Partition is the legal process by which co-owners ask the court to force a sale or division of their property. It is the real property version of a divorce, often among family members or friends who own property together.
What is Partition?
Partition is the process by which a court divides real property (not including community property owned by spouses, i.e., divorces). Typically this is the process used by co-owners who have not entered into a partnership or Limited Liability Company operating agreement.
Who Is Entitled To Partition?
Co-owners who are both or all on title to the property may file suit for partition. A plaintiff must join as defendants all persons having or claiming interests in the property. If claimants are unknown, the plaintiff may join as defendants “all persons unknown claiming any interest in the property.”
Prior to a resolution of the action, the court may issue temporary restraining orders and injunctions, with or without a bond, to (1) prevent waste; (2) protect the property or title to the property, and/or (3) restrain unlawful interference with a partition. A party should seek a temporary restraining order or injunction if he is concerned that the other owner is letting the property become run down or draining all of the income without making arrangements for maintenance, for example. A party may also consider a receiver to take over the collection of rents if there is a danger that rental income may be wasted.
Lis Pendens Required:
Immediately after filing an action for partition, the plaintiff must record a lis pendens with the County Recorder. This document puts the world on notice that there is a pending lawsuit relating to the ownership of the property.
Determination of Interests: In a partition action the court will determine the state of the title to the property (i.e., who the owners are) and the status and priority of all liens upon the property. The court may also order allowance, accounting, contribution or other compensatory adjustment among the parties. For example, if one party has been making all of the mortgage payments or has paid for all of the improvements, the court will take that into account when determining each co-owners’ respective interest.
Manner of Partition:
The court may divide the property among the parties. If that is not feasible or if the court determines it to be more equitable, the court may order that the property be sold and the proceeds divided among the parties according to their interests. A division shall be made so that the property is divided by lots and parcels where practicable. Compensation may be required from one party to another where the division cannot be made equally.
The court shall appoint a referee to divide or sell the property and, if necessary, require a referee’s bond. The court shall fix the reasonable compensation for the referee’s services and allow the referee to record a lien on the property to ensure payment. In some instances, three referees may be appointed. The referee may hire surveyors, engineers, appraisers, attorneys, real estate brokers, auctioneers and others necessary to fulfill his duties. The referee makes a report of his findings (as to ownership interests and equitable adjustments among the owners) to the court, who will then confirm (or deny) that report. But, beware, the costs of the referee and any others that the referee hires all come out of the proceeds of the sale or division.
Sale of the Property:
The property will be sold either by private sale or at auction, as the court deems best. The referee, the attorneys representing the parties and the guardian of any party are ineligible to purchase the property. The Code of Civil Procedure sets forth various processes for ensuring a fair sale, including final confirmation of the sale by the court after reviewing the referee’s final report and allowing for a hearing. Even at the hearing, a bidder may make a higher offer, which the court, in its discretion, may accept or reject.
Disposition of Proceeds of Sale:
After the sale, the court shall direct the proceeds as follows: (1) payment of the expenses of the sale, (2) payment of other costs of partition, (3) payment of any liens on the property, and (4) distribution of the residue among the parties in proportion to their shares as determined by the court.
Partition can be an expensive and drawn out process. The parties should consider agreeing to hire their own appraiser (to ascertain the value of the property) and accountants (to determine each party’s contributions and liabilities). Based on the result of these findings, the parties can either agree to have one party buy out the other or to have the property sold (using their own broker). The legal issues are typically undisputed (i.e., percentage of ownership interest of each party) and resolution of the factual issues will be quicker and cheaper if the parties (perhaps through their attorneys) agree to a process on their own. Oftentimes, legal battles among co-owners can take on a life of their own. The co-owners may incur attorneys fees which, in the end, may deplete all of their equity in the property at issue.