Chapter 35: Forcing co-owners out
What is a referee?
-An advisor to the court -on the feasibility of the division or sale of co-owned real estate
What is a partition action?
-Court proceedings -by which: co-owners -seek to: sever their joint ownership & parcel OR sell a property
What is distribution in kind?
-Distribution of an LLC's real estate -on dissolution to members -as a return of their capital contributions
What may happen when real estate cannot be divided equally? The money paid to even the distribution is legally called ________
1 co-owner may have to pay money to other to even up the division owelty
Who are NOT entitled to sue for partition of real estate (2)? Why?
1.) Spouses owning property w/ title vested as community property 2.) Married joint tenants Bcuz: it is a community asset
What 5 things does a partition action needs to include (5):
1.) description of real estate 2.) interest of co-owner 3.) all other recorded real estate interests or unrecorded interests actually known or reasonably discoverable 4.) real estate interest sought to be partitioned (fee, leasehold, minerals, etc.) 5.) any facts justifying sale of real estate
Chapter 35 Learning Objectives (3):
1.) discuss use of partition action to resolve disputes btwn co-owners of real estate 2.) determine whether a sale or division of real estate is the most practical outcome in a partition action 3.) better understand the need for a LLC vesting for co-owners other than spouses, to keep disputes from affecting title & operations of a property.
In a partition action, co-owners may mutually agree to either (2)?
1.) divide real estate in a voluntary partition or 2.) sell it under voting provisions in written co-ownership agreements.
What types of real estate interests CAN'T be separately sold or partitioned (2)?
1.) easements 2.) profits a prendre
The proceeds of the sale are distributed as follows (4):
1.) expenses of sale 2.) costs of partition action 3.) payment of liens 4.) co-owners
What 3 types of real estate interests are subject to a partition suit (3)?
1.) fee estates 2.) life estates 3.) leasehold estates
Not all forms of co-ownership or types of property allow for a partition to terminate a co-ownership. The real estate interests which are subject to a partition suit include (3):
1.) fee estates 2.)life estates; and 3.) leasehold estates.
The referee needs to consider (3): The referee determines what (1)? The referee prepares (1)? The report may be contested by?
1.) improvements made to property 2.) size & # of lots owned 3.) any liens on real estate how property is to be divided a report for court's review & approval the owners
Chapter 35 Key Terms (3):
1.) partition action 2.) distribution in kind 3.) referee
The sale of real estate may be held at either (2)?
1.) public auction or 2.) privately negotiated sale
Who is usually appointed as a referee to wade through the facts presented by co-owners (2)?
1.) real estate broker or 2.) attorney experienced in real estate
The only persons prohibited from bidding at the sale are (3):
1.) referee 2.) attorney for person in partition suit 3.) guardian of person to the suit, unless it is on behalf of & for benefit of their ward
A co-owner may avoid the unnecessary costs of a partition action at the outset of a dispute btwn co-owners by (2):
1.) selecting the correct form of ownership; and 2.) including in co-ownership agreement a provision for disposition of property on termination of co-ownership
The objective in a partition action is to physically divide ownership & possession of real estate btwn co-owners in a practical way The real estate may be divided by either (2):
1.) separate lots or parcels; or 2.) by allocating any improved real estate to co-owner who constructed the improvements
However, real estate vested in a joint tenancy by a married couple might be separate property, when they rebut the community property presumption by either (2):
1.) statement in deed stating real estate is not community property 2.) separate written agreement stating real estate is not community property
The sale of real estate may be held at a public auction or by a privately negotiated sale, depending on either (2):
1.) which is likely to bring more money for co-owners 2.) a prior agreement btwn co-owners.
A partition action is a lawsuit to sever or sell real estate which is coowned. A partition action severs co-ownership of real estate by either (2):
1.) • dividing the property into parcels and distributing it in kind among the co-owners, when feasible; or 2.) selling and distributing the net sales proceeds to the co-owners according to their percentage of ownership.
What is the 1st procedure in a partition action? What is 2nd procedure in a partition action? How? What is 3rd procedure in a partition action? What is 4th procedure in a partition action?
1st: establish each co-owner's interest in a parcel of real estate 2nd: establish condition of real estate's title How? by use of title company's litigation guarantee, an insurance policy issued based on their search of record title 3rd: Set priority of all liens on property 4th: Make provisions for liens to be paid or assumed
For example, 1.) notice of sale needs to be given to all parties named in the partition action at least ______ days before sale date Additionally, the notice of sale needs to be published?
20 days in local newspaper of general circulation 1x/week for 3 weeks before sale (similar to trustee's sale under a power-of-sale provision)
What does the division of real estate need to comply with?
ALL environmental, zoning & other ordinances affecting use of real estate
A partition action is an equitable remedy which has roots in __________ law, called ________ What does the court of equity(chancery) decide?
English common law ; chancery what is the best resolution for feuding co-owners.
The least problematic & best form of co-ownership of real estate is an _______. In LLC operating agreement, co-owners agree in advance what will happen when 1 of members wants to withdraw or expelled from the group
LLC
Example: A couple acquires real estate in a joint tenancy vesting as single or unmarried individuals before they are married. After couple marries, they don't alter the joint tenancy vesting nor enter into written agreement transmuting ownership into community property. Later, couple divorces & cannot agree on division or sale of real estate Is the real estate community property?
No! Their ownership of the property is vested as joint tenants without a reference to their status as spouses. They were not married when they acquired title, and they did not later alter the vesting by a writing (deed) to transmute their separate interests to community property
For example, four investors enter into an LLC operating agreement to buy and operate a hotel. Title to the hotel is vested in the name of the LLC. The LLC agreement does not reference the division of the property on a dissolution of the LLC. One of the members resigns and the LLC is dissolved. The remaining members demand the LLC's real estate be partitioned and distributed in kind. Is a partition of the LLC assets proper in this case?
No! In this instance, there is only 1 LLC asset (the hotel) which is impractical to subdivide unless a condominium conversion is practical.
What MUST happen before partition action can be completed or sale proceeds distributed?
Provisions are made for the liens to be paid or assumed
T of F? Additionally, a court may dissolve an LLC & distribute its assets in kind whenever (2): 1.) distribution is fair & 2.) does not impair payment of LLC debts
T
T of F? Further, real estate acquired as joint tenants during marriage is presumed to be community property
T
T of F? An appointed referee's activities are subject to: judicial review & approval. What is the referee's job?
T balance competing interests & arrive at a reasonable division of property btwn co-owners.
When does a partition action arise?
When co-owners can't agree on management, division or sale of real estate they jointly own.
Example: Lender originates a mortgage secured by the fractional interest of a co-owner in real estate. Co-owner defaults on mortgage. Lender forecloses & becomes a TIC w/ other co-owner of property. Here, lender acquires a fractional ownership interest in the real estate, not the entire ownership. May lender, as a fractional owner, sue co-owner for partition or sale of real estate simply to liquidate & recover their original investment in loan?
Yes! Lender, now owning an undivided fractional interest in real estate, may sue for: partition or sale to: complete the liquidation of their initial security interest in property
Are joint tenancy interests acquired before marriage severed by a partition action rather than by divorce proceedings?
Yes! Spouses who vest title as joint tenants are entitled to a partition action when their co-ownership is held in a joint tenancy or TIC vesting & they rebut the presumption of community property by showing their interests are separate property
Two siblings own two adjacent parcels of unimproved land, which they use for personal and recreational hunting and fishing. Title to the real estate is vested as tenants in common (TIC), each co-owner holding an undivided one-half interest. Both parcels are of equal value. One parcel contains the actual hunting and fishing areas while the other provides access. Both co-owners use the property frequently. One sibling dies and passes their interest in the real estate to a hunting and fishing group that wishes to open the real estate to the public. The hunting and fishing group offers to buy out the surviving co-owner's interest, but the surviving co-owner refuses, filing a partition action to divide the property and become the sole owner of one of the parcels. The group wants to buy out the co-owner on a sale of the property to permit members of the group to have exclusive access to the recreational areas, claiming the real estate cannot be severed due to topographical problems. The surviving sibling, as co-owner, claims they have a right to retain physical possession of a portion of the land, since the land can be divided into separate parcels and the division will not reduce the economic value of the separate parcels. Is a co-owner entitled to retain possession of a portion of the real estate when the property can be as a practical matter divided among the co-owners?
Yes! A division of the real estate is required of tenants in common unless it is impractical to divide and distribute or a sale of the entire real estate is fairer to all involved
Example: On the death of both parents, the surviving children receive real estate vested in their names as co-owners. One child is selected to manage the property on behalf of all the children. Soon, the children disagree on the ownership and management of the inherited property. One child, concerned about their personal liability exposure from ownership, wants the property to be sold and the proceeds distributed based on each child's percentage of co-ownership. Another child wants to subdivide the real estate and eliminate the coownership by conveying the separate parcels to one another. Each child is then the sole owner and manager of their separately divided ownership of their parcel. Yet another child is willing to cash out the other family members and acquire ownership of the entire property themselves. Thus, no arrangement meets the individual goals of each child vested as a co-owner. Can any one of the co-owners force a termination of the co-ownership since they no longer agree on the ownership and management of their real estate?
Yes! A partition action severs co-ownership of real estate by either: 1.)dividing the property into parcels and distributing it in kind among the co-owners, when feasible or 2.) selling the property and distributing the net sales proceeds to the coowners according to their percentage of ownership
Consider two co-owners who inherited an inside lot in the middle of a densely populated area of a major city The lot is small (one-eighth of an acre) and is improved with residential structures — one facing the street, the other facing a back alley. The positions of the buildings on the lot do not permit a division (parceling) of the real estate or the construction of a partition wall. Additionally, local zoning restrictions do not permit the further subdivision of the lot. Is a sale of the real estate the best solution?
Yes! The further division of the lot is highly impractical and legally impossible without great loss of value to the co-owners.
In another example, several members in an LLC sign an operating agreement to own and operate several parcels of land as a farm. Under the agreement, a member may resign and call for a conveyance of separate parcels to each individual member, which one member does. Another member claims an LLC may not distribute property it owns to the members in kind, but needs to sell the properties and distribute the proceeds pro rata, based on the percentage of ownership each member has in the LLC. May dissolution of an LLC be completed by the division of the LLC real estate btwn the members as opposed to only a cash distribution?
Yes! While the general rule requires the sale of LLC assets and the net sales proceeds to be distributed, the members may enforce an agreement to divide or partition the real estate
The public or private sale of real estate needs to be conducted under the same rules as?
an execution sale on a money judgment.
Disputes btwn spouses to sever community property interests in real estate are handled as part of divorce proceedings, called ____________ Consequently, --> termination of: co-ownership of community real estate is subject to: offsets & payment of monies to equal the distribution of all assets of the community on dissolution
dissolution.
Example: co-owners acquire real estate & vest title in name of LLC, each owning a fractional interest in the LLC as members. LLC holds title to ownership of real estate, not the individual members. When members agree to end their co-ownership, they mutually terminate their relationship by dissolving the LLC and an accounting of the LLC's assets Generally, the accounting provides for the LLC's assets to be sold, not partitioned & distributed to members. -->The sale proceeds are distributed to members. However, members may agree in LLC operating agreement to a distribution of the LLC property to the individual members as a manner of returning their capital contributions. The distribution is called a _________
distribution in kind
A partition action will force an _________ or _______ of real estate.
involuntary division or sale
These prohibitions are not in place at a trustee's sale where anyone may bid, including trustee holding the private sale (but restrictions exist on a mortgage broker bidding when they arranged the mortgage). In a partition action, when 1 co-owner wants to own the entire property, they may acquire it by?
making the highest bid
Without an agreement, no member has the right during life of LLC to receive any LLC asset other than?
money
On dissolution & winding up of LLC's affairs, the distribution to members is made from?
net proceeds from a sale of the assets
What is the preferred equitable result to terminate a co-ownership?
partition & distribution of property
A ___________ is a: -lawsuit to sever or sell real estate -which: is co-owned
partition action
The objective in a partition action is to?
physically divide ownership & possession of real estate btwn co-owners in a practical way
Once partition action is filed, co-owner seeking partition needs to?
record a lis pendens w/ county recorder identifying: parties & real estate involved
Usually, a real estate broker or attorney experienced in real estate matters is appointed as a _________ to wade through the facts presented by co-owners. The referee is: - an advisor to the court -on the feasibility of the partition or sale
referee
A partition action is a: -lawsuit to _________ or ______ real estate -which: is co-owned
sever or sell
The ability of a member in an LLC to demand a partition of LLC property is controlled by?
the buyout & dissolution provisions in the operating agreement
At a public or private sale, the real estate is sold to?
the highest bidder
On dissolution of LLC, member is only entitled to? UNLESS?
their percentage share in interest of net proceeds of a sale an agreement exists calling for a distribution of real estate in kind
What type of co-ownership DOES allow for a partition?
unmarried joint tenants or TIC who hold title in their individual names.
