Buying Partial Interest First Time - Posted by Sara_CA

import · August 5, 2007, 11:27am

Posted by Bob Smith on August 05, 2007 at 21:00:19:

If you’re in for 40-50%, what price do you expect to exit at? If you expect, say, 80% of FMV at auction the partition process must be really cheap or you won’t make much if any money, especially if you aren’t talking $500k properties. For a more average $200k property 1/5th is $40k, so 50% is $20k. 80% puts your exit at $32k before considering transaction costs. Call it $10k net before legal fees? A nice payday if they don’t fight, but the lawyers will eat that up post haste if they do. I guess that means 1/5 isn’t enough ownership to be comfortably assured of profit on a more average-priced house (unless you’re in Silicon Valley, where average houses go for $750k).

import · August 5, 2007, 11:27am

Posted by Sara_CA on August 05, 2007 at 11:27:02:

The owner of property passed away last month. His living will specified 5 daughters as heir for his property. Problem is the 5 heirs have been fighting each other. Court battles. Police Restraining Orders. You name it.

I will approach each of them separately. How can I convince each of them to sign a separate Quit Claim Deed to me???

Suppose the property is worth 500K. Each owner owns 100K. How much should I offer to each owner? Does the guideline of 70% minus costs still apply in this case?

What should the wording say on the Quit Claim Deed? â??Jane Smith, one fifth owner of the property located on 123 Xyz St, Fresno, Ca., do hereby quit all claim to the property to Sara Lung.â??? Is this the proper wording??

This is a property with two houses, and acreage with farm crop. One of the heirsâ??s family is living in both houses and farming the land. She is not talking to any of her four sisters. I presume she will be the hardest to convince to sell her one fifth interest.
How should I convince her?

Is there a good lawyer, or title company that can do this in the Fresno, CA area ? Do I even need them?

Thanks to all the experienced partial interest buyers for any help. Thanks to this great site.

import · August 5, 2007, 4:21pm

Thanks. Probate Action Can of Worms?? - Posted by Sara_CA

Posted by Sara_CA on August 05, 2007 at 16:21:54:

Thanks for the advices. I will so slow with this. The people need time to mourn. I need time to research title and learn more of the how-toâ??s of buying partial interest.

There is only the living will left from the deceased owner parents. The living will specifies that upon death of the owners, the property is to be sold and split among the five daughters. As of now there is nothing done about it. Title is still vested in the name of the deceased parents. Does this mean we/they will have to have a full blown probate action? How can an afidavit help?

Is there is simpler way? Thanks again.

import · August 5, 2007, 2:41pm

Re: Buying Partial Interest First Time - Posted by Kristine-CA

Posted by Kristine-CA on August 05, 2007 at 14:41:08:

Sara: as Rick mentioned you need to confirm the current vesting of the
deceased owner and the status of the interest of the 5 daughters. Quit
claims will not convey title that the daughters don’t own (although they
may be useful but that’s another story). You mention a liviing will…I’m
not sure how that applies to real property. Perhaps there is a trust that
is currently holding the property?

I suggest checking the vesting and seeing if you can find out a little
more about the will you mention before even hiring an attorney. It may
be that a probate is your/their future. Kristine

import · August 5, 2007, 1:21pm

Re: Buying Partial Interest First Time - Posted by JT-IN

Posted by JT-IN on August 05, 2007 at 13:21:30:

Sara:

Yes, you need an Atty and Title Co to handle this transaction… You should NOT rely as an absolute, on anything you are told on a RE board, even what I or other experienced investors might tell you. Let the Title Co prepare the Deed along with an affidavit that the Grantor will sign… the affidavit will state that they agree to cooperate with title co in the event of any clerical errors, etc… Just small things, but items like this you aren’t likely to cover if doing this yourself. Well worth the cost for service, IMO.

70% is too much to pay for any partial interest… and especially when you are talking about a 1/5th interest. The more partial interests that exist, the higher transaction cost you will have, per interest. With a 1/5th interest I wouldn’t want to pay over 40%… 50% max. I would work on the easiest ones first, to what you perceive as the most difficult, with the last one being the occupant of the property.

Assuming you acquired 2, 3 or 4 of the interests, you can reasonably expect that the party occupying and benefiting from the property will reimburse you for the FMV of the rental usage of this property, if it goes to a partition action. If it would rent for 1000 per month, then each partial interest should be entitled to $ 200 per mo of reimbursement of rents from the party occupying the property. Since it is a working farm, the other question is… does she provide any economic benefit to the property by working the farm…? If so, maybe there is some offset required there that you might owe back to her… or she owes part of the farm income to all the others, but all is negotiable and arbitable in front of a judge or impartial referee.

You would best convince the occupant by acquiring all the other interests and then give her an education of the facts; nicely of course… She won’t believe you so plan on being prepared to enforce your position legally. This is why you can’t pay 70% for other interests… as there are going to be expenses most likely, and the time factor… this could take a while.

How you convince each of the others to sell is to offer a painless end to the matter for them, culminating with a bank check with their name on it. If there is some spite involved, where each of the interests might want to see justice and occupant dealt with, you can assure them that this will be part of the result of your action. This may be a motivator or it could be a spoiler, and just remember that blood is thicker than water, as they say… so stay above the fray as much as possible. Just deal with them individually, attempt to strike common interest and rapport, and let them know you will be swift and fair to deal with.

Just the way that I view things…

JT-IN

import · August 5, 2007, 7:28pm

Re: Thanks. Probate Action Can of Worms?? - Posted by Kristine-CA

Posted by Kristine-CA on August 05, 2007 at 19:28:06:

Sara: have you seen this will doc? Or have you just heard about it? And
by whom? It’s pretty important to really know what that doc is and what it
says. I’m thinking it’s a trust, which is not a public doc. Are you in
communication with one of the heirs?

import · August 5, 2007, 6:28pm

A Living Will… hmmm - Posted by JT-IN

Posted by JT-IN on August 05, 2007 at 18:28:42:

Sara:

A Living Will usually deals with health directives only. Such as providing authority to a party of sound mind to make health decisions for me if I am unable… “Do not resussitate… No artificial Life support… etc.”

A Living Trust or Inter Vivos Trust would be another matter, usually dealing with property. So it is key for you to know the difference here. Or, you could be just describing a Last Will and Testament… again, a different instrument.

If they had a Last Will & Testament, or sometimes simply called a Will, their estate would have to be probated. When heirs of the estate are competent and in agreement with the disposition, real estate can often be sold by affidavit after a waiver to probating the real property and some tax releases are obtained. (no Atty here, just been thru a number of times).

So you are probably dealing with probate here, based on the circumstances… and if it is a Will that states the property will be sold, then that is what will have to be done… Your partition play may not work here anyway. Due to it being a working farm, there may be some tall estate taxes to be addressed, as well. Liquidity must be obtained one way or the other to settle the huge tax bill they may face, if the gross value of the estate exceeds 2mil…

This can get fairly complex, for asking just one question, heh…

JT-IN

import · August 5, 2007, 4:29pm

Re: Buying Partial Interest First Time - Posted by Bob Smith

Posted by Bob Smith on August 05, 2007 at 16:29:33:

With the extra escrow fees and title costs, possible future legal fees if a partition is required, and the cost of money (which don’t have rents to offset it), wouldn’t even 50% be way too much to pay? I’d think you would want to be more like 25% all in, unless that’s so low you’re wasting your time as you’ll never make a deal. Now, the last interest is different. Paying more for that is very worthwhile if it avoids hassle.

In a partial interest situation, what do you think of “you cut, I choose” as a negotiating strategy? To wit, once you’ve acquired the interests of those who just want out, and only intransigent holdouts remain, make them an offer: “you choose a price for the property. Once I know that number, I have the right to buy you out at that price, or force you to buy me out at that price. I know your price will be fair. If it’s too low I will buy you out cheap. If it’s too high I’ll force you to buy me out at a premium”.

import · August 5, 2007, 1:55pm

Ditto - Posted by Rick, the Probate Guy

Posted by Rick, the Probate Guy on August 05, 2007 at 13:55:38:

I agree with JT. Also, because you either failed to mention (or I failed to take notice) I’m concerned that you believe the title to be currently vested in the name of each beneficiary, and that’s probably not the case.

It will be interesting to watch what you really end up doing here (whether you heed the advise of others or plunge forward). Hope you don’t buy yourself a can of probate worms.

import · August 5, 2007, 7:23pm

Re: A Living Will… hmmm - Posted by Kristine-CA

Posted by Kristine-CA on August 05, 2007 at 19:23:47:

I hope for Sara’s benefit that there isn’t a will, but perhaps a trust
naming all the daughters as benes. If there is a mandate in a will or
trust to sell the property, then there is probably little chance to make a
deal with the heirs by buying their interests.

In CA there is no way I know of to avoid the probate of a will (not held
in a trust) regardless of the heirs desires or agreements regarding real
property. For estates under 20K there a court doc called an Affidavit,
but it still goes before the probate clerk. For estates under 100K, there
is a Petition. More complicated but still relatively easy to do pro per.
Above 100K and there is going to be a probate or no transfer.

As to Sara’s deal, if she finds that the heirs want cash now and she was
able to buy one or more of the interests at a steep discount, it might
be to her advantage to do so. She becomes the assignee of the bene(s)
and even if the property is required to be sold per a will or trust, she
would be inline for her share of the proceeds. It would need to be a
steep discount though. This isn’t a way to acquire the property, of
course, but a way to make profit by being in the right place at the right
time…with a checkbook.

I think valuing partial interests is very subjective. There is so much
that can decrease or wipe out the value when owning a partial with
strangers as co-owners. I say they are worth pennies on the dollar.
Seriously. I’ve had no trouble explaining this to owners of partials.
They know this already because if they could have sold their share or
been bought out for a decent price they would have. But as I posted in
a different thread below, there’s nothing like a firm offer to buy their
partial to get them motivated to get in contact or make-up with the
other co-owners in order to sell together.

Kristine

import · August 5, 2007, 6:13pm

Used that one many times… - Posted by JT-IN

Posted by JT-IN on August 05, 2007 at 18:13:29:

You cut, I choose… but it usually involved a piece of pie and my two sisters… and that was usually more difficult than buying a partial interest.

That would be a great, and fair strategy to employ on a partial interest too, and in fact, it pretty much works that way in the end at a partition sale… except you might have others in the choosing (bidding) contest too. (which is wonderful when you are attempting to cash-out anyway). The biggest problem that I see with using the approach is that for the most part the ones you would be proposing the strategy to, don’t want to partition anything. They usually have possession of the object and want to keep things just how they are. It is only after they get the hint, after being educated by an Atty, that they realize the long and the short of the deal. At that point, if they are financially able, they might be inclined to choose to buy you out. Most aren’t capable, or they would have done so before now with the other heirs, prior to the power play.

This is just the way that I have seen it play out… anyway. As to the price paid… I would suggest if you can get it for 25% then that is a good way to go… My experience has been between 40 to 50%, and they usually have to be talked down from 90%, as a starting point. “If it is worth 500K, and I own 1/5th, then why isn’t my share worth 100K…?” That is where it starts, and most folks can understand a 10% discount, but getting beyond that is deal making.

JT-IN