Partition as a Remedy | How Co-ownership of Property Can Be an Expensive Nightmare
What is a Partition?
A partition in a legal action that seeks to divide up real property based on the percentage ownership of the real property by two or more parties. Unless otherwise agreed to in writing, any owner may bring an action for partition in Superior Court. The court, at the conclusion of a long and, likely expensive process, may allow the party requesting partition out of their share in the real property. This is done by either physically dividing the property into individually owned parcels (if feasible), by selling the property and splitting the proceeds between the owners, or (if the court allows) by an agreement amongst the other co-owners agreeing to buy out the interest of the party seeking partition.
What Types of Co-ownerships Are Subject to Partition?
Two main types of ownership are most commonly subject to partition:
Joint Interest/Joint Tenancy – Where an interest in real property is owned by two or more parties in equal parts, and includes the right to survivorship. This means that if one party dies, the remaining living parties absorb the deceased party’s share in the interest, rather than that share being passed on to the deceased party’s heirs.
Tenancy in Common – A co-ownership of real property which does not include the right to survivorship and may not necessarily be held in equal parts.
What Are the Elements Included in the Complaint?
A complete partition complaint will included the following information:
- Describe the property. Give the physical address, and the legal description. The legal description includes the exact location of the property, its boundaries, and any easements it might have;
- Identify the plaintiff’s interests or claims in the property as an owner/lienholder;
- Describe all interests that the plaintiff believes will be affected by the action of partition, including security interests (right granted to a creditor by a debtor offering part or all of the property as collateral in the event of a default on a loan);
- Identify the estate to be partitioned and a prayer (request) for partition; and
- If seeking partition by sale of the property, an explanation of the facts justifying the sale.
How is Property Divided in Partition?
There are generally three ways the real property will be divided as a result of the partition. They are an “in kind”, “by sale”, or “by appraisal”.
What is “in kind”?
An “in kind” partition is actual physical division of the real property according to each owners percentage ownership, taking into account the quality and amount of each portion to be divided. During the partition action, a referee is appointed by the court to oversee this process. The parties’ interests are generally decided by way of a preliminary judgement, which can also be known as an interlocutory judgment. At that point, each co-owner will own an individual plot which they are free to enjoy or sell as they see fit, without obstruction from co-owners. Partition in kind usually only happens when it is possible to divide a property into plots of value nearly equal to the co-owners’ respective interests in the property. Depending upon the circumstances, there are certain guidelines and rules the court will follow with respect to a partition in kind. This could include, for example, improvements/renovations made by a party or their predecessor. Those improvements/renovations will generally be allotted to that party, and the value of the improvements may not be included when calculating the division of the interest. Additionally, if the property includes distinct lots, courts are likely to leave those intact, and not subdivide them.
Partition by Sale – How is the Property Sold?
If the court decides the property is to be partitioned by a sale, then the property is sold by the referee appointed for that purpose. The court can decide to sell the property in either a public auction or a private sale, if there are willing buyers.
The proceeds from the sale are applied in the following order:
- Expenses of sale;
- Costs of partition, including a reserve for subsequently incurred costs;
- Liens (in order of their priority) excluding liens remaining on the property under the terms of the sale; and
- Distribution to the parties in accordance of their interest, less their share of attorney fees and costs.
How Does Partition by Appraisal Work?
Partition by appraisal (a buyout) occurs when a party wishes to retain ownership of the property. All parties must then agree in writing to a process allowing for this option. The price of the real property, in this context, will be decided by an independent appraisal conducted by court-appointed referees. This allows the party seeking partition out of their stake in the property without forcing the other co-owners to sell their own interests.
Who Pays the Attorneys’ Fees?
Attorneys’ fees in a partition lawsuit commonly range from around $20,000 to $100,000 or more, and the lawsuit itself can take over a year or two to complete. Costs of partition, which include attorney fees, are generally distributed and paid according to each party’s interest in the property. However, the court can order that a plaintiff’s attorney fees be covered entirely by an uncooperative defendant. In the event of a partition by sale, costs of partition and attorney fees are paid out of the proceeds from the sale of the property, and distributed according to each party’s interest in the property. If the court orders the plaintiff’s attorneys fees be covered entirely by an uncooperative defendant in a partition by sale, the attorney fees are recovered from the uncooperative defendant’s portion of the proceeds from the sale of the property. If the plaintiff seeks to recover attorney fees, they should be sure to document the fact that their action for partition was filed as a result of a lack of cooperation by the defendant. An uncooperative co-owner may be one who refuses to cooperate in hiring a real-estate broker to sell the property, forcing the other co-owner to file an action for partition to sell the property. The court’s rationale in shifting the fees to an uncooperative co-owner is that often the same result could have been reached without costly and time-consuming litigation.
How do I Avoid Partition?
Because partition can be so costly and time-consuming, it tends to be in everyone’s best interest to try to avoid this action. Some steps, you, as a co-owner of real property can take to avoid partition are:
- Have an agreement already in place that clearly governs the rights and obligations of co-ownership.
- Cooperate with other co-owners on matters relating to the property in question.
- Have the property appraised by a third-party so that you understand the value of the asset.
- Offer to buy or sell the property, as a court-ordered sale will reduce every co-owner’s share of the proceeds.
- If you do not have a co-ownership agreement in place, and your co-owner is not cooperative to a sale or purchase, consider pre-litigation alternative dispute resolutions, such as mediation, before taking the dispute to court.
If you are considering, or faced with the possibility of, a partition, you should consult an attorney. Carmel & Naccasha’s experienced real property attorneys are standing by to assist clients in any partition action.
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