A partition action forces the sale of jointly owned property and divides the sale proceeds. Less commonly, a partition divides the property itself, such that each co-owner receives a fractional piece. This often results from inherited property, divorced spouses, or former business partners.
For a more detailed treatment of this topic, see Forced Sale of Jointly Owned Property (Partition Action), which answers the following questions:
- How to Win a Partition Action
- Can a Partition Action be Stopped?
- Cost of a Partition Action
- Do you REALLY need an attorney for a forced sale or partition?
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TWO OPTIONS: FORCED SALE OR LITERAL DIVISION OF PROPERTY
When one of the co-owners of jointly owned property no longer wish to remain as co-owners, a partition action puts an end to the co-ownership. The co-ownership terminates in one of two ways. Most commonly, the Court forcibly sells the jointly owned property at auction and divides the sale proceeds among the owners. Less commonly, the Court literally divides the jointly owned property into pieces and gives each co-owner 100% ownership of a fractional piece. Obviously, literal division of a building would destroy the property value. Splitting the baby does not make either party happy, so Courts usually resort to a forced sale with division of the proceeds.
WHAT HAPPENS IN A PARTITION ACTION?
More precisely, exactly what is a partition action? The exact partition process depends on state law. But the general process looks the same everywhere. The Plaintiff must name all co-owners as parties, along with any party holding a lien or mortgage. A court-appointed appraiser places a value on the property. After required notice periods, the property goes up for auction with the Sheriff. At the action, the property typically cannot sell for less than 2/3rds of the appraised value. If no one bids 2/3rds of the appraised value, then the plaintiff must try again at a second auction.
HOW DOES THE MONEY GET SPLIT? WHO GETS WHAT?
Usually, the Court divides sale proceeds in proportion to ownership interests. If you own 25% of record title, you get 25% of sale proceeds after deduction of fees, costs, and liens. However, the profit split can change based on “fairness” factors. Basically, the profit splits should be adjusted according to the benefits and burdens of ownership.
For instance, suppose one of the co-owners bears all the burdens of ownership. He paid the mortgage, taxes, and insurance. He invested thousands into property improvements. And yet, he only owns 25% of the property. When it comes time to divide the money, he should receive credit for his financial investments in the property.
ALTERNATIVES TO A PARTITION ACTION
Considering the cost and time required to complete a partition, you should evaluate all other options before proceeding. When I assist clients who desire to exit a co-ownership situation, I begin with a letter to the other co-owners. The letter explains the problems with co-ownership and the reasons my client wishes to exit co-ownership. Sometimes, the other co-owners can buy my client out of the property, which solves the property. Other times, a letter might convince the other owners to sell the property voluntarily. By explaining the legal right to file a partition, you can put pressure on the other co-owners to sell voluntarily.
Basically, you can send an ultimatum letter to the other co-owners. The letter gives the other owners a few options: (1) buy out my interest; (2) sell the property voluntarily; or (3) prepare for a forced sale via partition action. Since no one wants a lawsuit, this approach often results in a voluntary agreement to sell the property.