Many people inherit real estate or other assets along with siblings or other people. For instance, a parent may leave his or her house to that parent’s three adult children. When the parent dies, regardless of whether the property ownership transfers through a trust, via a recorded affidavit or is administered through probate, the three siblings will find themselves co-owners.
Co-owners of real estate are treated as having access to all of the property, unless all of the co-owners agree otherwise. Any co-owner, including a co-owner with only a 1% ownership interest in the property, can sign a lease that binds all other co-owners to that lease. Of course, the lease must be commercially reasonable, and the net rent proceeds from the lease must be shared proportional to ownership.
If one co-owner does not want to co-own the property, that co-owner can initiate a partition lawsuit against the other co-owners to have the property partitioned. In a partition lawsuit, the judge will appoint one to three independent people to analyze the property that is jointly owned. The independent people will determine whether the property can be separated into parts with values that correspond with the proportions of ownership without creating “manifest injury” to the value of the property.
Of course, the independent people’s work is somewhat subjective because separating property can sometimes even increase the value of property. Nevertheless, the co-owners in the partition lawsuit can and regularly do agree from the outset that the property simply cannot be divided without decreasing the property’s value, which is obviously the case in the instance of shared ownership of a single-family home.
If the independent people determine that the property can be divided proportional to the co-owners’ interests, the independent people report that fact to the judge, who then instructs the county sheriff to divide the property pursuant to the independent people’s report.
Then, the judge will sign and record official documentation that shows the separation of ownership so that each co-owner owns a portion of the originally shared property separately from the other co-owners. If two co-owners have the same proportional interest, the judge has full discretion to determine which of those co-owners get which tracts of property.
If the independent people determine that the property will suffer manifest injury to its value if the property is divided, the independent people will report that conclusion to the judge along with an appraisal of the entirety of the property. At that point, any co-owner will be permitted to purchase the entirety of the property at the appraised value.
If no co-owner purchases the entirety of the property at the appraised value, the judge will order the property to be sold at auction either by the county sheriff (as in a foreclosure sale) or by a licensed auctioneer, chosen by the judge. In the auction, the property cannot be sold for less than two-thirds of the independent people’s appraised value of the property. Net sale proceeds from that property auction are then distributed proportional to ownership.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.