’s up to your mother if she wants to deal with the headache. There are options but if it means further deterioration of the family it might not be worth it. My folks are alive and well-ish. We’re already seeing division over the will and items and they’re still here. Sickens and saddens me greatly.
     
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  10. warrent

    warrent Friend of Leo's

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    You or your mother need to talk to a lawyer who has real estate and estate experience in the state that the property resides.
    There are tax implications in any move your mother makes. Non emotional advice will help you both make a decision. I have the same problems on my wife's side but with 5 different owners. Selling to her Sister may sound good but then her Sister has two shares and the other 2 may resent your mother for giving her veto power etc. The LLC sounds like a waste of money and time. All you would need is liability insurance.
     
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  11. Whatizitman

    Whatizitman Friend of Leo's

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    A good attorney can help come up with a great legally binding solution.

    It's the family that has to agree and abide by it, and/or agree to make changes. For years and/or decades.

    That's where it will almost inevitably fail, and become a reality $hi+ show. Generations of bad blood.

    Think of it this way. If the family needs an LLC to manage the property, than they already lack trust in each other and have an adversarial relationship. Dividing the land equally won't fix that. It might make a workable situation for the land. But it certainly won't mend any bad blood.

    There's a reason divorces don't rely on the parents to divvy up custodial arrangements on their own.

    I've lived in both Utah and West Virginia. The two states I believe most at risk of bad family legal and business arrangements, generally regarding land. I've seen it time and again. The only differences are the deeds in Utah are much, much newer.
     
    Last edited: Dec 1, 2020
  12. glenlivet

    glenlivet Tele-Afflicted

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    Multi owner property is a pain. It rarely ends well.
    If it doesn't generate any/enough income to cover expenses, it's even worse.
    Best advise I have is to sell it, divide the money 4 ways, and walk away. Period.

    "it's not what grandpa wanted" .... I'm guessing he also didn't want it to cause issues like you are seeing now.

    It's only going to get worse as more people / generations get involved. One person (down the line) can upset the whole apple cart.
    Think about marriages, divorces, step-kids, etc... You think it's messy now ? Just wait.

    There are a lot of options, but most of them will just make lawyers richer.
    Get an appraisal done, and either sell for 1/4 of the appraised value to another sibling, or, have the other 3 buy her out.
    Either buy it, and own it, or get out of that mess.
     
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  13. SRHmusic

    SRHmusic Tele-Holic Silver Supporter

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    I'm not sure it's adversarial from the description, but indeed the (famiy) members have to be in agreement and enter any contract or LLC willingly. If that's not the case, then I'd sell out.

    Going through the process of crafting a written agreement can help clear the air and clarify assumptions, expectations, etc. Seems that's overdue, and actually it might be a good sign that the others want this organized better. They are already in this together regardless, so sounds like time to move forward or sell out?
     
  14. PhredE

    PhredE Tele-Afflicted

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    This ^ -- and possibly an estate planning/elder law specialist too.
     
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  15. PastorJay

    PastorJay Tele-Afflicted

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    The OP raises more questions in my mind than it answers.

    How much land? Multiple acres? half an acre?

    What kind of improvements are already on the land? What shape are they in?

    If there's some income, where did it come from? Does the family rent it out a couple times a year, maybe during whatever the busy season is at the lake?

    Does being lakefront provide access to a boat dock, for example? Or other amenities?

    What family members use it and how much?

    What are the maintenance and tax costs?

    What family members use it now?

    What family has children who might want to use it in the future?

    I've seen these kinds of situations work with two families, with or without some kind of formal written agreement between them. But it gets tough at more than 2 family units.
    4 could be a nightmare.

    The best thing for peace in the family is probably for 1 or two siblings to buy out the rest at an agreed upon fair value, probably determined by appraisal.

    Then determine if you need a document. An LLC does provide protection from liability. But comes with accounting and legal costs. You can have a document like a "Tenants in Common" agreement that specifies how you'll make decisions and allocate costs but doesn't create a separate entity. In the end you'll want someone who practices real estate law to help with this.

    FWIW: It's been 16 years since I practiced law or took a continuing ed class. YMMV.

    Good luck.
     
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  16. gusfinley

    gusfinley Tele-Afflicted

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    FYI: The property can't be divided. It's about 0.5 acre.

    My Mom liked the idea of putting her 1/4 into a trust, but it would be about worthless if the lack of defined rights/responsibilities persists.
     
  17. telemnemonics

    telemnemonics Telefied Ad Free Member

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    Lawyer.

    Oh and also, lawyer.
     
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  18. ronzhd

    ronzhd Tele-Holic Ad Free Member

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    You need to lawyer up. That being said, I would sell. Ownership is already diluted, if you expect it to change when you and your siblings "inherit" that 1/4 holding, OMG. Sell and run.
     
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  19. Pualee

    Pualee Tele-Holic

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    What is the value of the land? Anytime I see lawyer suggested, you have to get a good idea of what that will cost. If the land is work 100K, and you have 1/4 share, that is 25k. A lawyer will run several hundred per hour. A judge is supposed to rule fairly based on the law. So you should predict not gaining any value that isn't yours, only losing value of what is yours (lawyer fees).

    You 'win' with a lawyer by securing peace of mind, or by not losing everything. You will lose something. Is what you save (the value of the land) worth paying the cost of the lawyer? You don't know the hours or the number of times the case might be 'continued'.

    I'd try for the family agreement first. Ask the 4 to pitch in the costs of an appraisal with agreement to sell out. That is far cheaper than a lawyer. If it comes to fighting in court, there aren't any winners. If you want a guess as to the value of the appraisal, look at similarly developed and sized plots that have sold recently. That is usually available for free in public records (possibly online). Zillow in a pinch might have something reasonable, but it is usually out of date and inaccurate.

    You could also go to court without a lawyer. But that takes a lot of personal time and effort to learn the laws so you can present a viable case to the judge, and ask for something that is reasonable within the bounds of the law. If you don't know what you want the judge to do, you aren't ready to go to a judge.
     
    Last edited: Dec 1, 2020
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  20. Harry Styron

    Harry Styron Friend of Leo's Gold Supporter

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    I'm not a lawyer except in Missouri. You need a lawyer in the state where the property is to advise you. Most states have statutes regarding these situations.

    When the co-owners can't reach an agreement, the judicial solution is to file an action for partition. If the court determines--or the parties agree--that the property can't be physically divided, then the court orders a sale of the property and a division of the proceeds.

    Having been involved in several similar suits as a lawyer in two other states, my impression is that partition suits with respect to inherited property is usually very bitter. All sorts of old sibling rivalries and grudges emerge. Though it sounds simple to the have the property appraised and sold, there can be a lot of argument about how to divide the proceeds.

    Remember, you have no interest in the property and no voice, except through your mother.
     
    Last edited: Dec 1, 2020
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