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Understanding Heirs' Properties in the Southeast
- Affordable Housing and Neighborhoods
- Housing Needs and Supply
- Household Financial Well Being
Historically, homeownership has been a significant generator of household wealth and intergenerational wealth transfer. Based on an analysis of data from the Federal Reserve Survey of Consumer Finances, the foreclosure crisis erased a large amount of equity acquired by homeowners, disproportionately that of African-American homeowners (Fletcher, 2015). Furthermore, studies have shown that considerable differences in household wealth by race are attributable in part to the economic disparities and unequal opportunities experienced by past generations (Charles and Hurst, 2001). Property ownership can be undermined by a variety of factors, including negative equity, income loss, and unexpected expenses. Another issue that affects rural and ethnic and racial minority communities in particular is a lack of estate planning, which leads to a variety of issues associated with what are known as "heirs' properties."
Heirs' properties are parcels of residential, agricultural, commercial, or vacant land inherited by the descendants of a previous owner. Essentially, real property is passed down without a properly administered will to the owner's children and then to successive generations as tenants in common, which historically has been the default ownership structure in such cases (known as intestate estates).
Tenants in common collectively own the land and have equal access to the entire property, regardless of who maintains it, lives on it, or pays taxes on it. The resulting situation can often cause uncertainty and conflict between family members, including confusion over unknown heirs or heirs who cannot be located.
Heirs' property ownership is widespread in many urban and rural communities in the Southeast and is disproportionately found in low-income ethnic and racial minority families, who are less likely to have a will or transfer property prior to death. This informal path to landownership often results in clouded titles, instability associated with multiple owners, and potential forced sales by real estate speculators. Conversely, middle- and upper-income families generally have access to the resources to prepare a will, allowing them to pass along a marketable title with an inherited property, which preserves the wealth embodied in that property for future generations.
Southern African-American families, in particular, have suffered a significant loss of family-owned land purchased or deeded after the Civil War, with heirs' properties as a major contributing factor. African-American landowners acquired 15 million acres of land between 1865 and 1910, followed by sharp declines in ownership (The Emergency Land Fund, 1980). The 2001 Associated Press series Torn from the Land investigated the sometimes violent history behind takings of African-American-owned land. According to the series, roughly 80 percent of the 5.5 million acres of land owned by African-Americans in 1969 had been lost by 2001. By all accounts, this trend has continued and even been hastened by the recent recession.
Much of the land lost has been due to partition sales. In such situations, just one heir or a land trader who has purchased an heir's share may force the sale of an entire property, often below market value. Furthermore, legal fees may consume 20 percent of the proceeds of the sale. In this manner, the transfer of wealth between generations is broken, first by lack of succession planning, second by a forced partition sale. Beneficiaries are generally real estate investors, developers, and their lawyers.
There are several other social and economic issues associated with heirs' properties in addition to the loss of intergenerational wealth among vulnerable populations. The legal and administrative problems associated with heirs' properties are numerous. These include the risk of land loss due to unpaid taxes (tax foreclosures), fines associated with nuisances, difficulty selling land, and the inability to receive loans, grants, and other federal and state assistance, which generally require a clear title.
After Hurricane Katrina struck in 2005, for instance, roughly 25,000 families out of 185,000 were initially denied federal grant assistance to rebuild their homes because of complications associated with heirs' properties (Baab, 2011). At the community level, heirs' properties may be vacant, abandoned, or distressed and lead to loss of tax revenue, loss of productivity of agricultural land, blighted conditions, and safety and health concerns. Properties with clouded titles tend to complicate or forestall redevelopment plans in urban areas. Conversely, partition sales contribute to urban sprawl through the conversion of agricultural or undeveloped land into low-density development.
From past research, it has been determined that absentee ownership, low land value, lack of recent sale information, and lack of current improvement information tend to signal a property is owned by heirs (Hill et al., 2013). The difficulty in identifying the scope of the problem lies in the inconsistent methods of data collection and reporting among county tax assessors.
Based on CoreLogic's database of residential recorded deeds and their coded ownership types, in the six southeastern states that are part of the Atlanta Fed's District, at least 85,607 properties are known heirs' properties or properties owned by tenants in common (0.5 percent). Other types of joint ownership, such as life estates (239,368, or 1.3 percent) and estates (107,175, or 0.6 percent), are even more prevalent. In rural counties, the proportion of known residential heirs' properties is as high as 11.4 percent (see the map). Since these numbers include only residential land uses, the number of parcels would certainly increase dramatically if agricultural and commercial land uses were included. (The Atlanta Fed District includes Alabama, Florida, Georgia, and parts of Louisiana, Mississippi, and Tennessee.)
The Atlanta Fed and the University of Georgia used administrative data to understand further the magnitude of the heirs' properties problem in a selection of Georgia counties (Bibb, Dougherty, Evans, Jasper, and McIntosh). The value of potential heirs' properties in these five counties alone is more than $1.4 billion. The loss of these assets could deplete household wealth and further destabilize communities in Georgia recovering from the recent recession.
Outreach and legal reform strategies
Strategies for mitigating the problems associated with heirs' properties include client representation and education at the property owner level, and advocacy and lobbying and policy development at the governmental and legislative level.
Organizations dedicated to this work include the Appleseed network of public interest justice centers, including its Sixth District affiliates in Alabama, Georgia, and Louisiana. All three Appleseed affiliates are also members of the Heirs' Property Retention Coalition. Georgia Appleseed's Georgia Heirs Property Law Center has been established to assist heirs in maintaining ownership of their land. In addition, many volunteer lawyers work collectively in this space.
In terms of legislative actions, the Uniform Partition of Heirs Property Act (UPHPA), completed by the Uniform Law Commission in 2010 and drafted in major part by Thomas Mitchell of the Texas A&M University School of Law, has been enacted in six states and introduced in three more as of March 2016. These include Alabama and Georgia in the Atlanta Fed's Sixth District. The UPHPA provides a number of due process protections such as notice, appraisal, and right of first refusal for a property. If the partition results in a sale, a commercially reasonable sale supervised by the court will be conducted so that the heirs are fairly compensated.
At the local level, Birmingham has developed a strategy to clear titles efficiently on heirs' properties via a "quiet title action" process for tax-delinquent properties, which allows the local land bank to sell or transfer the property, with a cleared title, for productive use.
While various entities have committed to combating the issues associated with heirs' properties in the Southeast, there are still many hard-to-reach populations at risk. The community development field should be aware of this significant issue and cognizant of how past and future plans and decisions contribute to it.
By Ann Carpenter, Atlanta Fed CED adviser, Shana Jones, planning and environmental services unit program manager, and J. Scott Pippin, public service assistant, both with the University of Georgia Carl Vinson Institute of Government
Baab, C.H. (2011). "Heir Property: A Constraint for Planners, an Opportunity for Communities." Planning & Environmental Law 63 (11), 3-11.
Charles, K.K., & Hurst, E. (2001). "The Transition to Home Ownership and the Black-White Wealth Gap." Review of Economics and Statistics 84 (2), 281-297.
Fletcher, M. (2015, January 24). "A Shattered Foundation: African Americans Who Bought Homes in Prince George's Have Watched Their Wealth Vanish." Washington Post.
Hill, S., Baker, C.C., Rhodes, R., Vadodaria, P., Richardson, S., Lemmon, L., and Andrews, C. (2013). Unlocking Heir Property Ownership: Assessing the Impact on Low and Mid-Income Georgians and Their Communities. Atlanta: Georgia Appleseed Center for Law and Justice.
Mitchell, T. W. (2014). "Reforming Property Law to Address Devastating Land Loss." Alabama Law Review 66(1), 1–61.
Mitchell, Thomas W. (2001). "From Reconstruction to Deconstruction: Undermining Black Ownership, Political Independence, and Community through Partition Sales of Tenancy in Common Property." Northwestern University Law Review 95, 505–580.
The Emergency Land Fund. (1980). The Impact of Heir Property on Black Rural Land Tenure in the Southeastern Region of the United States. New York: The Fund.