Ownership, fairness, and the way out

How households share land

Every household considering this asks the same question before it asks anything else: if I move my family across state lines and build on that ground, what exactly do I own?

Nothing else on this site matters until that has a written answer. This page sets out what we have found, including the part that surprises most people.

The thing that catches people out

An LLC holding the title can make it very hard for households to get a mortgage.

Most lenders will not write a residential mortgage to a newly formed LLC that exists to hold a primary residence. The reasoning is straightforward from their side: the LLC limits personal liability, which is exactly what a lender does not want on a home loan.

So the instinct that seems most protective, put the land in an entity and give everyone a membership share, is the same instinct that can leave every household unable to borrow. The gap between “we own it together” and “I can finance my house” is where plans die.

The pattern that works in practice is a two-stage one. The group forms an entity to acquire and hold the land, because a group needs a legal person to sign a purchase contract. Then, once the site plan is settled, title to the individual homesites is transferred out to the households in a form each can finance in their own name, with the entity or a recorded agreement retaining only the common ground.

Decide which structure you are aiming at before you buy, because it changes what parcel you should be looking for.

The four structures

Subdivision is usually the goal, because a deeded parcel is the thing every lender, insurer and title company already understands. The reason people end up somewhere else is that the county says no.

Hard constraints that decide the design

These are not preferences. They shape what is possible before anyone’s opinion enters.

Subdivision triggers county review, and minimum lot sizes may make it impossible. There is no national standard. Counties set minimum lot area, road frontage and access requirements themselves, and rural minimums range from about an acre to twenty or more. Many counties treat even a small split as a full subdivision, with the survey, plat and engineering that implies. Some allow a limited number of simple splits before the full process kicks in. Ask the county planning office what a split of this specific parcel would require, before you make an offer.

A shared well is governed by capacity and consent, not by a headcount.

You will read everywhere that FHA allows a maximum of four homes on a shared well. We went to HUD Handbook 4000.1 and could not find that limit. What the handbook actually requires is more demanding and more useful to plan around:

• The well must serve properties that cannot feasibly be connected to an acceptable public or community water system. If a connection is possible, the shared well is not the answer.
• It must supply all connected dwellings simultaneously, assuring each existing property at least three gallons per minute, with a higher figure for proposed construction, or 1,200 gallons available to each proposed dwelling over a continuous four-hour period.
• That yield must be proven by a certified pumping test, not asserted.
• The agreement must be binding on successors in title and recorded in the local deed records, with joinder by any lender holding a mortgage on a connected property.
• And the clause that matters most for a community expecting to grow: the agreement must prohibit connecting any additional living unit without the consent of all parties, a formal amendment of the agreement, and compliance with the water-quality requirements.

Read those together and the real constraint appears. It is not a magic number of houses. It is that the well must physically deliver for every household at once, and that adding the next household requires every existing one to agree. That is a governance question as much as a plumbing one, and it is worth deciding before the first agreement is signed rather than when household five arrives.

The handbook also requires that no party locate or relocate any part of a septic system within 75 feet of the shared well.

Separate wells, or a properly permitted community water system, are the alternatives. Confirm all of this with your own lender for your own parcel: the handbook is revised, and individual lenders impose overlays stricter than HUD requires.

Private roads need a recorded agreement. Lenders commonly require a recorded private road maintenance agreement, and HUD requires that shared driveways and private streets be protected by permanent recorded easements or equivalent. An informal understanding between neighbours is worth nothing here. Without the recorded document, financing gets delayed or denied.

The pattern in all three: recorded, or it does not exist. A handshake about the well, the road, or who may build where is not a structure. It is a future argument.

Being fair when contributions are unequal

This is the part that has to be right, and it is where most groups quietly go wrong. One household may bring far more capital than another. Another may bring twenty years of building skill and very little cash. Both are real contributions and they are not the same kind of thing.

The mistake is to collapse everything into a single ownership percentage. Do that and you face an ugly choice: either the household with more money effectively governs, or the household with less money is quietly subsidised in a way that will be resented within three years.

The answer is to separate the things that are usually bundled together. An LLC can hold equal voting rights while tracking unequal economic interests, and state default rules vary on this, which is exactly why it must be written down rather than assumed.

Equal votes, proportional economics. That is the shape that survives contact with real households. It means the man with the most money cannot rule, and the man with the least cannot vote himself a share of someone else’s capital.

The way out matters more than the way in

Communities like this rarely fail over doctrine. They fail when someone wants to leave and there is no written answer.

Settle these before a single dollar is pooled, because a group that cannot discuss them calmly now will not manage it later, when someone is angry or grieving or broke:

1. What is a departing household owed? On what valuation, paid over what period, and secured how?
2. Can they sell to anyone? Or only to a buyer the others accept, and what stops that becoming a way to trap someone?
3. Death, divorce, disability, and a job that moves. Each needs its own answer. They will all happen eventually.
4. Who decides? Unanimity, supermajority, or a defined process. Say what happens when one household refuses to agree.
5. What if someone stops contributing but keeps the equity? This is the most common real-world friction and almost nobody writes it down.
6. Removal for serious cause. What grounds, what process, and critically: what happens to their money. A structure that lets the group confiscate is as dangerous as one that lets a bad actor stay.

Publishing your answers is itself a filter. The households that read them and stay are the ones worth having.

What to take to an attorney

Turning up with these already decided will save you money and get you a better document.

• Which structure you are aiming at, and why the others were ruled out.
• Whether the parcel can be subdivided, and what the county requires.
• How many households, and how many are financing rather than paying cash.
• Equal votes with proportional capital accounts, if that is your decision.
• Your answers to the six exit questions above.
• Who holds the well, the road, and the common ground, and how repairs are funded.
• What happens on death, divorce, disability, departure, removal and dissolution.

Interview more than one, and choose someone who has done real estate and multi-owner work rather than general business formation. Every household should have its own counsel read the final document. A single attorney representing “the group” represents nobody in particular.

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