In 2018, Fannie Mae‘s Disaster Recovery and Resilience team, together with their housing counselor partners, responded to Hurricane Maria in Puerto Rico by assisting homeowners in obtaining FEMA money and working with servicers to secure relief. While the storms were disastrous, but despite numerous obstacles in their path, Fannie Mae assisted many individuals in beginning their road to recovery, according to Tim Carpenter, Senior Director of Community Impact at the company.
“Whether it’s the result of a homeowner lacking an estate plan to name a clear heir for the property or a homeowner leaving it to multiple heirs in their estate, tangled titles can hinder homeowners from accessing critical resources for maintaining their homes or even force the sale of a property, perhaps at below-market value,” said Tim Carpenter, Senior Director of Community Impact at Fannie Mae.
One of the most enduring and recurrent issues we faced was the number of homeowners who were unable to easily obtain the assistance they required due to unclear property titles. Services that many households depend on, such as FEMA and other federal disaster assistance programs, or even the capacity to insure a home, were unavailable.
Per the report, a common trend found in Fannie Mae’s research was that homeowners were dealing with heirs’ property, sometimes known as tangled titles, which occur when a property has been bequeathed to various heirs, sometimes over a number of generations. Tangled title can prevent homeowners from accessing essential resources for maintaining their homes or even force the sale of a property, possibly at below-market value, depending on the reason—a homeowner may have neglected to name a clear heir for the property or may have left it to multiple heirs in their estate.
When Fannie Mae dug deeper into this issue, we discovered that while there had been some regionalized efforts to comprehend the situation, no thorough research had been done at the time to indicate how common heirs’ property was in the nation. Therefore, we collaborated with the Housing Assistance Council (HAC) last year to determine the countrywide frequency of residential heirs’ property.
Millions of Home Worth Billions in Value Remain
Carpenter said that finding damaged properties was one of Fannie Mae’s biggest challenges. Due to regional differences in the reporting and recording of assessment data and deeds, as well as updates to owner information, HAC divided their estimate into two main categories:
- “Most likely” heirs’ properties are residential parcels with an occupied housing unit of which there are multiple owners, no outstanding mortgage loans, no record of the property having undergone the testate process, and an indication of fractionated interest, which is based on the presence of certain terms in the owners’ names that strongly suggest divided interest.
- “At risk” properties involve residential parcels with an occupied housing unit that has multiple owners and no outstanding mortgage loans. These properties do not contain owner name terms that strongly suggest fractionated interest, but instead have all of the following closely related heirs’ property characteristics: no recorded sale in 30 years, no full tax exemptions, low building quality and condition, and no mortgage amount.
Over 580,000 properties totaling over $32 billion in assessed value were the properties of “at risk” and “most likely” heirs combined.
Even if the national statistic is notable, heirs’ property can have far bigger local effects, especially in rural areas. According to our analysis, over 4.5% of properties in Alabama and over 10% of properties in West Virginia fit the requirements to be deemed “at-risk” or “most likely” heirs’ properties.
The figures found are based on the most widely utilized criteria nationwide for determining heirs’ property, given the scope of the analysis; yet, local variances in recording deed and assessment data indicate that the numbers reported were a cautious estimate. Additionally, the study only looked at residential properties; it ignored the effects of heirship and ambiguous titles on unoccupied, commercial, and farm properties.
We anticipate that heirs’ property would be more common than indicated here in regional research with a more sophisticated grasp of local record-keeping methods.
Some of the other learnings we gathered from our research with HAC:
- Although rural areas contain only 30% of the country’s residential properties, nearly 2 out of every 3 heirs’ properties (64.6%) were located in rural areas.
- More than 1 out of every 100 properties in persistent poverty counties, which are counties where the poverty rate has been 20% or higher over three decades, were identified as heirs’ property.
- Despite heirs’ property being more prevalent in rural areas, impacts of the problem are felt in urban and suburban environments as well.
Starting A New Conversation
While recognizing the extent of the issue is an important first step, it’s only the beginning of the process.
Bringing together stakeholders in the heirs’ property arena for a discussion about what they are observing in their local locations, how they are addressing the issue, and what could assist them better serve their communities, Fannie Mae took another step toward finding a solution in April.
Some common themes found int he report:
- Solutions at the state and local level, from governments and non-profits, are seeing some successes. However, challenges often exist in the form of limited resources and reach to educate the public about the issue.
- While estate planning can be time consuming and sometimes complicated, it often takes a fraction of the time and cost that are required instead to resolve heirs’ property and tangled title issues. Working with homeowners to produce estate plans with clear intentions for property ownership is an important means of preventing these problems in the future.
- The costs of untangling a title can put the process out of reach, particularly for the most vulnerable property owners.
These insights, along with other study findings, will continue to direct our thinking as Fannie Mae moves forward with the consideration of heirs’ property.
“With gaps around consumer knowledge, we are exploring how we can better educate homebuyers about estate planning, and we’re continuing to work with HAC to understand how heirs’ property impacts disparate communities,” Carpenter said. “We are also having conversations with stakeholders to understand how we can support their efforts.”
To read the full report, including more charts and methodology, click here.
