Question? What is a partition action?

A partition action is a lawsuit between co-owners of real property, that seeks an judgment ordering the property to be sold, or in some cases divided so that the co-ownership is terminated.  In some instances where the parties have agreed to this procedure, the order will require one or more co-owners to sell their interests to the other co-owners at an appraised value, although this is not common. 

Question? What is meant by co-ownership?

Co-ownership of real property occurs when two or more persons or entities have present, or concurrent ownership interests in a parcel of real property.  Co-ownership can be viewed as voluntary or involuntary.  Voluntary co-ownership occurs when two or more persons or entities purchase a parcel of property together, perhaps as partners, or when an existing sole owner sells or transfers a partial interest to another person or entity.  In these instances, the parties have entered into co-ownership voluntarily.  

Some examples of  involuntary co-ownership arise are when a person or entity acquires an interest in a parcel of real property by the operation of law, by bequest, or by a transfer of a partial interest by a voluntary co-owner without the consent of the other co-owner or co-owners.  Also, a voluntary co-ownership can become an involuntary co-ownership when, for example, a partnership breaks up, or the voluntary co-owners come to a disagreement over what should be done with the property. Involuntary co-ownership can arise in a great variety of circumstances.  An administrator or executor of an estate having an interest in the property is a co-owner that can commence a partition action.

Question? What about community property co-ownership as, for example, in a divorce?

While a divorce, or the termination of a registered domestic partnership obviously has the potential of converting voluntary co-ownership of property into involuntary co-ownership as between the spouses, these disputes are resolved under the Family Law Act in California and generally under the divorce statutes in other states and hence the partition remedy is not available. (The same applies to registered domestic partners.)  However, if a divorcing couple has a community interest in real property where a third party also has an interest, the division of the community interest can and often does result in an involuntary co-ownership situation with that third party.  The partition remedy is available not between the divorcing spouses, but between the divorcing spouses or the spouse receiving the community interest and the third party.

Question? What about lien holders or judgment creditors?

Lien holders and judgment creditors have specific statutory remedies such as foreclosure and hence the partition remedy is not available even though these are recognized interests in real property.  However, pre-existing liens will be paid from the escrow when a property is sold as a consequence of a partition action.

Question? What is meant by the "partition remedy."

The remedy of "partition" is a judgment by a court that requires the real property in contention to either be sold to third parties, to be purchased by one of the parties to the lawsuit, or to be physically divided in accordance with the interests of the parties before the court.  The partition remedy is only available with respect to real property.  A co-owner of real property has an absolute right to a judgment of partition.  The process by which a judgment of partition is obtained is discussed throughout this site as is the process by which the judgment is implemented.

Question? Is the partition remedy available to holders of future interests?

A future interest in real property will arise sometime in the future as for example, after the death of a life tenant or upon the distribution of the property from a trust that will occur upon the happening of some future event.  As a matter of law, the partition remedy is available to the holder of a future interest, but there are many practical impediments the most important of which is the valuation of the future interest.  A court hearing a partition action is acting in equity and hence has broad discretion whether to impose the partition remedy.  However, as a general rule, holders of future interests will not be successful in obtaining the partition remedy.

Question? Which law applies if my partner and I purchase property but do not register as  domestic partners and we break up?

One of the objectives or registering as a domestic partnership is to obtain the benefits of the Family Law Act in the event of a breakup.  In most states that recognize domestic partnerships, the rules that apply to a divorce also apply when a domestic partnership falters.  This can be of considerable benefit because a family court has the power to award property to either of the spouses or the domestic partners using the other co-owned property to equalize the division.  This can be important when there are children involved, or where the economic circumstances of the parties are such that it is more practical for one or the other to retain ownership of the home.  If the partners fail to fulfil the registration requirements, the right of one of the parties to buy out the interest of the other (or to be awarded the entire property) is not available in the absence of an agreement establishing those rights.  Thus, if the parties cannot agree as to the disposition of the real property, the court will order a sale and the party desiring to retain ownership will be forced to bid against the market.  This illustrates why it is very critical that domestic partners acquiring real property fulfil all of the registration requirements.

Question?  How does the Court supervise the sale process so that none of the contending parties obtains an unfair advantage?

Every step in the sales process is subject to Court supervision.  The order which appoints the Referee usually contains detailed instructions as to how the Referee is to proceed.  For example, the order typically instructs the Referee to select a suitable broker and to list the property.  The order will specify the commission structure, usually a time limit for the listing, and whatever other instructions the parties feel are appropriate.  Once the order is issued, the Referee will proceed to either list the property himself or with a  process of selecting a broker from  several candidates.  When broker selection  is a contested issue, the order may require the Referee to return to Court to obtain approval of his selection.

Typically, the Referee will determine the listing price in consultation with the broker.  Pricing can be a contested issue and again, the parties may want the Court to resolve their differences.  It should be noted that each Court appearance is costly and most Courts will defer to the judgment of the Referee on most matters.

The property will be marketed conventionally and when in due course an offer is received, the sale is typically subject to confirmation and possible overbid using the same procedures applicable to a real property sale from an estate in probate.  The procedures will vary somewhat from state to state and from country to country.  In California, which is typical, a Court hearing is calendared at least thirty days in advance.  Notice of the hearing must be provided to all interested parties and published in a newspaper of record (a newspaper that is designated for the publication of legal notices).  In some jurisdictions, publication on the Internet is also required and most newspapers of record have associated websites where this information is posted.  The applicable statute prescribes the form and content of the notice, which generally requires that the time and date of the hearing, the address of the property, the terms of the pending offer are all spelled out, and interested parties are informed of their right to overbid the offer.  The overbid process is described  in the applicable statute which typically sets a minimum amount for the first overbid.  Depending upon the value of the property, the Referee may establish rules for the overbid process which set minimum amounts for each overbid.  An example of such rules is found here.

There are services which gather information as to probate and partition sale confirmation hearings and disseminate this to their clients.  There are many people who follow and participate in these sales.  Part of the Referee's job is to encourage such interest so as to stimulate overbids.

On the day set for the hearing, either the Court, the Referee, or one of the attorneys will conduct the sale in open court with a court reporter present so that a transcribable record is available.  The sale is announced; the Court asks if there are any persons present intending to submit overbids and asks them to identify themselves.  The "auction" is called in the courtroom.  The address of the property is announced as well as the terms of the pending offer.  Overbids are called for until the highest bid is received.  If the offer is bona fide, it is confirmed and the bidding party becomes obligated to purchase the property in accordance with their bid.

It is absolutely critical that the Referee manage the overbid process very carefully.   The use of approved bidding rules is essential and as noted, there is an example of such rules in the Forms section of this site, here.  The Referee should obtain the signature on a copy of the rules from each potential bidder to avoid a later contention that the bidder was ignorant of the applicable rules.

Once a bid is confirmed (or if there are no overbids, once the pending contract is confirmed), an escrow is opened and the sale is processed as a typical real property sale except that distribution of the proceeds normally does not occur until the Court has issued a distribution order.   If the parties can agree on the distribution of the sale proceeds, either the Referee or the attorneys prepare a distribution order, which is signed by the parties or their counsel, and the Referee will present the order to the Court for signature without the need for a formal hearing.  If the parties cannot agree on the distribution, a Court hearing will be necessary.  Once the Court has signed the distribution order, it is presented to the escrow holder which cuts the necessary checks to distribute the proceeds in conformity with the order.  The attorneys then finalize the litigation either by a stipulated final judgment or other appropriate order.

Question? When, and under what conditions, do partition lawsuits arise; and when might a party consider bringing such a suit? 

Other than in a divorce or the termination of a registered domestic partnership, whenever one or more co-owners of real property:

1: Decide they wish to or need to divide the value of the property, and 

2: Either cannot figure out amongst themselves how to do so or have such hostile interests that cooperation is impossible.

A property division in a divorce or in the termination of a registered domestic partnership is addressed by a different body of law, so we will exclude these cases  right at the start of this discussion. 

FOLLOW THIS LINK TO THE COMMON SCENARIOS PAGE.

Here you will find answers to common questions concerning partition actions and a link to a page containing descriptions of common scenarios where real property disputes can become partition actions.