real estate

Sell stake in home to other owners

Steve McLindenq_v2.gifDear Steve,
I own half of a home under a tenant-in-common agreement. I know I can remortgage my half, but can I sell my half without permission of the other owner?
-- Bernice

a_v2.gifDear Bernice,
That all depends on your purchase contract. First, however, for the sake of our other readers, a tenant-in-common arrangement, also called tenancy-in-common, allows for the joint ownership of a property by two or more people. While you own part of the house, many tenant-in-common parties don't necessarily invest in -- or own -- equal shares.

Owners typically pass their shares on to descendants when they die, not to the other owner(s) unless so designated. In this case, it sounds as if you either own half of a home occupied by the other tenant-in-common owner and/or you, or you own half of an investment home that is a rental house. Tenancy-in-common, by the way, is the most common structure for unmarried persons to own a home.

Back to your question, most tenant-in-common contracts are structured so the other owner or owners of the property have the right of first refusal when a share is going on the market. So check your purchase contract. At face value, it seems to make sense to sell to the other owner since it would be easier to arrive at a value and simplify the transaction for you both. The other owner probably doesn't relish the prospect of owning the home with a complete stranger.

Though investors understand these types of deals much better than they did a decade or so ago, it can be a real challenge marketing half a home unless you have someone waiting in the wings who really wants it. Of course, there is always a chance the other owner may not want -- or be in a position to afford -- to buy you out. And you apparently don't want to sell to that person for whatever reason. Animosity, perhaps?

Regardless, to avoid potential legal snafus and marketing challenges, there's a good chance you may just have to suck it up and sell to the other tenant-in-common owner if he or she is willing. Before you do anything, however, talk with your mortgage lenders about your plans as they may have additional advice for someone in your situation.

There's another thing. If the place is merely an investment home and you stand to make significant capital gains on your half, you can defer those gains by farming that money into another investment property of equal or greater value in something called a 1031 Exchange. According to Section 1031 of the Internal Revenue Code, you have to identify the replacement property within 45 days and close on it within 180 days after relinquishing the previous property. You would also need the services of a qualified intermediary, or exchange accommodator.

Intermediaries acquire the relinquished property and hold the sale funds for the taxpayer before transferring the money to the closing agent for the purchase of the exchange property. They are considered by the IRS to be a "safe harbor," keeping the taxpayer from ever being in direct receipt of the sale proceeds.

Good luck in your (half) sale!

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