Sometimes, co-owners wonder if their co-owned property will be sold for fair market value in a partition action, or whether the process will result in a below market sales price. There are many reasons that partition action sales conducted by a partition referee will generally result in the property being sold for fair market value, or even above market value, as explained below by our experienced California partition lawyers.
Most Partition Actions Result in an Agreement to Sell on the Market or to the Defendant
As a practical matter, this article only describes a small minority of partitions (perhaps 20%) where a referee is appointed to sell the property. The vast majority of partitions result in an agreement between the parties to sell the property in a manner that is acceptable to all parties. This usually means hiring a Realtor or broker to sell the property on the open market or selling the plaintiff’s interest to the defendant for an agreed amount of money, which is often funded by a refinance of the property on a loan signed only by the defendant, who will become the sole owner after the refinance. This article only explains the concerns of parties in the minority of partition actions where the sale is conducted by a neutral third party partition referee under court authority.
Partition Referees Generally Sell Properties on the Open Market (MLS)
When a partition action results in the appointment of a referee, the referee generally proceeds by way of a private sale under Code of Civil Proceedure § 873.680. While private sale might sound like the sale is happened in secret, the referee generally uses this authority to hire a Realtor or broker to list the property on the open market. In the residential context, this means the MLS (Multiple Listing Service) so that the property appears on Zillow, Redfin, Trulia, and elsewhere that buyers would look. If the property is commercial, sites like LoopNet and Co-Star will be used to find buyers.
The Referee Should Keep the Parties Apprised of Bids and Potential Acceptance of an Offer
Parties in a partition action might imagine that the referee will hire the real estate agent, then tell the parties that they have accepted an offer. In our experience, a partition referee will regularly communicate with the co-owners and their attorneys about the marketing process, including the proposed list price, offers that have come in, and the referee’s potential acceptance of an offer. The referee may also ask for the co-owners to provide their feedback on the process. While co-owners can object, as a practical matter, the referee is in charge of the sale such that they will make the ultimate decision to ask the court for approval of a buyer. This ultimate authority means that a partition referee will not be slowed down by, for example, a defendant in possession of the property claiming that the referee should keep waiting for a higher offer.
Co-owners Can Bid on the Property
Yet another reason to be sure that the property will not be sold below market in a partition sale is that all parties to the partition can purchase the property pursuant to Code of Civil Procedure § 873.690(a). If a co-owner thinks the property is being sold below market, the co-owner can simply buy the property.
Co-Owners May be Able to Credit Bid Their Equity
Another reason to be sure that a partition se will result in full value is that a court may, under certain circumstances, allow the parties to credit bid their equity under Code of Civil Procedure 873.770(a). For example, if a plaintiff and defendant own a property 50/50, and that property has no mortgage, each co-owner would normally be entitled to 50% of the proceeds. If the court allows the co-owners to credit bid their equity in the property, a purchasing co-owner will only need to pay the remaining 50%. This process, if allowed, will make it easier for the parties to bid on the property. With existing co-owners being the most common buyers in a partition, this helps to create market value.
Partition Sales are Subject to Court Approval
The partition statutes have a specific mechanism for co-owners to object if they believe the referee is proposing a sale that is below market. Specifically, that objection must be made to the referee’s motion for approval of the sale and state facts that “The sale price is disproportionate to the value of the property” under California Code of Civil Procedure 873.730(c)(2).
Yet another ground requires an objecting party to show that “It appears that a new sale will yield a sum 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, determined after a reasonable allowance for the expenses of a new sale.” California Code of Civil Procedure 873.730(c)(3). For example, if the referee proposes the acceptance of a $1,000,000 offer in a property in a San Jose partition action, the objection must allege that the property will sell for $50,500 more plus the expenses of a new sale. A fair estimate of noticing another sale would be, perhaps, $3,000 in fees. This means the objection would need to allege that a new sale would yield a sales price of at least $1,053,500. Since most parties co-own properties 50/50, this potential of a 5.35% variance in the purchase price from market value would amount to a mere 2.675% less in proceeds of sale to a one-half co-owner.
Partition Sales are Subject to Overbidding
In case these procedures were not enough to ensure a fair market value, there is yet another opportunity under the partition statutes to ensure that top dollar is received for a property through overbidding at the hearing on a partition sale motion. Specifically, that overbid must be “at least 10 percent on the first ten thousand dollars ($10,000) and 5 percent on the amount in excess thereof” under Code of Civil Procedure 873.740. For example, if the referee proposes a sale of $1,000,000 of a property in a Los Angeles partition action, the overbid would need to be at least $1,060,000.
Partition by Sale Statutes Protect the Parties from Below Market Sales
Below is a list of all statutes in Chapter 6 of the partition statutes entitled “Sale of the Property.” These statutes create rules and proceedures to bolster the idea that the sale will result in a price that is in line with fair market value.
- Article 1. Manner of Sale
- Article 2. Sales Procedures
- CCP § 873.600. Order of Court; Methods and Terms; Agreement of Parties
- CCP § 873.610. Manner, Terms and Conditions Consistent with Chapter; Recommendations of Referee
- CCP § 873.620. Sale of Property Separately or as Unit
- CCP § 873.630. Credit Sales
- CCP § 873.640. Notice of Sale
- CCP § 873.650. Contents of Notice of Sale
- CCP § 873.660. Securities; Perishable Property; Passage of Title; Proceeds
- CCP § 873.670. Public Auction; Location; Postponement
- CCP § 873.680. Private Sale; Time; Bids
- CCP § 873.690. Ineligible Purchasers; Bona Fide Purchaser
- Article 3. Consummation of Sale
- CCP § 873.710. Report of Sale by Referee; Contents
- CCP § 873.720. Confirmation of or Setting Aside Sale; Motion; Notice
- CCP § 873.730. Hearing; Confirmation of Sale; New Sale
- CCP § 873.740. Hearing; Increased Offer; Action by Court
- CCP § 873.745. Commissions of Agents
- CCP § 873.750. Confirmation of Sale; Duties of Referee
- CCP § 873.760. Failure of Purchaser to Pay Sale Price; Liability of Purchaser; Relief
- CCP § 873.770. Taking Setoff from Party Purchaser
- CCP § 873.780. Closing of Sale After Confirmation; Adjustments; Order
- CCP § 873.790. Execution of Conveyance or Transfer; Recordation
Do Partitions Result in Above Market Sales?
The truth is that partition actions are generally needed because of the chaos at a co-owned property. Perhaps that house was the site of domestic conflict between unmarried co-owners while ending their relationship. Or, perhaps a sibling has been living at an inherited house for years that now suffers deferred maintenance as neither party has been making ordinary repairs on a house they only partially own.
A partition referee is generally an attorney with expertise in real estate, though he or she can be a broker who also markets the property. These professionals can bring peace to the property while adding expertise to the sales process. Given the duty that is owed to the court, these professionals will objectively analyze offers to ensure that bad offers are not accepted. They will do so free of the strife that would otherwise exist if the co-owners were offering the property for sale on their own, forcing an unsuspecting Realtor to act as mediator between these disgruntled sellers. Buyers may prefer to interact with a partition referee as the seller due to their sophistication and professionalism, hopefully yielding top dollar.
Hire an Experienced Partition Attorney Who Will Nominate Only California’s Best Partition Referees
A heavily populated state like California has many partition referees. Some are more experienced, efficient, and effective at completing their court appointment to sell the property than others.
We have vetted and observed the skills of California’s most popular partition referees so that you don’t have to. Not only can an experienced referee obtain top dollar, they can also get the property sold faster so that you can promptly unlock the equity in your co-owned property.
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!