By PETER ROSENTHAL, President
V.I.P. Trust Deed Company
March 2002
Often people sometimes end up owning a fractional interest in a note secured by Deed of Trust or Real Estate. Actually, you may own a fractional interest in a racehorse; while I know something about horses this column will deal with real estate.
Often fractional interests occur through inheritance or divorce. In 1974 I purchased a 1/8 interest on a building on Main Street in Los Angeles. Through an estate 1/8 interests were bequeathed to eight heirs. Over a period of years I purchased most of the other 1/8 interests and then sold the building.
Sometimes a husband and wife will divorce and sell the family home: A first or second trust deed might be “carried back” with each party having a 50% interest. If it is the typical “fighting mad” divorce, one, or both, of those partial interests will undoubtedly be sold.
Many years ago a woman came into my office in tears. The woman and her boyfriend had purchased a home as “tenants in common”. They lived together for a few years and then split up. For a while she slept on the back porch – no joke. She offered to sell him her ½ interest: he laughed at her, and offered her $5,000.00. Her equity at the time was approximately $50,000.00. We ended up purchasing her ½ interest and we ended up with a surprised and very angry “partner”.
You can believe this or not as you see fit. As I am dictating this column, I was just interrupted by a phone call. The man calling owns a fractional interest in a trust deed that was set up years ago by a local mortgage company. The company went out of business approximately 10 years ago and the borrower has been paying DIRECTLY to the fractional beneficiaries. The caller wanted to set-up a foreclosure as the borrower had stopped paying. The real problem is that some of the fractions have been paid; some haven’t; and one is deceased. What a mess!!
There really is a purpose to this column. Though I love to tell “war stories”, my main point is that fractional interests in real estate or trust deeds, while complex, HAVE VALUE. There is no question that it is substantially harder to sell a fractional interest but they ARE sellable. If there are only two owners of “something”, it is fairly simple to offer the other half a buy/sell figure. For instance, I will buy your half of a condo for $50,000.00 or I will sell my half to you for the same price. Obviously, if the partner has the “choice” the price will be fair. A word about valuation – let’s assume that you own a ½ interest in a $200,000.00 house. Deduct selling costs, i.e. 7-8% – let’s say this leaves $185,000.00; now subtract outstanding mortgages which are $65,000.00 in this example – the remaining equity is $120,000.00, of which your ½ is valued at $60,000.00. Remember, this is the approximate sum you would receive IF the property were listed and sold in COOPERATION with the other owner. In this example, somebody buying your share might offer 25/35,000.00. That is why it is so important to try to make a deal with your partner (s) first.
If you own a fractional interest in real estate or trust deeds don’t feel “trapped”. If the trust deed or real estate has good equity your interest is sellable. If your partner/partners aren’t interested, check the Sunday edition of a large newspaper under real estate or put in your own ad.
Peter Rosenthal
V.I.P. Trust Deed Company