In The Cross-Heirs
A loophole in real estate law pits families against developers and each other. Some say there’s more than money at stake.
Posted May 1, 2009 11:40 PM CDT
By Anna Stolley Persky
Standing on a bare stretch of beach in early February, Billy Freeman is not alone. His memories, his family, his ghosts are here with him in North Carolina, at the edge of the ocean.
It is here where Freeman played in the sand with his cousins. It is here where his family, for generations, fished, cooked and watched the tide with an intimate familiarity. And it is here where his family built Freeman Beach, nicknamed “Bop City,” a beachside haven where African-Americans could enjoy the summer months—even in the days of segregation.
“It’s a part of me,” says Freeman, 68, digging a heel into the sand, facing the cold winter wind. “We’ve always had the land. No money—but land.”
Freeman can trace his heritage and land to his great-great-great-grandfather, Alexander Freeman, a freed slave who in 1855 bought 99 acres near Myrtle Beach Sound. But Freeman and his relatives are in danger of losing part of that original plot, Freeman Beach. A developer claims to have majority ownership interest in the land and has filed court documents requesting a partition sale.
Freeman and his family are particularly vulnerable because the land has been passed down through “heirs’ property,” which means without the benefit of a will. Heirs’ property results in descendants who inherit real property as tenants in common, with each owner having an undivided interest in the land. For the descendants, heirs’ property also creates a problem—anyone who inherits or buys an interest in the land, no matter how small, can file with a court to force other owners to sell.
Some practitioners and scholars are concerned that poor and middle-income people, and particularly African-Americans, are being forced off their land through partition sales. During these sales proceedings, the heirs who want the land often don’t have the means to purchase it, so the property can go to outside bidders, such as developers. As a result, land owned by families for generations is suddenly lost.
“It’s the worst problem you never heard of,” says David Dietrich of Billings, Mont., co-chair of the ABA Property Preservation Task Force. “These cases can be thoroughly messy and complex because you are talking about multiple heirs with multiple, and sometimes conflicting, interests.”
A PROBLEM MOSTLY OF THE POOR
The issue has alarmed some legal scholars and practitioners for years. In the South, land loss among African-American families is considered a particularly significant concern.
According to the Land Loss Prevention Project, a Durham, N.C.-based organization that provides legal support to financially distressed farmers and landowners in the state, of the 15 million acres of land acquired by African-Americans after Emancipation, about 2 million remain owned by their descendants. Nationally, it’s estimated that African-American land ownership has decreased from as much as 19 million acres in 1910 to 1.5 million acres in 1997, according to the Southern Coalition for Social Justice.
Disputes over heirs’ property occur more frequently among the poor, who often don’t have the means to obtain a lawyer. Even when owners have legal access, they often choose not to write a will. Some landowners say they don’t want to write a will because they don’t want to pick between their children as to who inherits, practitioners say, or they are worried about provoking family disputes.
After a few generations, land inherited through heirs’ property can have multiple owners, each with a fractional interest. While the succeeding generations share the land as tenants in common, they often grow to have different goals or connections to the property.
When an heir in Chicago, for example, is approached about selling his interest in a North Carolina plot he co-owns with hundreds of relatives he hasn’t seen in years, he may choose the cash over the land. And that decision may well result in the remaining heirs—many of whom could still be living on the land itself—finding themselves displaced.
“One of the tragedies surrounding heirs’ property is that individuals lose their family associations with their land, and also their connection to their history,” says Chris Brook, a lawyer for the Southern Coalition for Social Justice, which is also based in Durham.
While not all African-American land loss can be attributed to heirs’ property, it appears to be a contributing factor, according to advocacy groups and legal experts who have studied the issue. Heirs’ property is most common among people living in rural areas in the South. Moreover, about 80 percent of rural African-Americans do not have estate plans, the coalition estimates.
But the problem also crops up in other regions of the United States and in urban areas as well, according to Heather Way, a law professor at the University of Texas at Austin and director of the school’s community development clinic.
“It’s most definitely an urban issue too,” says Way. “It’s very common to see heirs’ property issues in low-income, older neighborhoods, where a house has been in the family and passed down for generations.”
Way cites cases in which homeowners affected by Hurricane Katrina couldn’t receive government aid because of title questions arising out of heirs’ property issues.
Co-owners of heirs’ property by definition lack clear title to their land. As a consequence, they are often not eligible for government housing rehabilitation programs, and often can’t use their property to obtain mortgages or as collateral for business loans. Heirs’ property is also frequently managed by one heir or by a small group of co-owners who live on the land, while the remaining owners are dispersed elsewhere.
But the most pressing problem resulting from heirs’ property comes as developers aim for prime real estate, according to some practitioners and advocates. Most state property laws reflect an important American tradition—the notion that land should be put to its best possible use. Moreover, the laws are often fashioned with a goal of expediency in determining what should be done with the land. And judges weighing a case involving heirs’ property generally opt for a forced sale.
“This is one of those difficult issues where there is considerable merit to arguments on both sides,” says Steven J. Eagle, a property law professor at George Mason University in Arlington, Va., and the author of a legal treatise on regulatory takings.
“We don’t want to harm the productive use of real estate that’s now relatively unproductive. We don’t want to ensnare sophisticated investors who choose to use informal vehicles for their activity into a web of regulations not intended for their situation. On the other hand, we want to protect low- and moderate-income families and their cultural patrimony, their way of life, from unfair destruction.”
Freeman Beach provides an example of a land rich in history, but disadvantaged in terms of its estate planning. In dispute are 177 acres of undeveloped property at the northern end of Carolina Beach.
2009 Freeman Beach as it appears today.
Photo by Rick Hovis
Alexander Freeman continued to add to his initial 99-acre purchase until his death. A will dated in 1854 left 185 acres he had accumulated to his son, Robert Bruce Freeman. And like his father, Robert Bruce sold and purchased smaller parcels, adding more to the Freeman Beach estate before his death in 1902.
But Robert Bruce Freeman also fathered as many as 20 children—records are not clear on this—then died intestate. The children then passed their land to their heirs without the benefit of wills, resulting in multiple owners with multiple visions of what should be done with the land.
BOP CITY IN ITS HEYDAY
In the early part of the 20th century, the freeman family developed the beachfront as an oceanside tourist attraction. African-Americans traveled to Bop City from as far away as New York with their umbrellas and bathing suits in tow. In Sea Breeze, just across the Intracoastal Waterway, visitors danced in juke joints, ate in restaurants and caught ferries to Freeman Beach.
“People just started coming because they had nowhere else to go,” says Freeman, a longshoreman who still lives in Sea Breeze. “There would be so many people, you would just get tired of them.”
After integration, Bop City silently died, leaving behind remnants of the old juke joints, the pier and a sparse beachfront. In the summer, people still come to play in the sand, and the city of Carolina Beach patrols the area.
But last year, Freeman Beach LLC filed court documents, claiming to own approximately 72 percent interest in the land through a judgment from 1940 and subsequent purchases.
Some remaining owners, including Freeman, have grouped together to secure legal assistance in order to mediate the situation and petition for—at the very least—protected status for a portion of the land.
“In the case of Freeman Beach, the family’s goal is to preserve at least part of the land in an undeveloped state compatible with its rich history,” says Brook, who is representing the Freeman family in the dispute over the land, along with pro bono lawyers from Kilpatrick Stockton.
“We hope to bring all the parties together to realize this goal. Dialogue between the stakeholders is really the minimum that should occur when an heirs’ property dispute arises, but unfortunately it is the exception rather than the rule.”
H. Clifton Hester of Elizabethtown, N.C., a lawyer for Freeman Beach LLC, says the company has agreed to meet with family members to “see if we do have mutually beneficial interests.”
The land is “rich in history, and the company is sensitive to that,” says Hester, a principal at the law firm of Hester, Grady & Hester.
While Freeman Beach serves as an example of heirs’ property, it is not necessarily a representative case, in that some family members have acted quickly by hiring counsel. In the majority of cases, the owners end up in a forced sale situation, according to fair housing attorney John Pollock of Montgomery, Ala., who is facilitator of the Heirs’ Property Retention Coalition.
“There is a desperate need in this area for more pro bono assistance for these families,” says Pollock. “More than half the time, families go through these proceedings without a lawyer. When they don’t have a lawyer, there’s almost always a sale.”
The problem with multiple owners is that while a few may want to sell, the rest have a variety of reasons for wanting to keep the land.
“The law treats land as if it’s fungible, and that’s the problem. What the law doesn’t take into account is that for many owners, the financial value is not what’s important to them,” says Pollock. “Maybe it’s where they fish and hunt, and have for generations. Maybe it’s an integral part of their way of life, as it was for their grandparents. Maybe they grew up on the land. This is not just a piece of property. It’s a place that matters to their family history.”
Pollock says that when a developer petitions for a forced sale, the judge normally agrees with the petitioner that the property is not capable of division. And, he says, when the properties have been inherited via intestacy for generations, there can be hundreds of owners of minuscule amounts—and getting notice to all of them is tricky, and getting them to agree on the best outcome even trickier. As a result, once a petition for a forced sale is filed, judges often determine that the property is not divisible and order the sale.
Advocates for the poor also express concern about who pays attorney fees and how the value of the land is determined when a sale is ordered.
“Often the land ends up being sold at under fair market value,” says Thomas Mitchell, a law professor at the University of Wisconsin-Madison and a nationally recognized expert on heirs’ property. “Not only have these families lost the ability to own their own land, but then they are stripped of their wealth in these fire sales. That’s adding salt to the wound.”
Still worse, many states can require family members who opposed a forced sale to pay a portion of the petitioner’s attorney fees.
“If you’ve told the judge that you don’t want the property sold, and you still have to pay for the fees of the lawyers who just dispossessed you, that’s just not right,” adds Pollock.
Mitchell says what particularly bothers him are the worst-case scenarios—where an outsider gets a small fractional interest and yet is capable of forcing dozens of owners to sell.
“It would be like if you owned incredibly small shares of Microsoft, and you were given the right to go to your local state court and file a motion to liquidate Microsoft at a fire sale,” says Mitchell. “Courts have often only looked at these sales through a narrow economic lens. But they are discounting all types of noneconomic values—the cultural value, the heritage value, the value of shelter for someone who is poor.”
TACKLING THE ISSUE
Mitchell is part of an effort by the national Conference of Commissioners on Uniform State Laws to craft a model law to address the handling of heirs’ property cases. The proposed Uniform Partition of Heirs’ Property Act offers some seemingly dramatic changes to property law to combat what some scholars see as an escalating problem.
Critics of NCCUSL’s efforts say that current state statutes adequately protect property owners with clear partition and foreclosure rules, and that there is no need to legislate broad changes to laws that have been evolving for hundreds of years and will continue to do so.
In a draft to be presented this summer, courts would be allowed to consider noneconomic factors—such as the historical and cultural value of the land to the co-owners and whether it is a family homestead—when determining whether to order any partition or sale of the land. (For more information about the commission’s work, click here.)
The model statute would also eliminate such conflicts of interest by barring interested parties from conducting any sale. In addition, the model law would create a competitive bidding process in forced sales and eliminate requirements that force objecting heirs to pay attorney bills or transaction costs for the petitioners.
Still, there are those who object.
“This is a very old and well-established law that people have relied upon for a long time,” says Patrick Randolph, a professor at the University of Missouri-Kansas City School of Law who specializes in property and real estate issues. “It has generally allowed for reasonable solutions to property disputes.”
Randolph is concerned that the proposed uniform law will be too broad and overly inclusive, and will force courts to weigh considerations that are indefinable. Likewise, Randolph is concerned that the proposed uniform law will give preference to some people over others by allowing their emotional stake in the land to be considered by a judge.
“This is real estate, and real estate is something that should be treated as a market,” Randolph says. “The problem is that people are going to take advantage of the statute. There will be false positives, where people will raise the protections of the statute and later just make a profit off of it.”
Freeman Beach LLC lawyer Hester agrees, saying that passions often run high around litigation over land, but that doesn’t mean that courts should consider emotions or family heritage over facts and reason.
“Down South, we’re creatures of the land. We’re tied to our land. Every piece of land here has ancestral history and is precious to someone,” says Hester. “But that doesn’t mean that courts should get involved in such an intangible factor. This would open up a terrific can of worms and would give judges arbitrary powers to deny legal rights.
“The more intangible factors you throw in the mix, the more difficult it is for an appellate court to review a decision.”
But others involved in the drafting process say the critics are ignoring the evidence that heirs’ property only became an issue when speculators saw the opportunity to make money and were allowed to proceed without reasonable restraints.
“It doesn’t seem to me that the law ought to be encouraging people who have made use of the land and live on the land to be thrown off their land by speculators,” says Carl Lisman, a principal at Lisman, Webster & Leckerling in Burlington, Vt., who is helping to draft the uniform law.
The ABA’s Property Preservation Task Force has studied the issue since 2001, and the association’s Section of Real Property, Trust and Estate Law has committed $135,000 to finance law clinic assistance to heirs’ property owners determined to keep their land.
Others have suggested allowing longtime property owners—when they occupy the property, improve it and pay the taxes—the ability to assert an adverse possession claim. There has also been some talk of trying to convince the U.S. Department of Agriculture to address the problems of land loss and heirs’ property.
Organizations like the Southern Coalition for Social Justice conduct outreach to clients to proactively avoid land-dispute problems. For example, by forming an LLC or otherwise accumulating interests, the owners are better able to protect themselves.
“When property owners start to work together, suddenly their real estate that was a ship without a rudder can be directed,” says Dietrich. “The heirs themselves can develop or preserve their land.”
Lawyers involved in heirs’ property cases are also emphasizing mediation and arbitration, dividing the land into equitable partitions, creating trusts, and encouraging landowners to write wills. Another option is to use conservation strategies to have the land preserved for generations to come. In the case of Freeman Beach, for example, the remaining family members have discussed putting the property into a land preservation trust.
“We are trying to get to families before they lose their land,” says Carolyn Gaines-Varner of Selma, Ala., economic justice advocacy director for Legal Services Alabama. “We are trying to convince people to protect their property, but some people don’t want to have to make those choices.”
While advocates for the poor say they’ve seen more cases involving heirs’ property in recent years, some speculate that the economic downturn, which has stalled land development, will also spare some heirs’ property owners from fighting battles over their land for now.
Still, those advocates remain worried that their clients, already facing unemployment in rising numbers, could also now face the prospect of losing their land.
“For some people, the land is all they have,” says Gaines-Varner. “If it gets sold, these people have no place to go. For many people, owning land gives them a sense of pride. When you take the land from them, you take away their only chance to own property and get that pride of ownership.”
Anna Stolley Persky is a freelance writer who is based in Washington, D.C.