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Real estate litigation between co-owners of real property often includes a claim for partition. Whether the parties are family members, friends or business associates, disputes over the co-ownership of property are addressed through partition lawsuits. A partition lawsuit asks the court to force the division or sale of the property.
Why Are You Fighting This Lawsuit?
In most cases partition is something that the parties should agree to rather than fight over in litigation. For example, in family litigation where two sisters have inherited a property together and own it equally (50% ownership interests), one sister will, for whatever reason, want to get out of the property. Perhaps because of lingering family animosities, the sisters will be unable to agree on a way to divide the property so one will hire an attorney to bring a partition lawsuit.
If a partition lawsuit plays out to the end in court, the process will go something like this. The plaintiff will seek an order establishing ownership and forcing either a sale of division of the property. If possible the court will divide the property, but in most cases sale will be the only option. For example, an industrial building cannot usually be divided in two.
How Much Is This Lawsuit Costing You?
The court will appoint a referee to prepare the property for sale. The referee will then hire a broker or auctioneer and retain an accountant for any accounting issues. Each of these parties needs to be paid. The referee, who often bills by the hour, has every incentive to bill the case as much as possible. The broker or auctioneer will get a percentage of any sale, usually in the 5-10% range. The accountant will also get paid hourly. In other words, all of these consultants will drain the asset of money before it is even sold.
The question then becomes why would anyone ever go through this process? It is more cost-effective, faster and easier to simply agree to the exact same process yourselves without the need for a referee and additional court hearings.
Reaching Your Own Settlement
In settling a real property partition case, the parties can easily accomplish all of the above without hiring a referee. Here are the major terms of most partition settlement agreements:
1. Ownership: Is there a dispute over who the owners are or how much of the property they own?
Typically, the facts of the co-ownership are clear and incontrovertible. With two owners, the share is usually split evenly. There is no need for the parties or their attorneys to fight over this issue if it is not disputed.
2. Accounting: Are there any accounting issues?
Most partition cases are because someone needs money or does not want to be on title with the other co-owner any longer rather than because they are accusing their brother or sister of stealing. However, one party may have contributed more towards maintenance or another may have extended a loan towards the building. These items can be equalized in an accounting and then the distribution from the sale can be made accordingly. If the parties cannot agree on this, then an accountant can be hired to analyze the numbers.
3. Sale: Is one co-owner willing to buy out the other co-owner? If so, the parties can negotiate a price. This is always a difficult discussion. However, if the parties cannot agree, then they should agree to an appraisal process in order to establish value. With 50% equity in the building, a co-owner is often in a good position to finance the purchase of the other party’s interest. In the worst case scenario, the parties can agree to a public auction. They may even agree that both parties can participate in the public auction. The downside of this process is that both parties pay their share of the brokerage or auction house fees that are incurred. However, it is the same process that a referee will use.
4. Mutual Releases: Like any real estate litigation, you will want to make sure that the parties release each other from any claims, known or unknown, so that their legal fighting comes to an end.
Whether parties to a lawsuit go through the official court procedure or through an agreed-upon settlement procedure, they will end up at the same place. The only difference is that the parties who are able to agree on a settlement will significantly lower their attorneys’ fees and costs (including the referee’s fees) and end up with more money in their own pocket.
Los Angeles real estate attorney Laine T. Wagenseller specializes in real estate litigation in California. Wagenseller Law Firm is based in downtown Los Angeles and handles all types of real estate lawsuits, including partition, specific performance, breach of contract, breach of lease and real estate fraud. For more information, please visit www.wagensellerlaw.com or contact Mr. Wagenseller at (213) 286-0371 or email@example.com.