Estate planning may be key in slowing down out-of-state investors from buying Milwaukee homes
As more and more homes, particularly in neighborhoods with existing low homeownership rates, are bought by out-of-state investors, elderly homeowners with uncertain probate arrangements are especially at risk of being targeted they pass away.
Estate planning, the process of legally documenting what one wishes to do with their property and other assets, is often neglected in low-income and Black and Brown communities, meaning properties can languish in probate court or even become bought by the city if no heirs are found.
Once these homes are on the market, and sometimes even while they are still in probate, out-of-state investors can purchase the buildings and begin renting them, despite a person's wish that the home remains in the family.
More: Five tips for having a conversation with your loved one about estate planning
Kali Murray is a Marquette University law professor, who specializes in trusts and property law. The Milwaukee Journal Sentinel asked Murray to explain how estate planning works, why so few people do it, and how it might be used to keep homes locally owned. Here is what she said.
Responses have been edited for length and clarity.
Is there a law that can be passed to prevent out-of-state investors from buying properties in bulk with cash and squeezing out local buyers?
Murray: (There is a) case in Maryland where the state legislature actually passed a law that prohibited out-of-state investors from buying a certain amount of property. And the fourth circuit, a pretty liberal circuit, held that it violated the commerce clause. The dormant commerce clause means you cannot unfairly burden interstate commerce.
Could people place a covenant on the home, restricting it from being sold to out-of-state investors or requiring only local residents be able to purchase it?
Property owners can include specific instructions surrounding their property in its deed, creating what is often called a covenant. Theoretically, if a covenant would result in discrimination against a protected class (race, religion, gender, etc.), that covenant would not be enforceable.
Murray: They could. The only issue is an emerging law on this out-of-state investment question (on) whether or not a restriction in state law or a covenant would violate the commerce clause. An individual real estate transaction is between party A and party B, so you can argue it’s not a state action ... a covenant is a private action.
Would a trust work better?
A trust is a legal status, where a trustee, designated by a property owner, is given the right to manage their assets.
Murray: A trust doesn’t have to be published, so you can very well include all types of unconstitutional clauses unless one of the beneficiaries brings a claim that the trust itself is unconstitutional. Wills and trusts are weird. They withstand far more constitutional scrutiny than even a covenant in a real estate agreement. And that’s because they’re an expression of testator intent and at your death, you're speaking your last wishes.
Distinguishing between a covenant, a clause in a will and a clause in a trust doesn’t make a lot of constitutional sense, but we tend to treat them as very different legal documents.
How do you think out-of-state real estate investors would react?
Murray: There are two reactions. (One) is for these covenants to multiply.
(Then there) are actually the people who would take up the dormant commerce clause (in court). After Shelley v Cramer, the constitutional case that said racially restrictive covenants are not permissible, someone could argue a covenant that violates the dormant commerce clause is very similar to a racially restrictive covenant because they are both against public policy.
How is this out-of-state incursion on other neighborhoods possible?
Murray: Since 2008, real estate markets have become national. Since 2003 in Wisconsin, you can look at most real estate records online, at least up to 1970, and almost all tax auctions are online. It really puts pressure on local communities.
In the 1930s, in order to research properties, you had to go to a local courthouse and look through books; it was intensely local. With everyone moving online, that sort of stickiness is no longer there. The rise of housing costs in the United States has made it very easy to buy a house in someone else’s community but not live in that house, (easy to) participate in that community and not particularly care about the type of tenants that move in or if the property is unkempt.
How do our current probate laws impact vulnerable communities?
Probate courts deal with the execution of wills, trusts and other after-death documents.
Murray: Our (probate) default position right now is (your property) goes to your kids and that turns out to be a horrible proposition for working-class people. When it comes to poor and working-class communities, our default forms of transfer are punitive and hurtful and it leads to an environment that is not sustainable. You have two kids (and) you say in the will, I give my property to them. They get into a big fight and sell it.
Is individual action enough to slow out-of-state investors from buying homes in a neighborhood?
Murray: We think about property on an individual level. But folks coming into the market think systemically. So people’s reaction probably has to be systemic. And that’s probably how you’re going to deal with it.
Need help with estate planning? Here are a few resources:
Legal Aid Society – Elder Law
Legal Aid Society of Milwaukee’s Elder Law division provides free advice and assistance for Milwaukee County Residents who are 50 or older.
You can reach them at question@lasmilwaukee.com, (414) 727-5300, Intake form
Legal Action of Wisconsin
Legal Action of Wisconsin has a SeniorLaw division that provides free legal assistance to Milwaukee County residents who are 60 and older.
You can reach them at 855-947-2529 (statewide), 414-278-7722 (Milwaukee), Intake form
Aging Resource Center of Milwaukee County
This division of the Aging and Disability Resource Center (ADRC) offers help to Wisconsin residents who are 60 and older.
Milwaukee County residents can reach them at ADRC@milwaukeecountywi.gov, (866) 229-9695 (statewide), (414) 289-6874 (local).
Love Thy Neighbor Foundation
The Love Thy Neighbor Foundation is a nonprofit offering seniors throughout Southeast Wisconsin help finding resources for legal and financial planning, as well as housekeeping, moving, residential care and other resources.
You can reach them at help@lovethyneighborfoundation.org, 414-562-6666, Contact form.
Need more help with housing questions? The Milwaukee Resource Guide is here to help. Have something you want answered? Submit a question.
Talis Shelbourne is an investigative solutions reporter covering the issues of affordable housing and lead poisoning. Have a tip? You can reach Talis at (414) 403-6651 or tshelbourn@jrn.com. Follow her on Twitter at @talisseer and message her on Facebook at @talisseer.
This article originally appeared on Milwaukee Journal Sentinel: Here's how you can protect your homes from an out-of-state investor
