By Neil Sheaffer
People come to own real property together for a variety of reasons. It may be an investment property that friends purchase together or the need for financial assistance has led to co-ownership. In many cases, individuals become co-owners through inheritance. But owners’ visions, long-term plans and interests do not always align, which leads to conflict and the ultimate need to terminate the co-owner relationship, often through a partition action. Partition actions are lawsuits that are usually initiated when one owner of a property wants to sell while the other owners do not.
Section 872.720 of California’s Code of Civil Procedure states that “[i]f the court finds that the plaintiff is entitled to partition, it shall make an interlocutory judgment that determines the interests of the parties in the property and orders the partition of the property and, unless it is to be later determined, the manner of partition.” It is at this time that the court will also appoint a partition referee, often based upon the recommendation of one the parties, to oversee the actual partition of the property. Partition may be done by sale or physical division of the property (also known as partition in kind), but it is usually impractical or impossible to physically divide real property, leaving partition by sale as the preferred method.
Though the court has already determined each party’s interest in the property prior to ordering its sale, co-owners are entitled to compensatory adjustments for “expenditures in excess of the cotenant’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.” Wallace v. Daley (1990) 220 Cal. App. 3d 1028, 1035-1036. Section 872.140 of the Code of Civil Procedure states that “[t]he court may, in all cases, order allowance, accounting, contribution, or compensatory adjustment among the parties according to the principles of equity.” What this means is that a cotenant may have amounts credited to or deducted from their share of sale proceeds based on what they contributed (or didn’t contribute) to the property during their ownership.
The compensatory adjustment analysis is a fact intensive process that varies greatly from case to case, depending on what equity demands. Generally, the court and the referee will assess the cotenants’ expenditures related to the mortgage, insurance, taxes, utilities, repairs and improvements when considering what adjustments may be required.
The appointment of an experienced referee is vital to ensure that the sale is efficiently handled and each owner’s arguments regarding compensatory adjustments are fully understood, analyzed and presented to the court.
Professionals at Griswold Law, APC have been appointed as a receiver or partition referee over 100 times by courts across California to take control of disputed and/or distressed real property and businesses. Neil Sheaffer is an attorney at Griswold Law, APC. For more information, please contact Griswold Law.