A House Divided: Perils of Co-Ownership

August 9, 2002

WHEN Peter Gumpel and his wife, Marcia Previti, both Manhattan architects, began looking at weekend homes in East Hampton, it quickly became clear that they couldn't assume the financial burden alone. Fortunately, they had friends in a similar situation. Seventeen years ago, the two couples bought a three-bedroom post-and-beam cedar bungalow, taking out a mortgage on the $132,500 property on East Hampton's Lion Head Beach.

For a few years all went well. Everyone cheerfully agreed to the addition of a deck. Weekends, and use of the master bedroom, were apportioned easily and amicably. Then Mr. Gumpel and Ms. Previti had a child, and it became a burden to baby-proof the house during their time there, then put things back in place for their friends. After five years of co-ownership, Mr. Gumpel said, ''we decided we should sell them our share and get a place of our own.''

Such exigencies had been covered in a document, jokingly dubbed the pre-nup, that the four had composed before buying the property. If one couple wanted to sell, the other would have the right of first refusal. If there was a problem agreeing on a fair price, the house would be sold to a third party, and the profit split.

Accordingly, Mr. Gumpel and Ms. Previti hired an appraiser, who valued the house at $50,000 more than its purchase price. ''Our co-owners said, 'We don't believe it,' so we told them to get their own appraisal,'' said Mr. Gumpel, 61. ''And their appraiser came in at exactly the same number. Then they said, 'We don't think either appraisal is right. We'll only give you X amount of dollars,' and we said, 'That wasn't what we had agreed to.' And they said, 'Tough.' ''

Determined to sell the house, Mr. Gumpel and his wife got a bid that was higher than the appraised price. ''Then our co-owners said, 'We'll pay you the appraisal price,' '' said Ms. Previti, 51. ''And at that point we just said, 'Let us out.' We took our share of what they offered and lost the friends, who still have the house.''

David A. Cannon, a Manhattan real estate lawyer, has just one piece of advice for couples who want to buy vacation homes with friends or even friendly acquaintances. ''Don't do it,'' he said. ''Much as it's love and paradise on Day 1, a year later. . . .''

Gilbert Flanagan, a real estate and land-use lawyer in Southampton, N.Y., agreed. ''It's dangerous to do,'' he said. ''All it takes is one fight.''

Lawyers, of course, are paid to come up with worst-case scenarios. Mothers do that kind of thing free. When Seymour and Bea Rowe and Ben and Sally Schottenfels bought an A-frame near Petoskey, Mich., almost 40 years ago, Mrs. Schottenfels's mother was the only naysayer. ''She thought it was a terrible idea,'' recalled Mrs. Schottenfels, 77. ''In fact, we were close friends then and we still are. They are the easiest people in the world, so that's why it worked. And we were rarely there together, so maybe that was part of it, too.''

A weekly housekeeping service and eternal vigilance also helped. ''I remember going up to the house one time and my son, who was in his early teens, and my husband had pinned a Playboy centerfold in the kitchen area,'' Mrs. Schottenfels said. ''I had a screaming fit and said, 'The Rowes have girls -- they won't want to see this,' and I pulled it down.''

She advises knowing the partners well. ''You have to be very sure of your relationship,'' she said. ''If you are, you'll be fine. It all worked wonderfully well until all our kids got older and started to bring grandchildren and the house got too small.''

Mark Kettler, 51, a radiologist in Portland, Ore., and his wife, Janice, 51, a clinical social worker, own a beach house on the Oregon coast with their friends Miriam Hecht and Ivan Zackheim, 55, a lawyer. ''The only document we've got is our four names on the mortgage,'' Dr. Kettler said. ''We've never had anything written down. Through general reasonableness we've been able to work things out.''

One such thing occurred when the two couples were doing renovations, and Dr. Kettler took on much of the painting and work on the deck. ''Our original plan was for each couple to pay half the cost of the materials, and I think Mark felt he and Janice were being taken advantage of,'' said Ms. Hecht, 51, a former city planner. ''But all he had to say to my husband and me was, 'Since I'm doing the labor, will you guys pay for all the materials?' As soon as he did, everything was fine.

''I think we're all very tolerant,'' Ms. Hecht added. ''I have a very eclectic decorating style, kitschy. And they're a little more conservative, but they've been quite accepting and I've tried to hold back on some of my acquisitions.''

Despite the casual, unscripted success of the Rowes and Schottenfelses, and the Kettlers and Zackheims, ''you should never rely on a handshake, even if you think nothing could create a schism between you and your partners,'' said Mr. Cannon, the Manhattan lawyer. ''Even if you disregard a written agreement or never look at it again, at least it forces you to face all the issues involved in running a house together. You may change your mind about going ahead when you realize what you're going to have to deal with.''

Consider, for example, renovations (What if they want them and you don't?), furnishings (They're Laura Ashley and you're Charles Eames), cash flow (Can you rent some of your designated weekends to friends?), and the mortgage (Suppose one couple falls on hard times). ''All the bank cares about is getting its money,'' Mr. Cannon said. ''It can look to any or all of you.''

What if one of the partners dies? What if there's a divorce? What if one couple wants to sell its share? Mr. Cannon suggested having a buy-sell agreement to deal with such issues. He and Mr. Flanagan, the Southampton lawyer, also suggest that co-owners form a limited liability company. ''The advantage is that it limits your exposure if someone comes on the property and a tree falls on him, but you do have to file the requisite tax return,'' Mr. Cannon said. ''It's more of an administrative headache, but the limitation of liability could be well worth it.''

Part of establishing an L.L.C., which costs about $1,500, involves coming up with an operating agreement listing the members, the designated managing member and his duties (paying taxes, spearheading repairs, opening a checking account), the sum each member must contribute annually to run the property, and a contingency plan if one or more partners wants to sell. The L.L.C.'s name would be on the mortgage, Mr. Cannon said, and all the members must be prepared to go on the mortgage form as guarantors.

Chuck Gauger, a lawyer in Portland and one-third owner of a weekend house, also favors appointing a house manager. ''You want someone who relishes taking charge of taxes and maintenance,'' he said.

While the American Homeowners Association, based in Stamford, Conn., has no data on the number of jointly owned weekend homes, ''as the concept of the time share has gotten some legitimacy, it has extended to joint homeownership,'' said Richard J. Roll, the association's president. ''There's easier financing available than at any time before, and low interest rates make it more affordable and much less daunting. But you do need those documents to take into account what to do if A, B, C or D happens.''

Still, as Martin Davidson, president of a Portland manufacturing company, would be the first to tell you, some things cannot be anticipated. Four years ago he and his wife, Anne, 52, the company's secretary and treasurer, paid $65,000 for a one-third interest in a cedar-sided cottage in a central Oregon resort area. They did not know the two other couples when they bought the property, and ''I'm glad we didn't, because if we had it would have ruined the friendship,'' said Mr. Davidson, 51. He recalled in particular the partner who began balking at the cost of agreed-upon renovations to the family room, master bedroom and garage. This partner, Mr. Davidson said, unilaterally decided that the three couples should take on some of the work themselves; for example, staining the house's new shingles a bright orange. ''It was an entirely different color than we had agreed on,'' Mr. Davidson said. ''We figured he had gotten it on sale.''

Mr. Davidson is still smarting from this partner's refusal to share in the cost of a cast-iron enamel kitchen sink to replace the original thin-gauge aluminum model. ''He was happy to use it but didn't want to pay for it,'' Mr. Davidson said. ''If I could figure out a way to pull out the new sink and put the old one back in every three weeks when he's got the house, believe me, I would.''

Right now, though, he has a more pressing issue. ''We all get together once a year for a meeting about the house,'' he said. ''This year, I'm going to see if we can do it online.''

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Barbara Fickett
American Homeowners Association
[email protected]
203-323-7715 ext. 300

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