"It Can Undermine Economic Mobility": A Discussion of Heirs' Property
Charles Davidson: Hello, thanks for joining us for this Economy Matters podcast. I'm Charles Davidson, a staff writer with the Atlanta Fed's Economy Matters digital magazine, and I'm here today with Sarah Stein, an adviser in the Atlanta Fed's Community and Economic Development Department. Sarah, thanks for being here.
Sarah Stein: My pleasure, Charles.
The Atlanta Fed's Sarah Stein. Photo by Ted Pio Roda
Davidson: Today, Sarah and I are going to discuss something called heirs' property, which can result basically when someone inherits a piece of real estate, but without a properly recorded or probated will—and it's a significant problem, especially among African-American landowners in the Southeast. Sarah, first can I ask you to just go a little bit deeper on what heirs' property is, and maybe talk a little bit about why it can be so problematic?
Stein: Sure. I think the first thing I would say about heirs' property is, its heirs' property. "Heirs" indicates some sort of inheritance, and "property" is maybe some kind of real estate, whether that's farmland or a home. And when you really think about that, that's a family place. There are people who have real experiences and histories that often feel a connection to the property that we're talking about. To be more legalistic about it, heirs' property is a specific way of owning property. heirs' property owners own property together. Usually it's multiple owners, owning together as tenants in common, and the way that that happens is that somebody dies—like you said, perhaps without a will, although a lot of experts will tell you that you can certainly create heirs' property with a will, if you're not being careful enough. Somebody dies, perhaps without a will—that's called "dying intestate." And then, state law determines how that property descends: who the heirs are, and what the division is. And then each of those heirs owns a portion of the property together, but they own the whole thing together. So it's not like a third of the physical property divided amongst. It's a group ownership.
And because they own it as tenants in common—that's the state law, default type of ownership—basically, if one of them passes away, that ownership can descend to their heirs as well. So if you had, say, a parent who passed away, had three children who were still living, those three children would inherit the property. And then, say, one of them passed away—maybe they had three or four heirs of their own. Well, you would go from having three people owning this property together as tenants in common to having five people. So you can imagine how this can balloon, and you can end up with a lot of people owning property together over a relatively short period of time. What that means is that all of those folks would have to, one, know that they had an interest in the property, and two, agree to do things with the property. So if you are an heirs' property owner, maybe only one person actually lives on the property themselves—maybe no one does, but one person might. That person would have to make sure that all the other owners were also in agreement with whatever they were trying to do, whether they were going to sell the property or try to get a loan to maybe do some improvements. An issue that we've really run into can be trying to get benefits from government programs or philanthropic programs—
Davidson: Say, after a disaster, or something like that?
Stein: Like after a disaster—although FEMA [the Federal Emergency Management Administration] did just recently update their requirements so that now heirs' property owners are able to access those funds. But there are many programs that still require what's called "clear title," and when you have fractionated title like that where we've got five people—it's perfectly fine for five people to own property together, but often in these circumstances a lot of them may not even know that they own that property, or they might not even know each other.
Davidson: So conceivably, you could have a piece of land that, say, was handed down 100 years ago—right?—and then the kind of scenario you laid out of, "OK, it was this generation, then the following," and so on and so on.
Stein: Absolutely. So that is in fact what has happened to a lot of farmland, particularly in the Black Belt South: a family owns a piece of property, one of the principal owners—or the original owner—dies, and then you begin the process of having those heirs accumulate over time, especially in circumstances where there is no estate planning that has happened. And that happens often in communities that have less access to legal services, or in a rural area where you might not even know a lawyer.
Davidson: Just to clarify: the Black Belt, for people who may not be familiar with that term, is basically the Delta in Mississippi, and a stretch through central Mississippi, central Alabama, and into Georgia—roughly. Is that about right?
Stein: Roughly. I think there may be some part in—
Davidson: South Carolina?
Stein: Northern Florida as well.
Davidson: OK. Sarah, it sounds like it might seem that having a number of people owning a piece of property could in some ways be a strength, but you noted a couple of ways that it can become problematic. So I wanted to ask you to maybe go into a little more detail on how that can create difficulties. But also, it struck me that if a piece of property was handed down many generations ago, is there a way to—if it became heirs' property way back, can you kind of fix it, at some point?
Stein: Yes. So I guess we could start with the problematic.
Davidson: Yes—sorry to throw two questions together.
Stein: No problem. Like you said, there is nothing wrong with owning property with other people, owning property as a family—and that is cherished by many families. I think the important point here is owning heirs' property means you own it as tenants in common, and there's some volatility to that specific type of legal ownership. You have tenants in common essentially when you have this fractionation where you've got lots of owners together. There's the potential I mentioned that if somebody passes away, that their heirs inherit their property. Well, each person who has an interest in the house is able to transfer that to somebody else.
Davidson: OK, so how can owning heirs' property become problematic?
Stein: When people own property as tenants in common together, as heirs' property owners do, you can come into situations. One, there's the unclear title situation. What that means is that it's not clear who the owner of the property is. And how would you even come upon that situation? Well, let's say that somebody wants to sell the property. A lot of times it'll be maybe the person living in the home—maybe they believe that they're the owner. Maybe grandma passed away and she'd always told everybody that this was going to be this person's house, but there wasn't a will. So that person believes that they own the property. Well, if they then did want to sell the property for any reason, they would not be able to because any buyer wants to make sure that they're buying that piece of property and they're not going to own it with anybody else—at least, if it's some sort of open market purchase, they're wanting to own that property and do what they want with it. They don't want to inherit this tangled title.
Davidson: Right—they don't want to have someone come along in five years and say, "You know what, I actually own a chunk of your property."
Stein: Exactly. And in fact, if you don't have a lot of cash to purchase that piece of property, you're probably going to try to get a mortgage, and there isn't a bank who is going to mortgage on a property when there's the possibility that somebody else is going to come along and have a claim to it. That's why when you have a mortgage. Often, they do a title search, you get title insurance—that kind of thing is in place in those standard market transactions. For an heirs' property owner, they wouldn't be able to engage in that because they wouldn't be able to prove that they're the only owner. In fact, probably, if they got to the point of trying to sell, the buyer would do a title search, and they wouldn't see that person's name on a deed. They would probably see maybe grandma's name, or great-grandma's name, or someone else, and they would say, "Well, what's your claim to this property?" Then they might find out that it's not just that person who has a claim to the property, it's all these other folks. So, selling is a problem, and getting a mortgage is a problem for the same reason. That's the clear title issue.
So that's one issue. Also, there can be complications for any program that's going to want clear title or want proof of ownership. Even just having proof of ownership when you're an heir, you may not have any kind of deed in the deed record that says that you're an owner, even a fractional owner. You would have to go through a probate process even to be named as a fractional owner on a deed, and many people who own heirs' property haven't done that. So those are two situations where you would run into some difficulties. Also, applying for maybe government programs, that sort of thing. But there are also vulnerabilities aside from that. Now we have a law called the Uniform Partition of heirs' property Act that has been passed in many states across the country that works to prevent a particular practice through which tenants-in-common ownership was targeted basically to get a forced sale of the property so an investor or a developer might get their hands on it for less money. And the way that that would work, within this tenants-in-common ownership, is that all that they would have to do would be to purchase one person's interest in this property. So there could be 15 people who own the property. They just have to find one person, and that person might not even really know that they own the property. The developer or the investor or whoever might have done a good bit of research to connect this person to a past owner in a deed record, approach them, offer them money for something they don't even know they own.
Davidson: "Hey, money from the sky."
Stein: Exactly. They're like, "Okay, here you go—I'll sign this piece of paper." Now, you have this third party who has an interest in the property and can take advantage of the process of partition. That's when you have tenants in common, one of the owners can petition the court to partition the property. And the way that those cases tend to go, based on case law, is that oftentimes those partition actions, the action you bring in the court, would end up resulting in a forced sale of the property because they'd say, "There's no way to just divide this property up physically, and the best course of action—the most efficient course of action—is to sell the property and divide the proceeds among the heirs."
Davidson: And in those cases, I think you noted that you're typically not going to get market value.
Stein: It's a forced sale situation. There may be a limited number of people who would even know the sale is going on. Usually if you're going to sell your house, you'd put it on the market. You would make sure as many people as possible who are interested in buying it knew about it.
Davidson: You want it to be essentially an auction.
Stein: You want there to be a sense of competition among the purchasers to get the best price. That's fair market value, is the value that a willing purchaser and a willing buyer will pay for a piece of property, right? In this situation, you don't have a willing seller. You have somebody, you have a group of people, who are being forced through a legal action to sell property. And that results oftentimes in a devaluation on the sale. That is a mechanism through which many, many owners of heirs' property have lost their property over time. There has been a lot of research about this issue, and it eventually culminated in the drafting of the Uniform Partition of heirs' property Act, which has now been adopted in many states across the country—including many states within our own district.
Davidson: Sarah, a lot of this sounds like it would fit pretty squarely under the Atlanta Fed's strategic priority to advance economic mobility and resilience, because most of what you've laid out would really undermine both economic mobility and resilience because it's just going to basically undermine someone's economic security.
Stein: Right—both on the individual level, and on a community level. Because if you have a piece of property that the owners of which have a hard time doing anything with, it can undermine economic mobility and resilience not just for the individual family that owns the property, but for the surrounding community. Because these properties, sometimes due to the tangled title—which is another term that people sometimes use to refer to heirs' property—the owners have a hard time doing anything with the property and the property can become vacant or abandoned, which can affect the surrounding community.
Davidson: Sarah, can you talk a little bit about the work that the Atlanta Fed—and in particular, the Community and Economic Development Department—has done in this arena of heirs' property research, and other work that you guys have done?
Stein: Yes. Given the interest in understanding more about heirs' property because of its connection to economic mobility and resilience in our district, we have in the past worked with many researchers and service organizations to build understanding and convening around the topic. There was a convening in 2017…that was before I worked here—although, interestingly, I attended that convening as a legal practitioner who worked on heirs' property issues. And there's been an ongoing community of folks who are interested in the issue of heirs' property and thinking about solutions, and trying to raise awareness of the issue. Really, it's been very successful. Those folks who have been working hard to understand and raise awareness of heirs' property, their work has been fruitful. Now we have a greater awareness of heirs' property, and a lot of legislation—there's legislation that has been passed that recognizes heirs' property, I mentioned the Uniform Partition of heirs' property Act—and all of this work has been going on long before we've been involved in the conversation. But we saw the opportunity to help facilitate connections and to support the building of that knowledge around heirs' property—particularly in our district, which contains the Black Belt South, where it's been an issue of particular concern. Although it's important to say that heirs' property is not just a rural issue—it's an urban issue, it can pop up anywhere.
Davidson: We're going to take a short break, and we'll jump right back into our conversation after this brief message from the Atlanta Fed.
Davidson: Welcome back. So, Sarah, we were talking about a lot of the intricacies surrounding heirs' property, why it's problematic. I want to ask, how widespread is it? I know that it's tough to really quantify. We can't say there are X thousands of acres, precisely, that are parcels of heirs' property, but I've seen estimates that I think are pretty credible that there are many thousands of parcels in Georgia alone worth many, many millions, if not even more. So it's obviously widespread, but is there a way to get our hands around the scope of this? And why is it so difficult to really pin down how much heirs' property is out there?
Stein: Well, I would say that there's great interest in understanding the magnitude of heirs' property, because doing so can really make the issue more comprehensible. If you have some sense of how much there is, you have some sense perhaps of how much of an issue it is. It could help advocates convey to policymakers that this is an important issue. It can help local communities understand the impact of the issue on their community, whether that's a matter of their tax revenue or just the ability of their citizenry to obtain economic mobility and resilience. There's a strong desire to understand exactly how much is there, and where is it, exactly? Also, from the service provider's perspective, there's a desire to be able to find people with heirs' property and assist them in its resolution, if that's something that they would like to do. A lot of times, folks who own heirs' property don't know that they own heirs' property until they run into an issue. And so I think a lot of service providers would like to be able to find people before they're running into issues and help them with resolution. So the desire to know where it is is tremendous. And unfortunately, it's quite hard to know where it is outside of somebody having an issue and sort of an individual basis of, " 'Oh, I have an issue,' 'Oh, here it is—yep, that's heirs' property.' " It can be difficult to just sort of blanketly understand. There have been some great efforts to do that, including some of our own work, to use different data sets that might indicate heirs' property—perhaps some way that the tax appraiser's office notates the different properties, or using other indicators that researchers have settled upon. And I would say that the reason it is so difficult to understand is because it's really an issue of nondocumentation. You can't go and find the certificate of heirs' property that's out there somewhere. It's a reverse of that.
Davidson: So by its nature, it's tough to identify.
Stein: Absolutely. If you think about how it's created—somebody passes away, there's no will, there may not be any probate, which is the process through which somebody's estate is distributed to heirs. So even when there's not a will, you still would do a probate for an intestate estate. The problem is that those also have not been done. So there's not a record of an estate distribution, and oftentimes there are unknown heirs. Unknown heirs are a huge issue in the world of heirs' property, particularly in its resolution. A lot of what heirs' property is is unknown, and so it does make it difficult to really know where it is and how much there is. That doesn't mean that it's not worth trying. As I discussed, there are lots of reasons to try to do it. And so it's important to be making those best estimates. But it is, at the same time, hard to know exactly where and what.
Davidson: Sarah, I think you noted that there's increasing attention paid to these issues, and spreading awareness—more attention from researchers, and the media as well. When you approach these issues, there are inherent complications and sensitivities—complexities—at work here, historical, cultural, racial, kind of a myriad of these, what can be very thorny types of considerations. Can you talk a little bit about, if you're new to this field you could be really well meaning, but maybe there can be some things that you might need to navigate that can be a little tricky?
Stein: Yes, I think that because there is increased attention around heirs' property and there are people who didn't even know about the issue who are very interested in solutions, in making services available and understanding more about the issue, there's a ballooned interest in it in the last few years—partially because of the popularity of the Uniform Partition of heirs' property Act, partially because of the 2018 farm bill that recognized heirs' property and made it possible for heirs' property owners to get a farm number. It also established what is known as the Heirs' Property Relending Program, which is a program where heirs' property owners can access financing funds for the resolution of heirs' property issues, so that they can get to a place where they may be able to better use their property for income-producing purposes, or do what they'd like to do that the heirs' property problem is preventing them from being able to do. Those programs have been a success and also have seeded great interest in the issue. And so you see a lot more people interested in understanding where it is and how it happens, and wanting to do more research; and I think that it's very important that as people become interested in the topic, that they maintain an understanding that part of what makes heirs' property a topic that anyone would want to write legislation about or fund the resolution of is that the people who own heirs' property already have a particular precarity, a vulnerability, in their ownership to begin with. And it's very important for anyone who's entering into the field to try to understand how they can accomplish their work without doing harm. There are a lot of researchers and service providers who have worked on this issue for a long time, that have learned a lot of lessons around those questions about how to approach heirs' property, how to do research that doesn't further expose heirs' property owners to potential predation. At this point, I think a lot of the folks who have been doing that work are interested in making sure that their knowledge of what those precautions ought to be can be shared with more of the community that is now more interested and has greater knowledge that this heirs' property issue even exists.
Davidson: I'm probably oversimplifying this grossly, but the idea might be—just to take one example—if you really pinpointed a lot of heirs' property parcels, you might be basically putting a target on the backs of the owners?
Stein: Yes, absolutely. If you were to publish a dot map of where heirs' property is—put in the wrong hands, that could be a target for practices that the owners of those parcels might not otherwise have been on the radar of.
Davidson: OK. A couple more things, Sarah—thanks so much for your time. What are some programs or tools that are available to help people avoid an heirs' property scenario upfront—or, if they already are in that sort of scenario, to help them retain their land or just work through the kind of problems that we've discussed?
Stein: Absolutely. There are organizations across our district who have a lot of background and interest in providing those solutions. Oftentimes what that entails is building trust in communities where heirs' property exists and providing resources for people who maybe don't have heirs' property yet to prevent the creation of heirs' property. So a lot of times those might be legal solutions, estate planning type solutions. But it's a larger issue than just a legal issue, so oftentimes folks who solutions around heirs' property, they're also thinking about greater community involvement or a greater sense of what might be at stake than just a legal solution. But certainly, legal services are part of the solution and are in place and growing, so estate planning can be a prevention mechanism. But then if you have a situation where you already are in an heirs' property scenario, you may need legal services to clear your title. That's something that a lot of the organizations and the people who are problem solving around heirs' property try to provide as well.
Davidson: Sarah you talked about a model statute that helps to clean up some of these issues. Can you just quickly talk a little bit about what it actually does—what the model statute allows to happen? Stein: Sure. I'm fairly certain you're referring to the Uniform Partition of heirs' property Act.
Davidson: That is correct.
Stein: And that is uniform law that essentially—it's like you said, a model piece of legislation designed to be offered in state legislatures for adoption. So it's not a federal law. It focuses on state law matters with the goal of having some uniformity among them. And this particular uniform act, what it does in the states that have enacted it—and what it would do in those that would enact it, or could—is that it actually makes it so that that process that I had described, where one owner in tenants in common can request a partition—when that happens, when a tenant in common files for a partition action in a court, what would happen is if there is a determination that the other owners are heirs, that there's an heirs situation involved in those that are being brought to the partition action, then it sets a different set of rules for how that partition action will be considered by the court. The goal is to make it so that it's hard for a third party to come into an heirs-owned situation and result in a forced sale. So there are protections that are put in place that basically make it so that there are more considerations of the cultural or family value of the property when the court is deciding what to do with the partition action and how to fairly resolve it. And then if the court does come to the determination that a sale is necessary, there are other provisions in place to ensure that it's not as much of a forced sale environment. It makes it so that, for instance—it does many things, but for instance—there has to be an appraisal, and there are other standards of the sale that are not in place in many states where a sale would be forced from the court that ought to result in maybe a more fair price. The act does other things as well, but the idea being that it would deter somebody from trying to engage in this process of obtaining a small, fractional interest in a piece of land with the goal of bringing a group of heirs to court and forcing a sale on the property. So it addresses this issue of forced sales that so many people have lost their land through over the years.
Davidson: All right. Sarah, thanks so much for your time—really interesting stuff.
Stein: You're welcome.
Davidson: All right. Thank you for listening to this Economy Matters podcast from the Federal Reserve Bank of Atlanta. To learn more about heirs' property, or generally about the work of the Atlanta Fed, check out our website at atlantafed.org. And come back next month for our next podcast, which will feature Atlanta Fed economist Salome Baslandze, who will discuss her research on the role that companies that are started by people who have left larger firms can play in boosting innovation and productivity in the economy. Thank you again for your time.