Welcome to Barry.Corrado.Grassi & Gillin-Schwartz, P.C.’s first legal Q&A article. As boring as the subject of law is most of the time, the fact remains that there are a lot of questions people have about problems and issues that can come up and how generally the law works in different situations. So Barry.Corrado.Grassi & Gillin-Schwartz, P.C. members will be gathering questions and answering them to help educate people about their rights.
Remember, this is general information and does not constitute legal advice or create any lawyer-client relationship with the questioner or audience. Of course, the best thing to do when there is a problem is to actually consult a lawyer about the specifics and what his recommendations are.
Real Estate / Inheritance Question – “Ms. Awesome and the Lazy Schmuck”
That caution being said, let’s get to our first question from a friend who we will refer to as “Ms. Awesome”, as she actually asked that we give her a “more awesome name” if we answered her question. Ms. Awesome recently had a relative pass away. The relative gave her house to her boyfriend, who we’ll call Mr. Lazy Schmuck, to keep living in for as long as he stays alive. After he dies, the property is split up six ways among Ms. Awesome and her two sisters, we will call them the Awesome Sisters, and the three daughters of Mr. Lazy Schmuck, the Lazy Sisters. Ms. Awesome is worried that Mr. Lazy Schmuck is going to crud up the property or try to borrow money and take out another mortgage on the property for him to live off of even though that hurts the interest she and her sisters have in the property. She wants to know what her rights are, how this type of relationship works, and what she can she do?
LAZY SCHMUCK AND HIS LIFE ESTATE
So the whole Mr. Lazy Schmuck “getting to live there while he’s alive” thing is a type of property right called a “life estate”. You get the right to occupy a place for as long as you live but you don’t own it in the traditional sense. He can’t sell it, other than his right to live there, or do anything with that hurts the future interest his children and Ms. Awesome and her sisters have. At least that is the theory. Life estates are pretty universally a bad idea because how do you resolve disputes over what to do with the property when what makes sense in the short term does not in the long term. And if the property isn’t local, there’s not a lot of oversight to make sure Mr. Lazy Schmuck is keeping the place in good repair on a day to day basis.
THE SISTERS RIGHTS
The good news is that, generally speaking, Mr. Lazy Schmuck can’t take out a mortgage or loan against the house without the Lazy Sisters and the Awesome Sisters signing off on it because they have a future interest in the property. Their ownership right is generally called a “future interest in fee simple”. Basically, it means they have a future right to the whole thing. Theoretically, the life estate owner can’t do anything unreasonably detrimental to the value of the property long term because it would harm the future interests other people have. And because there are six equal future interests, under most states’ laws they would be tenants in common, meaning they each owned a separate share, after Mr. Lazy Schmuck dies.
WHAT CAN MS. AWESOME DO?
As to her concern about Mr. Lazy Schmuck lying or defrauding a bank somewhere to put another mortgage on the house for his benefit, even if he lied or defrauded a bank somewhere to get another mortgage, the sisters would have a remedy against the title company and the lawyers the bank used that messed up and let that one slide through. The bad news is there is no easy way to keep an eye on Mr. Lazy on a day to day basis. And having six future interests in the property is so messy practically that the best solution is probably for Ms. Awesome to attempt to buy out the interests of the other sisters and/or her sisters. That permits her to have more direct control and oversight on the property before Mr. Lazy Schmuck kicks the bucket and to control what to do with it after. Of course, that supposes that Ms. Awesome has the finances to do that and that it makes sense from a financial perspective to purchase the other sisters’ interests as an investment. Ideally, this could of all been avoided if the relative who passed away had an attorney or financial adviser who had explained the pitfalls of approaching things this way. Going forward, the best thing to do when faced with a situation like this is to consult with a real estate attorney to help you determine what your options are and which ones make financial sense for you.
By: Oliver Barry