California Partition Law Blog
Before the owners receive the proceeds from a partition sale, costs and expenses related to the partition action must be paid. Code of Civil Procedure section 873.820 sets forth the order that these expenses and costs must paid before the owners receive their proportional interest in the remaining proceeds. Specifically, it states that the proceeds must be distributed in this order:
- Payment of the expenses related to the sale
- Payment of the costs arising out of the partition
- Payment of property liens according to their priority
- “Distribution of the residue among the parties in proportion to their shares as determined by the court.”
What must happen before proceeds are distributed?
The referee appointed to sell the property may sell it in a private sale or a public auction, subject to the court’s approval. (CCP § 873.510.) The court can ask the referee to draft a report recommending either a public or private sale, and the court can base its decision on what the referee recommends is in the best interest of the parties. (CCP § 873.520.)
If the court chooses to rely on the referee’s recommendation, it may not approve the referee’s report without first holding a hearing on the report. (CCP § 873.610.) But the partition statutes give the court the discretion to choose the “manner, terms, and conditions of sale . . . as it deems proper for the particular property or sale.” Therefore, the court can decline to follow the recommendations of the partition referee.
Alternatively, if the parties come to a mutual agreement regarding how the property will be sold, the court must order the sale in accordance with that agreement. (CCP § 873.600.)
Once the court orders the sale and the sale is confirmed, it must direct “the referee to execute a conveyance or other instrument of transfer” and “collect the proceeds.” (CCP § 873.750(a).) In its order to the referee, the court can impose other requirements on the referee’s distribution of the proceeds.
What are the “expenses” related to the sale?
What is considered to be “expenses” is not specifically defined in the partition statutes, but it generally includes costs like the broker’s commission, transfer taxes, and closing and title fees. (Montoya v. Oguntolu (2022) Cal.Super.LEXIS 91345.)
What are the “costs” that arise out of the partition?
Costs arising out of the partition action include the attorney’s fees “paid by a party for the common benefit,” the referee’s fees and expenses, and other costs “determined by the court to have been incurred or paid for the common benefit.” (CCP § 874.010.)
The statute does not define “common benefit,” and courts determine whether certain costs are related to the common benefit “based on the facts and circumstances of each particular case.” (Finney v. Gomez (2003) 111 Cal.App.4th 527, 548.) Generally, costs incurred from drawn-out, contentious litigation surrounding the partition are not considered to be for the parties’ common benefit. (Id. at 548-549.) In Finney, the court identified three factors that courts sometimes consider when deciding whether the costs were for the common benefit:
- “whose interests were being protected by the services provided,
- whether the services contributed anything of benefit to the cotenants, or
- whether one party’s counsel’s services made the proceedings any more advantageous to the other party.”
For example, Julie and Shawn have commenced a partition action in the hopes of selling their property and obtaining their relative share of the proceeds. Julie incurs $7,000 in attorney’s fees, and Shawn incurs $4,000. But $3,000 of Julie’s attorney’s fees were charged for services rendered by a bankruptcy attorney, and the remaining $4,000 was charged by her attorney representing her in the partition action.
If Julie sought the advice of a bankruptcy attorney solely for her own benefit, and the advice was only tangentially related to the partition action, then the $3,000 Julie paid to the bankruptcy attorney was not incurred for the “common benefit.” (see Finney, 111 Cal.App.4th at 549.) Therefore, when the attorney’s fees are distributed from the sale proceeds, the fees paid to the bankruptcy attorney could not be distributed from those funds.
What are payments of “property liens”?
Liens on the property – such as a mortgage – are paid after the partition action costs are distributed. But if the terms of the partition sale specify that the mortgage will remain on the property, then it does not have to be paid from the partition sale proceeds.
How are the proceeds distributed among the parties?
Lastly, the remaining proceeds are distributed among the parties to the partition action. This distribution is made “in proportion to [the] [parties’] shares as determined by the court.” Therefore, if the proceeds from the sale of Julie and Shawn’s property remaining after the expenses, costs, and lien payments were made were $500,000, and Julie and Shawn each owned 50% of the property, then Julie and Shawn would each receive $250,000.
It is important to note, however, that one party’s contributions to the property may offset the distribution of proceeds. For example, if Julie had spent $50,000 renovating her and Shawn’s property before they initiated a partition action, that amount would likely be reduced from Shawn’s portion of the proceeds to compensate Julie for the amount she spent improving the property.
Generally, these improvements do not have to be made with the other co-owner’s consent, but they must be undertaken in good faith. (Wallace v. Daley (1990) 220 Cal.App.3d 1028, 1038.)
How can the attorneys at Underwood Law Firm, P.C. help?
Understanding the procedures and their related costs in a partition action is important for anyone who is considering partitioning their property. Furthermore, the lack of definition of the term “common benefit” may lead some parties to try to tack on attorney costs that are in fact not in the common benefit of both parties. It is also helpful to understand how a court may adjust the amount of proceeds each party receives based on improvements or other monetary contributions made by one party that entitles them to a greater share of the proceeds. The experienced and dedicated attorneys at Underwood Law Firm, P.C. are here to help guide you through your partition action to ensure your property interests are upheld.