PARTITION ACTION: AN EQUITABLE REMEDY
A partition action is a statutory remedy in the State of California. It is typically used when co-owners cannot agree on how to sell or the best use for a piece of property. Co-owners seeking a partition action usually acquired the property as joint tenants or through an inheritance. It is common for co-owners to have conflicting interests such as when they cannot agree on a sales price or they disagree on the best use of the property.
Who can file a partition action?
Any co-owner can file a partition action, regardless of the size of their ownership interest. In other words, if someone owns as little as 1% of a piece of property, they can exercise their right to partition. Under California Civil Procedure Section 872.210, “a partition action may be commenced and maintained by any of the following persons: (1) a co-owner of personal property or (2) an owner of an estate of inheritance, an estate for life, or an estate for years in real property where such property or estate therein is owned by several persons concurrently, or in successive estates.” Therefore, to prevail in a partition action, a party must prove through the property deed(s), other title paperwork, and any estate planning documents if applicable, that they have an interest in the property. Once a legal interest is established, then the court will either order a forced sale (partition by sale) or the court will divide the property into pieces and give each owner a separate property interest (partition in kind). If the court orders a sale, it will divide the proceeds among the owners in direct proportion to their interests.
What are the pros and cons of a partition action?
One “pro” of a partition action is that it ensures an end to costly and emotional real estate disputes, especially when the disputes arise following a death in the family and a subsequent inheritance of real property between contentious family members. An order of partition by sale also speeds the process along, forcing the property to be sold either by public auction or through the appointment of a referee to oversee the sale. However, this brings up the most significant “con;” it puts the entire sales process in the hands of the court and eliminates any control the owners may have over their interests, including the final sales price. The partition process will also incur additional costs, including attorneys’ fees, fees paid to the court-appointed referee, and any other court costs passed on to the owners.
Can an owner of property recover expenses and attorneys’ fees and costs when the court orders partition? In some cases, yes, if the court deems it is in the parties' best interests and is equitable. California Code of Civil Procedure 874.040 states that “the court shall apportion the costs of partition among the parties in proportion to their interests or make such other apportionment as may be equitable.” This is especially important if a co-owner chooses to be difficult or uncooperative. In addition, parties can often recover amounts spent on mortgage payments, taxes, insurance, maintenance, repairs, and other expenditures in excess of their ownership interest.
If I don’t want the property sold, can I stop a partition action?
Because partition is an absolute right in California, it is difficult to defeat, once ownership is established. That being said, a co-owner can challenge the other parties’ ownership interest. If property ownership is acquired through inheritance, the estate documents can be challenged. Ownership can also be challenged by forcing co-owners to establish a chain of title from the inception of the property ownership. If a party can show that the property was not properly conveyed or recorded by the original owners, that could potentially stop a partition action. Another way to stop a partition action is to buy the other parties out. If you have enough cash, this is a fairly simple process. If financing is required to facilitate a buy out, an escrow can be opened to manage the funding process and seamless transfer of the ownership interests. Once this occurs, the escrow company will pay the co-owners their share, then record the deed. Keep in mind, when determining the payout, any mortgages or liens must be deducted first, to ensure an equitable distribution. This is a creative way to defend against a partition action, but requires the cooperation of all parties. If the parties are extremely adverse, and are unable to reach an agreement for a buy-out, there can be an option that the court provides for a co-owner to “overbid” at the sale with a “credit bid” for that owner’s equity in the property. California’s Code Civ. Proc. §873.610 states that “The court may, at the time of trial or thereafter, prescribe such manner, terms and conditions of sale not inconsistent with the provisions of this chapter as it deems proper for the particular property or sale.” Simply put, if a co-owner wishes to retain their interest in the property, they can ask the court to allow “overbidding” at the hearing approving the sale so that a co-owner can outbid the other co-owners. In addition, the co-owner should request a credit for their interest in the property. For example, if a property is owned by two co-owners in equal shares and is worth $500,000, each owner has a $250,000 equity interest. Therefore, if they are allowed to do a “credit bid,” they will only need to bid $250,000 instead of $500,000, as they are given credit for the $250,000 they would have received if the property had otherwise been sold.
As with most legal proceedings, a partition action can be expensive, and may not allow for the most profitable outcome. Mediation, negotiation and cooperation are the preferred methods for reaching the most equitable outcome in a property dispute. If, however, an agreement just simply cannot be reached, the experienced attorneys at Adkisson Pitet LLP can help find a path through the clouds of confusion.