When Two People Own Property, But One Person Doesn’t Want to Sell
Tricks To Save Your House in a Partition Action
An experienced partition attorney in California may often be asked whether there are affirmative defenses to a partition under California law. Of course, every defendant wants to win a partition action.
While some people may refer to these as affirmative defenses, it might be best to look them as ways to achieve a better outcome. If played correctly, you may even be able to save your house and become the sole owner for as little as possible. Even if your house is sold, you may be able to maximize your return.
How to Stop a Partition Action
1) Challenging a Plaintiff’s Standing to Bring a Partition Action
The requirement is that “A partition action may be commenced and maintained by…An owner of an estate of inheritance, an estate for life, or an estate for years in real property where such property or estate therein is owned by several persons concurrently or in successive estates.” Code Civ. Proc. § 872.210(a)(2). So long as the plaintiff is not alleging a community property interest that must be raised through a family law attorney, any co-owner of the property has a right to partition under California law.
Courts have even considered partition as a remedy when an owner is not on record title, meaning they hired a quiet title attorney who would have been required to show their equitable ownership by clear and convincing evidence under Evidence Code 662.
Contrary to common belief, there is no requirement that the parties bringing a partition action have the support of a majority of owners of the property. Rather, an owner of just 1% of a property could bring a partition action. While defendants may not be pleased, partitions promote the alienability (ability to be sold) of property so that properties do not become owned by numerous owners who must reach an agreement to sell to just one owner. However, even if this defense does not apply, other defenses may be available.
2) Waiver of Right to Partition
“A co-owner of property has an absolute right to partition unless barred by a valid waiver.” Orien v. Lutz (2017) 16 Cal.App. 5th 957, 962 (citing Code Civ. Proc. § 872.710(b) (“partition as to concurrent interests in the property shall be as of right unless barred by a valid waiver”)); see, e.g., Pine v. Tiedt (1965) 232 Cal. App. 2d 734; American Medical International, Inc. v. Feller (1976) 59 Cal.App. 3d 1008, 1014.
Ordinarily, such a waiver would come about due to “an agreement among co-owners of property….” Orien v. Lutz (2017) 16 Cal. App. 5th 957, 963. However, such written agreements between co-owners of real property are rarely seen in California. Rather, most co-owners simply accept a deed placing multiple owners on title, then realize the complications of doing so later. Establishing this defense is possible, but a writing is going to go a long away.
3) Keep Recoverable Costs Low by Showing Cooperation with the Plaintiff, Referee, Realtor/Broker and Court in the Listing and Sale
If you’re hoping to defeat a partition, it is still important to show some level of cooperation with the plaintiff, the referee, any broker or Realtor hired to list the property for sale, and the court for any hearings. This will allow you to be in the good graces of these important parties in the process to the extent you wish to leverage your position as co-owner. It can also reduce the costs that may be apportioned to each of the co-owners after the sale.
4) Refinance the Property to Buy Out the Co-Owner
One of the most common ways to defeat a partition action is to buy out the other co-owner or co-owners. Generally speaking, to determine the amount that should be paid, first determine the likely value of the property, them deduct the costs of sale (perhaps 7% to 9%), then deduct any mortgages or liens on the property. From this amount, determine the percentage interest of each owner in the property to find their equity. Generally, buying out the interest of a co-owner involves obtaining a loan. This can be done by using an escrow to hold the deed from the other co-owners while the purchasing party deposits all the funds necessary. When the loan is funded, the escrow will pay the co-owner and record the deed. Of course, if you have the cash, you’re welcome to fund the escrow with cash.
5) Overbid at the Sale with a Credit Bid for the Co-Owner’s Equity in the Property
California law provides that “the court shall order sale by such methods and upon such terms as are expressly agreed to in writing by all the parties to the action.” Code Civ. Proc. § 873.600. It goes on to provide that: “The court may, at the time of trial or thereafter, prescribe such manner, terms, and conditions of sale not inconsistent with the provisions of this chapter as it deems proper for the particular property or sale.” Code Civ. Proc. § 873.610(a).
Accordingly, co-owners of a property hoping to save their home should request that the court allow overbidding at the hearing approving the sale so that the co-owner can outbid any third party.
The co-owner should also request that the co-owner be given credit for their one-half interest in the property, sometimes known as a credit bid. For example, if all parties agree that the co-owner will obtain $100,000 from the sale of the property, that co-owner should be able to bid the $100,000 they would otherwise receive. As a practical matter, that would mean that the co-owner who buys from the court would need a smaller loan to purchase the house. For example, if the purchase price is $300,000, and the co-owner has a credit bid of $100,000, they would only need to obtain $200,000 more to buy the house.
6) Recovering Offsets, Reimbursements and Attorney’s Fees
Co-owners should always be mindful that the state court has the power to order the recovery of attorney’s fees, costs, credits & reimbursements in a partition accounting. The famous case of Wallace v. Daley (1990) 220 Cal.App. 3d 1028, 1036 explained as follows:
Every partition action includes a final accounting according to the principles of equity for both charges and credits upon each co-tenant’s interest. Credits include expenditures in excess of the co-tenant’s fractional share for necessary repairs, improvements that enhance the value of the property, taxes, payments of principal and interest on mortgages, and other liens, insurance for the common benefit, and protection and preservation of title.
Co-owners seeking to maximize their outcome from the partition action should keep careful records of the payments they made and the payments that the other co-owner did not make on property taxes, insurance coverage, mortgage payments, repairs, etc.
7) Offsets Exceeding the Plaintiff’s Equity in the Property
Theoretically, if a co-owner can show that the plaintiff has no equity in the property, the Court may be hesitant to allow a partition to go forward. One such way of showing that the plaintiff has no equity would be if the offsets exceed the plaintiff’s equity in the property under an assumed sale at fair market value. This would require certain facts that may only be present in certain cases.