Question: My sister and I inherited a small but valuable property in the Bay Area from our mother several years ago. It was my mother’s house that she bought and lived in since the 1960s. After she passed, my sister and I cleaned out the property and did some minor renovations.
For the past several years, we have rented it out at below market price to a close family member of ours who was studying at the university. That person is graduating in May, and the unit will now be vacant. I think that now might be a good time to list the property for sale, but my sister has told me that she wants to continue to rent it. I am on the fence about whether I continue to rent or sell. If my sister refuses to list the property for sale, what are my options?
Answer: As you mention, one option is to rent the property. Another option is to negotiate a buyout of your interest by your sister. If neither of these options are possible, you have legal recourse by taking your sister to court to force a sale of the property through a “partition action.”
Since your mother’s passing, you and your sister have been co-owners of the property. Shared ownership can take different forms, but you likely own the property with your sister as “tenants in common.” That means each of you owns an equal and undivided interest in the property. Each of you has a right to one-half of the profits of the property and a duty to cover any obligations, such as property taxes, insurance or homeowner fees.
Either of you can sell your respective interest in the property to any other person you choose. It is, however, almost impossible to sell to a complete stranger an undivided interest in a single family dwelling.
If your sister wants to own the entire property and continue renting it out, then she will have to buy out your interest. You will want to obtain the highest price for your interest, and your sister will want to buy for the lowest price. It would be best if the two of you can find a diplomatic way of reaching an acceptable price. One way may be for the two of you to each obtain your own appraisals from certified real estate appraisers.
If the appraised values are within 10 percent of one another, you can average the two figures to reach a compromise on the value of the property. If the appraised values are more than 10 percent apart, you can agree that the two appraisers will select a third independent and neutral appraiser whose appraised value will be final.
If you and your sister cannot agree on a buyout price and she refuses to list the property for sale, you have the right to go to court and file a civil lawsuit called a partition action. A partition action can result in the court forcing a sale of the property and dividing the proceeds between you. This should be your last resort because of the high cost and delay. In addition to the traditional closing costs and realtors’ commissions, there will be court costs, fees for court-appointed personnel, and even attorneys’ fees that must be paid by both parties.
Of course, you do have the option of simply continuing to rent the property. This may be a very good option as Bay Area rents are high and your county taxes on the property are probably still close to what you mother was paying. But renting does have its hassles, and local rent control ordinances in certain Bay Area communities can be quite restrictive.
Whether you sell or rent, there may be tax consequences or potential tax advantages. So you may want to consult with a professional to see what works best for you.
Although the law gives you, as a co-owner, the ultimate option to force a sale of the property, it will be in your best interest, and the best interest of your sister as well, if the two of you can reach an agreement. Whether that is maintaining the status quo, your sister buying you out, or the two of you agreeing to sell the property, staying out of court and reaching your own agreements will save you both a lot of time and money.
Preston Morgan is a partner at Kopper, Morgan & Dietrich, a Davis law firm providing family law, estate planning and trust litigation representation. His column is published every other week in the Davis Enterprise. To pose a question to Preston Morgan, contact him at https://kopperlaw.com.
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