Heirs’ Property Disputes Can Rob Families of Financial Security

Spotlight is launching a new partnership with Fed Communities, a first stop for research, insights, data, and events for community development professionals from the United States central bank, including all 12 Federal Reserve Banks and the Federal Reserve Board of Governors. We will be regularly posting stories from the Fed Communities team and kicked off the initiative with a conversation with Gabriella Chiarenza, a senior writer/communications advisor for Fed Communities who has written a series of stories this year on housing issues and potential solutions. Our conversation centered on an article Chiarenza wrote earlier in the year about the issue of heirs’ property. The transcript of the conversation has been lightly edited for length and clarity.

Gabriella, you’ve done a series of pieces on housing. Talk a little bit about the impetus for that and, and why Fed Communities decided that that was an important topic to focus on.

Sure, and just to reiterate, my comments do not represent the views of the Federal Reserve Bank of Cleveland and the Federal Reserve System—and thank you for including that.

Our goal at Fed Communities is to tell people-centered stories—stories that are told through the lens of people who are experiencing and tackling a lot of issues that are impacting lower-income communities in particular. And I think that sharing someone’s real personal experience is often the best way to help a reader connect to an issue. It can really help a reader relate and understand why an issue is important and why they should care about it. And for me, that also ties back to the Fed’s mission to understand how everyone experiences and participates in the economy, and where there might be challenges and concerns on that front.

It’s an approach that puts Fed researcher’s and outreach staff’s work in the context of what it’s like to experience and address some of the challenges on the ground. We develop stories by regularly checking in with Fed colleagues about what we’re researching and working on. We work with all 12 reserve banks across the country and the Board of Governors in D.C., so we get a really nice view of all the community development issues that are impacting folks across the country. And in a lot of these check-ins, what kept rising to the surface for me was housing, and it got me thinking about a couple of questions. Where are the opportunities for folks to get into more stable and affordable home ownership? And what are some of the challenges and the pitfalls that people are experiencing related to those options?

For this year, my series looked at several issues that are sort of disparate but related under this topic. Those include heirs’ property, home ownership on native lands, manufactured home ownership, and contracts for deeds home ownership agreements.

We wanted to talk specifically about heirs’ property—can you give us a grounding in what that is?

I learned about this issue from my Fed colleagues in Atlanta in particular, who’ve been working on it for a number of years, and they’ve been collaborating a lot with other researchers and experts across the country. Heirs’ property can happen if a real estate owner dies without a will or if someone leaves property and a will to multiple people without any specifics about how to divide it. This can be a home, or it can be farm land.

So, as an example, say that someone dies, and their three children inherit their home without any specifics. Each of those children now get an equal share of the home. Then, if one of those children passes away, each of their heirs gets a share of their share. So, as you can see, it may end up with dozens or even hundreds of heirs owning one piece of property and it can be an incredibly complicated legal process to clear up property title in these in these situations. That’s especially true for families who don’t have access to affordable legal help—and as we know, many lower-income communities don’t.

With multiple heirs, this can cause a lot of challenges. It can be really difficult to maintain a property over time, and it can be hard to unlock the value of that property. Things like repairs and improvements can be particularly tricky because it may just be unclear who owns the home and who can get those things started. It can really spark a lot of family disagreements if heirs disagree about what to do with the property. And it can mean that an individual inheritor who’s living in or on the property may get displaced from their home, if any of these disagreements take place.

So, in terms of being able to sell the home, how would that work? Would all the heirs have to agree to do that?

There’s something that happens with heirs’ property, which is that anyone who owns a share of the property can ask a court for the value of that share. That’s something that’s called a partition action and if that happens, a court has two options. They can divide the property into literal equal slices, which could work really well if the property is farmland or a large piece of rural property, but is obviously pretty impossible with a single-family home. Or the court might order that the whole property be sold with the proceeds then divided among the heirs.

And how pervasive is this issue?

It’s really hard to get exact numbers, and this is something that comes up a lot in home ownership research. The data is tracked very differently, place to place, but there are some recent estimates that suggest that there might be 500,000 or more properties that are now heirs’ property and are tied up in this way. Researchers believe that there could be $32 billion to $41 billion in family wealth that could be at stake in this situation. That’s really notable when you consider that for a lot of these families, their means are already really limited and the property in question may be one of their most valuable family assets. For a lot of these families, these are long time family homes or family properties that have invaluable family memories tied up in them. And in a lot of cases, they can represent the struggle of their family ancestors to achieve their American dream and own their own home. So, it’s a really loaded issue, not just financially, but emotionally for lot of these families.

And at a time when affordable housing in general is so scarce. The piece talks about speculators—is that a particular threat?

It can be and it helps to understand that issue of partition to action to understand why. What can happen is that before a property is sold, you might have an investor or developer who approaches one of the heirs. And that heir might not know that by selling their interest to the investor, the investor now has the right to ask for a partition action if they own at least one share. In that way, an investor who pays one heir for one share of property can end up taking the whole property out from under the family, oftentimes before the rest of the family even knows what’s going on. In places where property is really valuable and attractive, but a lot of it might be tied up as heirs’ property, investors and developers might take this approach to try to put together larger plots of land or many properties together for development of more expensive housing or for other uses.

And it sounds like communities of color are particularly impacted?

Yes. It’s important to note that heirs’ property can happen to any family, but research has found that it is a particular issue of concern for certain communities, such as Black farming families in the rural South, who have been particularly vulnerable to this issue. Appalachian families and those in the border regions of Texas are often impacted and it’s becoming more of a concern in formerly redlined areas and lower-income urban neighborhoods. A similar inheritance issue can occur on native lands too, which is interesting.

In terms of solutions, what are some of the strategies that states and localities are using?

There’s a lot of work being done on this. One thing to note on the national level is that in 2010, there was a law drafted by legal experts and advocates that’s called the Uniform Partition of Heirs Property Act. It’s a long name, but often abbreviated as UPHPA. It’s been enacted in 24 states, and it’s been introduced in six more, so it’s really getting adopted in a lot of places. (Editor’s note: The Fed and Fed Communities take no position on legislation or proposed legislation).

That law offers some protections, particularly against the investor-driven interest in these properties. For example, under this law, an heir who’s living in or on the property, has the opportunity to buy out other interests in the property. That can help prevent displacement, as we talked about, and it also makes sure that if a sale is determined necessary by a court, that the property sells for market value. Sometimes what can happen with these properties is that they’re sold for much less than they’re really worth.

We’re also getting better data on where these properties are and who might be vulnerable to some of these problems. That’s also helping organizations on the ground help people understand what their options are if they discover they are in an heirs’ property situation. A good example of this, as we noted in our article, is in Jacksonville (Fla.). They have a family wealth creation initiative in the Southeast that’s focusing really heavily on this issue and works with local organizations.

There also are a number of lawyers and legal aid organizations working pro bono on this issue, as many families don’t have easy access to legal help. And there are a lot of folks providing neighborhood outreach and information sessions in their neighborhoods to help their neighbors understand what’s going on. One of the people that I spoke to for this article, Natavia, has experienced this in her own family, but she’s now working with a community organization to really help her neighbors understand what’s going on.

And are these organizations on the ground dealing more with cases that are ongoing with heirs’ property or also trying to bring more education to families that there need to be wills to avoid this sort of situation?

It’s really both. There are a lot of folks who need that immediate help and are being connected with lawyers or advocates who can help them with a specific property. But there is also a lot of that community education going on.

And does it tend to be more rural or more urban or a mix?

It’s really a mix. My understanding is that this used to be more of a rural issue but it’s becoming more of an urban issue as some of these neighborhoods change.

And what about any action at the federal level?

As far as I know the key tool at the federal level is this Uniform Partition of Heirs Property Act. It’s not a federal law, but it’s been drafted in a way that that makes it nationally applicable to a lot of different states. And then they can adjust it as they need to.

Gabriella, while I’ve got you, what are you working on now?

It’s a great question. We are at the time of year where we start to think about what our stories are going to be next year and one thing that I’m starting to look at is access—people’s ability to do banking and to be able to be connected to the larger economy, whether they can get checking and savings account or loans. It’s something that I think is really relevant to the Fed’s role in the Community Reinvestment Act as well.