California Partition Law Blog
The purpose of this article is to explain a partition sale and who must be notified of a sale. If the co-owners cannot agree about what to do with a property or whether they want to sell it, a partition action may be necessary. This means forcing the sale of the property to divide the co-owners’ interests in it and divide the value of the property accordingly. Because a home or property cannot necessarily be physically split in half, it must be sold. When that sale occurs, the law requires certain parties to receive notice of that sale.
How does a sale in a partition action work?
A property sold through partition generally sells in the same manner as a normal seller. A sale in a partition action is often done through a referee. This is usually done through a public auction or a private sale. If it is being sold publicly through the court, an appraiser will value the property and it will be sold at a public auction which occurs under court supervision. The court may specifically include its own terms for the sale such as all cash, sale on credit with a specified type of security, etc. (CCP § 873.630.)
In a private sale, the referee will seek out buyers. When the referee has a buyer, the referee provides the court with a report including a description of the property, the buyer’s name, the price, terms and conditions, any security taken, amounts payable to lienholders (if applicable) and arrangements for payment of the agents’ commissions.
If neither of those options is chosen then there can be an agreed buyout, voluntary sale on the open market, or some other type of settlement. However, the property cannot be sold to the referee, a party’s attorney or their guardian or conservator.
Who must receive notice of a sale in a partition action?
Notice of the sale must be given to all parties, including owners of the property. Notice must also be given to anyone else who asked the referee for special notice of the sale in writing. (CCP § 873.640 and 873.650.) The notice of sale must include a description of the property, the time and place of the sale, and a statement of the principal terms of the sale. The notice must include the earliest date of sale and where the bids will be received. (Hummel v. First National Bank (1987) 191 Cal.App.3d 489, 494.) If the sale is conducted by the court publicly, the bids from the public are accepted by the sheriff’s office (or local equivalent). If the sale is private the notice must state a place where bids or offers will be received. It must also include a day on or after which the sale will be made. A private sale notice will usually just list the place of business of the partition referee.
How are profits from the sale divided?
The division and sale is meant to be “equitable” which is why partition is referred to as an equitable proceeding. This is also why the proceeds from a sale are divided fairly. The proceeds of the sale must be distributed in the following order: expenses of the sale, other cost of partition, liens in order of priority and finally, distribution of the parties’ shares of what remains. The sale proceeds must be divided fairly, usually in percentages, based on who owns what. (Summers v. Superior Court (2018) 24 Cal.App.5th 138, 143.) This is why it is important to obtain a title report from a title company to show what amount of interest the owners hold. The amount each owner enjoyed benefits or burdens will affect what they get from the profits.
If one of the co-owners call for an accounting, the court will evaluate burdens and benefits of ownership. This means the court will look at each owner’s level of investment and adjust profit splits accordingly. Having an accounting done can make the division of profits more “fair.” However, it can cost more in attorney’s fees so weighing the amount gained in profits versus the amount that will end up getting paid to your attorney is important. If the sale has a lack of proper notice, the sale amount of the property was not within a reasonable value of the property, or proceeds were unfair, the court will rule that the property should be put up for sale again. If certain people who requested to be notified of the sale were not notified of the sale, the court may set aside the sale and order a new one.
What is an example of a sale in a partition action?
Shawn and Julie, brother and sister inherit their parents’ home each with 50% interest. The property is appraised at $1 million. Shawn wants to keep the home, but Julie wants to sell it. Even though Shawn does not want to sell, Julie still can bring a partition action to force the sale. The home is a single-family home, so it does not make sense to physically divide it. After going through the partition proceedings, the court orders an interlocutory judgment forcing the sale of the home. Shawn and Julie got a partition referee who is working with a realtor to market the home. Shawn and Julie have notice of the sale as parties to the lawsuit. However, no one specifically wrote in to the referee asking for notice of the sale. Because Shawn and Julie marketed the property, there were offers on the property when it went to sale even if no one requested notice. The highest offer, which was accepted, was for $800,000.
Expenses of the sale and costs of partition included payment of the referee and the realtor which added up to $25,000. The parties will split this cost. There were no liens on the property, so the only money taken out of the profits is $12,500 for each party. This means Julie and Shawn each receive $387,500 out of the initial $400,000. While they both received their fair share of the profits, it is clearly a discount from what the property is valued at. The sale price is unlikely to be low enough for the court to order another sale.
Similarly, as the parties have just inherited the property it does not make sense to order an accounting if they have not put money or work into the home.
Conclusion
The Underwood Law Firm has a team of experienced lawyers who can help resolve your property interest disputes at trial and help you pursue solutions like partition actions. We are here to help.