California Code of Civil Procedure 873.740 is the California partition statute that provides the court with options at a partition sale hearing under California Code of Civil Procedure 873.730 when a bidder (overbidder) makes an increased offer that exceeds the current sales prices. The statute provides that:
(a) If at the hearing under Section 873.730 a responsible bidder makes a written increased offer that exceeds the sale price by at least 10 percent on the first ten thousand dollars ($10,000) and 5 percent on the amount in excess thereof, the court in its discretion may do either of the following:
(1) Vacate the sale and direct that a new sale be made.
(2) Vacate the sale, accept the increased offer, and confirm the sale to the offerer.
(b) Except as provided in subdivision (c), the amount by which an increased offer exceeds the sale price is determined on the basis of the gross amount of the increased offer including any commission on the increased offer to which an agent may be entitled.
(c) Where in advance of sale the court has so ordered or the parties have so agreed, if an increased offer is made by a party to the action who is not represented by an agent, the amount by which an increased offer of a nonparty exceeds the sale price is determined on the basis of the net amount of the increased offer excluding any commission on the increased offer to which an agent may be entitled.
California Code of Civil Procedure 873.740
Bidding and Overbidding Favors Co-Owners
As a practical matter, this overbidding process under Code of Civil Procedure Section 873.740(a) often results in a co-owners of the property buying the property. This is because the bidding co-owner will generally receive their fractional interest from the bid, meaning they are partially playing with monopoly money. For example, if the referee accepts an offer of $1,000,000, but a 50% co-owner overbids $1,100,000, this will generally not result in the buying co-owner paying an extra $100,000. This is because 50% of this additional $100,000 would be owed to the buying co-owner. Indeed, Code of Civil Procedure § 873.820(d) explains that the “proceeds of sale for any property sold shall be applied,” after payment of expenses of sale, costs of partition, and liens, by way of: “Distribution of the residue among the parties in proportion to their shares as determined by the court.”
Thus, the buying co-owner is effectively only paying an additional $50,000 over the $1,000,000 offer. By contrast, a third-party bidder would need to come out of pocket the entire $100,000 difference. This practically makes it hard for third party buyers to be the highest bidder if a co-owner is interest in purchasing the property.
Credit Bidding by Co-Owners
A related tactic is found under Code of Civil Procedure § 873.770(a), which provides that “the referee may…Take the purchaser’s receipt for so much of the proceeds of sale as belongs to the purchaser.” This means that an overbidding co-owner may, under some circumstances, ask the court or referee to permit the portion of the purchase price that would simply come back to the co-owner (e.g., approximately 50% for a 50% co-owner) to be paid by a credit bid, rather than by handing the referee the money that would come back to the purchasing co-owner. Thus, if a 50% co-owner wishes to purchase an unencumbered $1,000,000 property, that co-owner may only be required to pay $500,000 plus any costs of the partition.
Talkov Law's Partition Attorneys Can Help
If you want to end your co-ownership relationship, but your co-owner won’t agree, a partition action is your only option. With six, full time partition lawyers, Talkov Law is the #1 partition law firm in California and has handled 250 partition actions throughout California. Every case has resulted in a sale to either a third party or one of the co-owners. Not a single court has denied our clients the right to partition or declared our client to be a non-owner. Plus, for qualified cases, there is no fee until we settle or win your case!