Partition Referee Reports on Offsets & Accounting

Other than forcing the sale of the property through an interlocutory judgment under CCP § 872.720, perhaps the most hotly contested issues in a California partition action are the offsets whereby one co-owner alleges that they have paid more than their fractional share of costs for the property, thereby seeking to recover an excessive down payment, repair, improvement, mortgage payment, taxes, or otherwise. As explained below, California partition law includes an accounting in all partitions and also allows a referee to prepare a report on offsets, which can often be a faster, less expensive, and more effective way to resolve offset disputes.

All Partitions Include an Accounting of Offsets

California partition statutes already provide that a remedy exists, explaining in Code of Civil Procedure § 872.140 that: “The court may, in all cases, order allowance, accounting, contribution, or other compensatory adjustment among the parties according to the principles of equity.”

Notably, the frequently cited case of Wallace v. Daley found that “Every partition action includes a final accounting according to the principles of equity for both charges and credits upon each cotenant’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.” ^[1]Wallace v. Daley (1990) 220 Cal.App.3d 1028, 1035.

A Partition Referee Can Issue a Report on Offsets

Oftentimes, litigants and attorneys believe that the only way to resolve offsets is through a trial, However, Code of Civil Procedure 873.060, entitled “Authority of Referee,” explains that: “The referee may perform any acts necessary to exercise the authority conferred by this title or by order of the court.”

This statute dovetails with Code of Civil Procedure 873.010(b)(2) providing that: “The court may… Instruct the referee.” The Law Revision Commission Comment makes clear that “Subdivision (b)(2) is new; it gives express recognition to the instructions procedure. It is a valuable tool for resolving ambiguities and matters not otherwise covered and, if properly used, serves to expedite the action. See also Section 873.070 (petition for instructions).”

Further, Code of Civil Procedure § 873.010(b)(5) provides that: “The court may…Require the filing of interim or final accounts of the referee, settle the accounts of the referee, and discharge the referee.” The Law Revision Commission Comment explains that: “Subdivision (b)(5) is new. It recognizes the need for and practice of the court to receive and pass upon the account and final report of the referee and thereafter to discharge the referee. This applies particularly in, but is not limited to, sales transactions.”

Importantly, the law is that: “The referee or any party may, on noticed motion, petition the court for instructions concerning the referee’s duties under this title.” California Code of Civil Procedure 873.070.

In other words, the referee or any party may request instructions for the referee to issue a report on offsets, the court may provide instructions for the referee to issue, and the referee may perform any acts necessary to exercise the authority of the order of the court providing instructions to prepare a report on offsets. It is wise to request those instructions in advance when asking for the appointment of the partition referee in the interlocutory judgment under Code of Civil Procedure 872.720 to avoid the need for another motion being filed for such a purpose.

Indeed, a referee’s report is an important to assist the court in evidentiary gathering and the fact-finding process to support the court as a part of the trial. As stated by the California Court of Appeal: “The court may appoint a referee to make a report on the facts and circumstances of the case, and make a recommendation to the court on precisely this primary determination. ([CCP] § 872.820, subd. (b).) Although his or her report and recommendation is advisory, the referee clearly serves as the initial examiner of the facts, and perhaps the law, in a partition action, under the aegis of the appointing court. The referee’s determinations are either accepted by the court, modified, or set aside. ([CCP] § 873.290, subd. (b).) Given the general role of referees as preliminary examiners of fact, we have no difficulty in concluding that trial in a partition action has commenced once evidentiary proceedings are begun before a referee. Despite the fact that the partition referee’s report was not in itself dispositive or tantamount to a final judgment, the trial proceedings began when the parties appeared before the referee to present their evidence.” ^[2]Gray v. Superior Court (1997) 52 Cal.App.4th 165, 171. Accordingly, the referee’s report may be used in the court’s final determination of the issues.

One California Court of Appeal case, Rahgoshay v. Hongyun Luo (Cal. Ct. App., Sept. 19, 2019) No. G056735, although unpublished, describes the very procedure of a partition referee’s report on offsets as follows:

The order appointing Pasternak as the partition referee provided, in relevant part: ‘The Partition Referee shall report to the court regarding the allocation and distribution of the net sales proceeds of the Property in accordance with Code of Civil Procedure § 873.850 et seq., including the allocation of the sale proceeds with respect to Property costs, income and benefits among the parties.’ (Italics omitted.) Thus, the trial court understood and anticipated that additional fees and costs would be expended, and additional rent received, requiring allocation by the partition referee.

The trial court did not err in exercising its statutory discretion to allocate fees and costs incurred after the entry of the original judgment in its post judgment order: “The court may, in all cases, order allowance, accounting, contribution, or other compensatory adjustment among the parties according to the principles of equity. (Code Civ. Proc., § 872.140.)

Rahgoshay v. Hongyun Luo (Cal. Ct. App., Sept. 19, 2019) No. G056735

In yet another unpublished decision: “A referee was appointed to effectuate the sale of the San Anselmo property to the highest bidder, administer all title transfers of the Nevada County properties, and oversee accounting for all transactions.” ^[3]DeMartini v. DeMartini (Cal. Ct. App., June 28, 2013, No. A133277) 2013 WL 3287991, at *3.

Courts and litigants alike may find that a partition referee’s report on offsets can be completed faster, perhaps allowing the distribution of proceeds at the close of escrow. Parties to a partition action may find that the referee’s report is more detailed given the time they can allocate to the fact intensive offset issues that may require review of receipts for improvements, proof of mortgage payments, or otherwise. As to the law, sometimes, the partition referee has more experience with the collectability of offsets than a judge, who is required to be knowledgeable about a broad array of cases. Many times, the parties to a partition action are former romantic interests, siblings, parent and child, or otherwise such that the out-of-court process of a partition referee’s report resolves the unemotional offset dispute in a manner that does not inflame the highly-charged emotions involved in ending a co-ownership relationship.

What is a judicial accounting?

In Teselle v. McLoughlin (2009) 173 Cal.App.4th 156, the Third District Court of Appeal explained:

[T]he nature of a…[judicial] accounting is unique in that it is a means of discovery. An accounting is a “species of disclosure, predicated upon the [parties’] legal inability to determine how much money, if any, is due.” (1A C.J.S., supra, Accounting, § 6, pp. 7–8, fn. omitted.) Thus, the purpose of the accounting is, in part, to discover what, if any, sums are owed to the [parties], and an accounting may be used as a discovery device. (1A C.J.S., supra, Accounting, § 26, p. 26.)

Given this definition of a judicial accounting is merely a means of discovery and/or
disclosure in order to ascertain the amounts (or adjustments, setoffs, etc.) to which the
parties may be entitled.

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 eight, full time partition lawyers, Talkov Law is the #1 partition law firm in California and has handled over 430 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!

If you're looking to end your co-ownership dispute, contact California's premier partition action law firm by calling Talkov Law at (844) 4-TALKOV (825568) or sending us a message today.