Multiple names on title=Problems

[Benjamin]

OK, I am going to try and explain this the best I can. There are four names on the title of a commercial property(apartment building). My mother, father, grandmother, and grandfather(both on fathers side). For 20 years all have agreed to split everything 4 ways. The payments for insurance, gas, hot water, electricity for building etc... And splitted the rent collected from tenants 4 ways. Now to the problem. My parents split up. My father left, so my mother has been collecting his share from the tenants. It is stated on that title that if he cheated, leaves, or gets a divorce that his share goes solely to her, and not to my grandparents. So she now owns 50% of the property. And my grandparents 25% each. Well now my grandparents are collecting my fathers share own their own keeping it from my mother. And are talking about buying my moms "25%" and selling the property. Since my father has left(they havent divorced yet), my mother has been paying of the debts in his name(credit cards bills etc..) with what was his 25%. My father is well aware that his share is now my mothers and is not disputing it. So my grandparents are trying to get rid of us, and are collecting my fathers share. Though 50% of the property should be my mothers. My questions are, what can we do to rightfully collect my mothers 50%, does that 50% mean my mother has more rights to the property, and therefore has say in leasing apartments and evictions etc.., is there any way to get my grandparents off the lease?? My mother handles all the work related to the property already. She does all the collecting, handles all tenant complaints, completes all work orders, handles all legal matters concerning the building..does that count for anything?? I would greatly appreciate any advice on this matter, thank you.

 

[Tracey]

What a wonderful bar/law exam question! Agency, partnership, property, family, and contract law all rolled up into one!

1. Mom gets 50% of the net income if dad "cheated, left, or got a divorce." Presumably, this WRITTEN term was inserted into the agreement by all parties to protect Mom's interest and keep her from being squeezed out of his family business for his decision to terminate the marriage. (If it's not in writing, GET IT IN WRITING FROM DAD TODAY!!) Either grands agreed to this from the start, or dad agreed to cede his share to mom under certain circumstances. In either case, grands have no right to interfere with an agreement between mom & dad.

Their attempts to collect dad's share in violation of his agreement to the contrary constitutes theft and conversion or breach of fiduciary duty. Send them written notice that if they do not return all the money they have embezzled, mom will file criminal charges and sue them.

2. Mom still owns only 25% of the property. Dad owns 25%, but has voluntarily transferred his right to receive income to mom. This is _not_ a transfer of ownership. Even if mom sells her 25%, she still has the right to collect dad's 25%! The more interesting question is what happens if dad sells his 25%. Unless the contract says otherwise, I think mom loses her rights to that 25%. Mom should see a divorce attorney and file for a legal separation. As part of the separation, she should request an emergency restraining order preventing dad from alienating his ownership share in the business property. This freezes the status quo until things are settled by divorce or reconciliation. It also probably doesn't let dad off the hook for the agreement by letting him claim that SHE filed for divorce.

3. Grands can force a sale by suing to partition the property. This is a court-ordered sale. The court then divides the money between the owners according to ownership share. Presumably, mom would get dad's share from any sale, as that would be considered proceds. The restraint on alienation order would have to be lifted first, which means everyone would have to litigate the issue of who gets dad's share.

4. Unless the agreement between mom & dad specifies that mom is to use dad's share to pay off his debts, mom doesn't have to pay off his debts. she can sock the money away in the stock market if she likes. Have mom consult an attorney as to whether she has to or should use the money for dad's ultimate benefit.

Even if she uses the money to pay his debts, it's probably a better idea to use the money to pay his share of any joint debts. This protects mom's interests & benefits dad. Paying dad's sole property debts doesn't help mom and benefits only dad. After all, if they divorced today, dad would take away his sole debts and 1/2 the joint debts. Mom would remain liable for _all_ of the joint debts in the event dad defaulted, but couldn't be held liable for dad's sole debts. Why use the money to pay off his sole debts first while leaving herself liable for the joint debts??? Talk to the attorney about this too.

5. If mom is the managing partner, how are grands collecting dad's share of the money? Mom should send letters to all tenants directing them to pay her rather than the grands. It's even better to amend the leases so that tenants have to pay the managing partner, who happens to be mom. Then she should remove the grands as signatories from the bank accounts. If the bank gets stroppy about this, she should just open a new account with herself as sole signatory. Once she cuts grands off from the accounts, she HAS to follow her fiduciary duties scrupulously. This means she has to be able to account for every penny that comes in and where it goes. Also, she should continue to disperse money as she has for the last 20 years.

She should send grands (and dad) detailed bookkeeping statements every month and allow any of them to inspect the books at any time during business hours. She should also get a writing from dad affirming his intent that she collect his share of the income, to protect her from any claim of breach of fiduciary duty. Grands can't try to "enforce" dad's rights - they don't have standing unless he makes them his agent.

Consult an attorney regarding whether mom can deduct the funds grands embezzled from the money she pays them, if they don't return it. This is "self-help setoff" and may be forbidden in her state. She may have to sue them first, OR she may not be able to sue them without dissolving the partnership, depending on state law.

6. Mom does not have any extra rights to the property unless the partnership agreement (or the p'ship's track record) says that the managing partner has extra rights. Legally, grands could start renting the apts to people they like, and mom couldn't stop them.

Managing partners do not get reimbursed for the time they spend managing the partnership assets/affairs. Presumably they're in it for the prestige and feeling that they can do it better than anyone else!


All of the above can be changed or modified by a written partnership agreement. If there is a written agreement, read it carefully to see how mom should proceed.


Good luck,
Tracey

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This is not legal advice and you are not my client. Double check everything with your own attorney and your state's laws.

[This message has been edited by Tracey (edited June 06, 2000).]

[This message has been edited by Tracey (edited June 06, 2000).]