Forcing a Life Estate Tenant to Sell Real Estate
Perhaps the most common protection in estate planning to provide a loved one is the gift of a life estate. A life estate clause in a last will and testament or a deed allows the holder the right to live in the home for his or her lifetime, provided that they pay maintenance costs (property taxes, insurance, repairs). If the property is income producing (ie multi-family), you can include language in the Will instructing that the costs of maintaining the home be covered by the rental income. Beyond this, the most important safeguard for the holder is that without his consent he cannot be forced to sell the premises by the executor or the beneficiaries of the estate.
Without a life tenancy, the occupant, in most instances, has no control over what happens to the home. Take Anna. Jacob’s will leaves his Brooklyn condo to his wife Anna, and to his two children, to share equally. The idea of his children forcing Anna to sell the home that they have shared for over a decade as their marital residence never enters Jacob’s mind. As such, he fails to grant her a life tenancy in his will. After Jacob’s death, Anna receives notice from New York Surrogate’s Court that his children want the home sold so they can claim their inheritance.
Here, Anna’s recourse is limited to buying-out the children of their share. If the fair market value of the condo is 600k, she’ll have to come up with approximately 400k to pay the other two heirs in order to keep the home. The parties are free to accept less, or make concessions for improvements and money saved on the real estate broker fee. If access to the buy-out funds is not readily available, Anna will have to borrow money from a bank. However, qualifying for a mortgage can be problematic if Anna is a retiree, receives government assistance (Medicaid, SSI, etc), has a small income or a bad credit history. If she is unable to secure the funds, the property will be listed and sold by the estate executor.
In sum, an occupant or a partial beneficiary of an estate can be forced to sell the home absent life estate language in a will, trust or a property deed. But what if a life tenancy exists, are there any circumstances that warrant a sale? The following are some instances where a life occupant can be forced to sell an estate home.
Neglect, Failing to Upkeep the Premises and Pay Costs
In many cases, an estate planning instrument provides for a life tenancy on the condition that the tenant pay maintenance costs. As a result, failing to upkeep costs is a revocation of the tenancy. If a life tenant refuses to honor his end of the bargain or simply cannot keep up with the costs, a party with an interest in the subject property can compel a sale of the home. Our office recently handled a matter in which the life tenant refused to pay property expenses, pocketed the home’s rental income for over two years, and continuously damaged the premises by way of domestic disputes. An action was commenced in New York Surrogate’s Court to evict the life estate holder, who was also a one-third beneficiary under the decedent’s will. Once the eviction was finalized and after making the needed repairs, the estate executor was finally able to sell the premises. In sum, if a lifetime tenant fails to keep up with property costs and refuses to consent to a sale of the real estate, the executor or a beneficiary with an interest in the property can petition to evict the tenant and sell the estate asset.
Life Estate Tenant Consents to the Sale or Forces the Sale
A life tenancy holder can force a sale of a real property and collect the value of her life estate over the objections of the other beneficiaries. Take Anna again. Only this time, Jacob leaves Anna only a life estate in the condo and names his children as the remaindermen – ie beneficiaries of the condo at Anna’s death. The question becomes, can the holder compel the sale of the property and cash in on the value of the life estate over despite the objections of the remaindermen, or can the remaindermen simply wait for the death of the life tenant and collect the full value of their interest in the home upon the holder’s death?
In order to answer this question, a NY estate lawyer will first need to examine the language of the will to determine whether the decedent granted a life tenancy in the property or a mere occupancy. If the former exists, a calculation must be made to ascertain the fair market value of the life tenancy over the lifetime of the holder. New York Surrogate’s Court have consistently allowed the life tenant to sell the property over the objections of other beneficiaries.
The Sale is in the Best Interests of the Estate
If the home is in foreclosure, courts will typically allow a sale despite the lifetime tenancy. There are rare instances when the mortgage arrears are so minor that they can be satisfied by the estate with ease. In most cases, the decedent dies during a pending foreclosure lawsuit or after a judgment of foreclosure has already been entered. With the interest charges, legal fees, the past due arrears, and other miscellaneous bank charges, the reinstatement mortgage balance is typically so substantial that parties cannot bring the loan to good standing. In these circumstances, courts will permit the estate to sell the home for fair market value, rather than having it sold by the bank to the highest bidder.
Similarly, if the home is falling apart (costly repairs, mold infestation), or its more of a liability than an estate asset (non-paying tenants), a sale may be permitted.
All Parties Consent to the Sale
When parties all consent to the sale, including the lifetime tenancy holder, court intervention is not necessary. The costs of maintaining the home may be too steep for the holder or they may want to relocate to a warmer climate. Whatever the reason, the holder is free to consent to a sale. If the beneficiaries or the estate executor objects or refuses to do so, a petition to force a sale would need to be submitted to the Surrogate’s Court (see above).
Life estates can be tricky. Whether you need to create a lifetime estate in your will, deed or trust, or need help defending against a sale or compelling a sale, our NYC estate lawyers and probate attorneys can assist you with drafting the proper language or can advise you as to your rights in regards to the tenancy. Call us at 646-233-0826. We’d love to hear from you.
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