Thursday, November 21, 2013

Same-sex couples face challenges to co-own real estate

Presently the State of Texas does not recognize same-sex marriage.  Implicit in the current state of the law is the inability for a same sex couple, even one married legally in a state which recognizes such marriage, to obtain a divorce in a Texas court.

So if a same sex couple desires to hold title to Texas real estate, jointly, how do they deal with such real estate when they no longer wish to remain together ?    Unlike an opposite sex marriage, such couples cannot use a divorce court to divide assets of the marriage.  Unfortunately, some same sex couple just accept such limitations and have made little planning to deal with the potential problems of jointly owned real estate.

Some couples use a "joint tenancy" or "joint tenancy with right of survivorship" to jointly hold title to real estate -- but there are some limitations imposed by such ownership.   First, Texas law does not favor joint tenancies and construes any attempt to create them very strictly.  They must be created with the written agreement of both joint tenants, and clearly evidence their intent to create a joint tenancy where the survivor would take title to the whole of the jointly owned property.   Careful drafting must be used to ensure that a true joint tenancy, with survivorship qualities, is created.

Second, a joint tenancy only deals with one situation -- death.  It does not deal with the need of one  joint tenant to buy the other out, or to sell if the other owner does not desire to sell.  Without good real estate planning, the only recourse for two co-owners who cannot file for divorce in Texas is to file a partition lawsuit to ask a court of law to divide the jointly owned property -- or, in the case of a single family residence, which often cannot be truly and fairly divided, to order the property sold and the proceeds split.   Such lawsuits are expensive and slow.

The best solution currently available in Texas is for same-sex couples to take title in a well crafted limited liability company or limited partnership.  These vehicles can be drafted to contain buy-sell provisions, to allow one co-owner to trigger a buyout or sale of the other co-owner, to allow sale to third parties, to grant preferential rights to purchase the other co-owner's interest before sale to third parties, and dissolution of the partnership in the event of bankruptcy, death, or other events of "default" however defined by the agreement.  Holding title in a business partnership is perhaps the best way for same sex couples to jointly own real estate in Texas.

Tuesday, November 5, 2013

Problems with Powers of Attorney

Often we are asked by title companies and their closing teams to prepare a power of attorney for parties that cannot sign at closing.

While humans, signing in their individual capacity, are fine to delegate their powers to other humans, a POA given from a trust, corporation, executor, administrator, limited liability company, partnership or similar "entity" or fiduciary is not favored by the law or the courts.  For such reasons, we usually decline to draft them this way, and try to steer the requesting party to a different solution.

In the case of a corporate entity such as an LLC, corporation, partnership, etc., the person signing on behalf of that entity has been entrusted with powers on behalf of the entity.  That trust and that appointment to sign on behalf of that entity is special under the law.  In the case of a corporation, the shareholders had a special meeting to elect the directors, and the directors then elected the officers, and the directors may have also had a special board meeting just to choose which officer can sign for that entity in that particular sale or refinance transaction.  Once appointed by the decision of the board, a person cannot (generally) just delegate their special powers to sign on behalf of the corporation (or LLC, or LP) to anyone they want, just because it's inconvenient for them to sign.   They were chosen.   If they cannot act, the corporation, through its board of directors, must pick someone else to sign.  So the solution is a new corporate resolution to pick a new person to act and sign.

Same idea goes for fiduciaries such as trustees, executors, etc.  They are "entrusted," quite literally, to act on behalf of a trust or an estate, and they can't just delegate their special powers via POA to anyone they want (generally).  The solution here, if they are unavailable, is to go back to the will or the trust and see who bats #2 -- trusts and wills often have alternates that can step up and act, although it may take some court action in the case of a probated estate.

Notice that I have said "generally" throughout -- sometimes we permit the use of POAs in these situations because we are in a time crunch, or some other similar bind.  But that decision and analysis is done on a case by case basis, as it involves a review of "discretionary" vs. "ministerial" duties of the agent.  Sometimes trust agreement will have language that does expressly permit the employment and use of "agents" and attorneys-in-fact to accomplish the wishes and agreements of the original  trustee, and there is law in Texas that suggests that if the agent or attorney-in-fact is simply performing the ministerial duty of signing that fiduciary's name to a document, and is not exercising discretion in what is being signed, that such authority might not violate the law or the original powers delegated to the fiduciary or corporate officer. 

Friday, November 1, 2013

Help ! I've put my girlfriend in title and now....

I seem to recall years ago, when Justin Timberlake and Britney Spears were boyfriend / girlfriend, that they bought an expensive Malibu house together -- while still single.   Their breakup and subsequent dispute over the ownership of that house probably fed their respective lawyers for a little while.

Bottom line, if you someone goes into title on a piece of a real estate with you, they are a co-owner.  As co-owners, the two (or more) of you will have to agree on any plans to sell, lease, or mortgage that co-owned property.

If the co-owner is your spouse, then you generally have the benefit of family laws and divorce procedures to deal with jointly owned real estate if the two co-owners (called "cotenants" under law) cannot agree on what to do with the property. 

But if the two cotenants are brother-sister, or boyfriend-girlfriend, or a same-sex couple, they may not have the benefit of divorce laws and procedures to split the property (comment:  The author is licensed to practice law only in Texas, and presently Texas courts do not authorize divorce for same sex couples, which may not be the case in other states).   So what happens in those instances ?

The best thing to try and achieve, and which should be a guiding principle in these negotiations, is to avoid a court of law.  A settlement, documented by an attorney and signed by the cotenants, is the goal here.   Co-tenancy litigation is expensive and slow and a terrible way to solve any dispute -- although sometimes there is no other option, especially if there are numerous co-owners (e.g., inheritance by many heirs).

Sometimes its as simple as a deed to move title from one person to the other.  Sometimes its a deed coupled with a document called a "Deed of Trust to Secure Assumption," which secures the conveying co-owner in the event there is a joint mortgage that the "selling" co-owner is still liable on.  Sometimes its an agreement to pay or split equity upon sale or refinance.  Your attorney will be able to offer counsel to guide and document your choices.

For forward thinking cotenants who cannot use a divorce proceeding to deal with these issues, a partnership or LLC agreement might be an excellent planning tool.  These agreements are used in business all the time between partners or members of, respectively, a partnership or limited liability company, to pre-determine what happens if one partner wants to leave the partnership, buy out the other, sell to a third party, gets divorced, gets married, goes bankrupt, or dies.  Although more expensive that just a simple deed putting you into title jointly with another owner, it will, if properly drafted, have all the major details and possibilities mapped out.