Have you bought a property with a friend, partner or relative? You may have initially believed you were in complete agreement about what the property would be used for, how you’ll split the expenses and other specifics, but that changed. Or, problems arose that significantly affected the land or buildings and can confuse true ownership. In this piece, we try to illuminate the most common issues that arise and help you to address (or even prevent) them in a constructive way.
Defining Legal Ownership
What does it mean to own real estate or property? How does it benefit you and any co-owners? Real estate is property that is valuable and lasting—something that can benefit an individual and the individual’s heirs for generations to come. Under the law, real estate may be collectively or privately owned.
One of the benefits of owning property is that property rights are transferable. The owner can grant all of the property to another individual, to a group of individuals, even to a person to use for the span of his or her life.
An individual who has a valid legal claim to the ownership of real estate (and is thus entitled to exercise property rights over it) is deemed to have “title.” Title grants ownership and an associated bundle of rights, and will often be in the form of a deed, a written document conveying ownership.
Unfortunately, property ownership is not always simple and straightforward. Sometimes ownership comes into question as a result of unclear or unrecorded property conveyances (documents used to transfer title from one person or entity to another). Other times, problems can arise when co-owners, who own a single piece of property together, have a dispute as to the maintenance, continued ownership, or proper use of that piece of property.
Owner Dispute Causes
What begins as clear-cut ownership can quickly become a messy question of who exactly is entitled to a certain piece of real estate. Common culprits behind ownership complications include:
- Unclear wills (unclear as to who gets the land, or what land is covered in the will)
- Problems regarding proper purchase of land
- Failures to properly record the transfer or “conveyance” of land in a deed
When there is a dispute as to who has a legal claim to the property rights of a certain piece of land, legal action is sometimes needed to settle the ownership dispute.
For example, maybe two brothers buy a townhouse as an investment property, planning to split it into apartments and rent them out. One finds himself in the middle of a divorce and moves into one of the apartments, but refuses to pay rent or take any smaller share of the rent from the other unit. Who is in the right? Can they work it out between them, or do they need assistance from the court? Steve Whitmore, Senior Real Estate lawyer at Robinson & Henry, says on the topic of property co-ownership disputes, “If you can’t agree, the judge will tell you. The court will make you sell the property.”
Action to Quiet Title
What if ownership is unclear? An action to quiet title is something you can do through the courts to definitively settle the question of ownership of a specific piece of real estate, thereby “quieting” competing claims. Some events that give rise to the need for an action to quiet title include:
- Forged deeds
- Deeds granted under coercion
- An ambiguous quitclaim deed — a deed used to transfer ownership as the grantor “quits” any property rights. This can occur when a deed is not conveyed along with a “title covenant” (a guarantee of the validity of the title).
- Adverse possession – when an individual gains legal rights by the actual, non-permissive, exclusive, adverse, continuous, open and notorious use of the land for a number of years.
According to Steve Whitmore, “More often than not, these claims arise when adjacent owners, or neighbors, don’t agree on a property line. Your fence could be 3 feet onto your neighbor’s property for 15 years, but unless you’ve acquired it intentionally, that extra 3 feet doesn’t become yours by adverse possession. When you know it’s not yours and you intentionally acquire it by your neighbor’s acquiescence: only then does it qualify as adverse possession.”
An action to quiet title is a great solution when other individuals have potential claims on the land in question, even if none has come forward to exercise this claim. Anyone who might have a claim to the property is notified before the court quiets the title. The elements for an action to quiet title vary from state to state, but in Colorado, courts have broad discretion. Even with this discretion, however, the courts do have guiding parameters. Under Colorado law, courts are required to completely resolve competing claims for property and to hand down a final determination as to ownership. For this reason, actions to quiet title are useful, as they resolve any doubt surrounding the ownership and control of a particular piece of property. To bring an action to quiet title, Colorado law requires that the individual bringing the suit file a short and plain statement showing that he or she is entitled to relief. This short statement is usually just a list of the facts of the case.
Co-Ownership of Real Estate
Sometimes, as in the example from the beginning of this piece, more than one person or entities own a single piece of property jointly. For example, a timeshare is a piece of property that individuals share and use for a select portion of the year. Problems that arise in situations of co-ownership are normally not battles over who actually owns the property since it is established that all involved “own” the property.
If the parties formalized their agreement regarding the property when they bought it (whether in the form of an LLC’s operating agreement, a partnership agreement, a tenancy in common agreement, a corporate buy-sell agreement, or other agreement), they can look to their agreement and Colorado law to determine their rights and obligations to one another.
With no governing document, the parties may encounter difficulty when there are disagreements as to the use of the property. For example, co-owners sometimes disagree as to how much time each owner should have use of the property, or how the property should be maintained.
In the absence of an agreement to the contrary, the courts will often grant equal rights to possession of the property, and equal rights and responsibilities. If one co-owner excludes the other from the property, the excluded co-owner can sometimes recover the property’s rental value from the excluding co-owner. If one owner can’t or won’t pay property expenses, the other owner may pay the property expenses to preserve the investment.
Often disputes can be resolved through negotiation, but sometimes parties will be unable to reconcile their differences. At that point, the co-owners must seek to divide or sell the property.
How do you get out of your co-ownership position? How do you get your partner (or sister or friend) to sell you their share? Partition actions arise when multiple individuals who own the same piece of land reach an irreconcilable difference regarding the use of the land. If the parties cannot resolve their dispute directly, with the assistance of attorneys or others or through a form of alternative dispute resolution, they can apply to a court to determine their rights and obligations. Between co-owners, this is done through a partition action.
Any co-owner can bring an action to partition land. When dividing land, the court has several options. It can:
- Divide the property equally between all owners—so instead of one big piece of property, the co-owners will all receive a chunk of the property which they will solely own.
- Give all of the property to one owner and require that owner to pay the other owners for their interest in the property.
- Sell the property and divide the profit among the owners.
Generally, a court will attempt to divide the property between all of the owners when this is a reasonable and just solution. In Colorado, however, land is often considered to be unique and money is therefore often an inadequate substitution. Sale of the land is generally a last resort when it is impossible to divide the property equally or if the owners want to sell. Only after it has been shown that dividing the property will result in “manifest prejudice” to one of the parties will the property be sold and the proceeds split. Manifest prejudice simply means that the physical characteristics of the land make its division impractical, or that the value of the entire piece of land is greater than the sum of its parts. Strained relationships between parties for example, would not be enough to constitute this prejudice. Some situations which would qualify to imply this manifest prejudice include:
- The sale of narrow strips of land used as landing strips that would be unusable if divided.
- The sale of lots which are covered completely by a building, such as a shopping mall.
- The sale of land which would result in parcels that violate zoning ordinances.
Other considerations include whether unusual features of the land make division impractical, or if partition of the land will reduce the land’s total value.
Partition action costs (such as filing fees, referee fees, surveyor fees, and title policies) will likely be allocated between the parties by the court. The costs are usually allocated in proportion to the ownership interests, but a judge may order differently if the judge feels that a different allocation is more fair. The court may also allocate attorney’s fees incurred by the parties.
If a co-owner has paid to improve the property without the consent of the other owner, the co-owner is not necessarily entitled to reimbursement. However, in a partition action, the improving owner can often recover any increase in proceeds from sale resulting from the improvements. Alternatively, if the improvements were necessary and increased the value of the property, and the improving owner sends notice of the cost of the improvements to the other owner, the other owner may contribute proportionately or surrender claim to the increased value of the property and rentals. Again, Colorado judges in a partition action have broad authority to grant these equitable interests (interests that come from equity in the real estate they own) as they see fit.
Partition actions are usually time-consuming, emotionally draining and expensive for all co-owners. The threat of a partition action should cause both owners to carefully consider alternatives. Partition actions should be filed only when discussions and/or mediation cannot resolve the disagreement.
Application to Settle the Dispute
As property can be co-owned by parties with other bonds – friendly, familiar or otherwise – property disputes can be particularly disruptive. If there are no established rules to govern the ownership written in an agreement beforehand, swift resolution is often the best way to avoid wasting time and money. Attorneys who are familiar with the contours of the law can help land owners to understand their legal options and to take the necessary steps to settle a disagreement as peacefully as possible.
If you need to quiet title or partition real estate in Colorado, the attorneys at Robinson & Henry are experienced and can help. Our real estate attorneys, led by Don Eby, Steve Whitmore and Boyd Rolfson, have years of experience in all sorts of real estate transactions and have helped owners settle disputes and petition the Court to resolve the dispute when the parties cannot reach a mutual agreement. Call 303-668-0944 for your initial assessment.