THE PARTITION OF REAL PROEPRTY ACT

AND ITS PREDECESSOR

THE UNIFORM PARTITION OF HEIRS PROPERTY ACT

The Current State of Partition Law Requires Buy-Out Opportunity for a Majority of Co-Owners

1. TRADITIONAL PROCEDURE FOR PARTITION OF PROPERTY IN CALIFORNIA
2. THE UNIFORM PARTITION OF HEIRS PROPERTY ACT (effective January 1, 2022 to December 31, 2022)
3. THE PARTITION OF REAL PROPERTY ACT (effective January 1, 2023 to present)

• What does the Act Apply to?
• Determining Fair Market Value
• Buy-Out Procedure
• Reapportionment of Interests

Historically, co-owners can force the sale of a property through an action for partition.  The other co-owners essentially have no defense to an action for partition.  After an action is filed, the Court must determine whether the filing party has the right to partition.  California Code of Civil Procedure Section 872.210 . If the party has the right to partition, the Court will enter an Interlocutory Judgment ordering the partition of the property; determining the manner of partition (physical or by sale) – or delegating this duty to a Referee; and determining the interest of each party.  California Code of Civil Procedure Section 872.210 .  One the partition is completed, whether physically or by sale, the Court enters a final judgment.

In the traditional partition process, if the co-owners agree, they can choose to partition by appraisal.  Under this scenario, the property will be valued by a mutually agreed upon (or court-ordered) appraiser, and then either party can by each other out.  If neither party buys the other out, the property is sold, with the proceeds being divided according to ownership interest (and potentially adjusted for credits and debits).  However, this has to be agreed upon—no party can force this opportunity to buy out (although in reality, if either party has the opportunity to purchase the property—and use their equity towards the purchase).  Absent such an agreement, with very limited exception, either side can force a sale through a partition action.  The Court shall appoint a Referee to physically divide the property in the rare circumstance where that is possible, and if not to sell the property.  California Code of Civil Procedure Section 873.010.

If the property can be physically divided, a partition in kind, this is the preferred method of partition and will be done. As one can imagine however, this is an almost impossible scenario – real property is not capable of being physically divided in a way to match the co-owners interests.  The only other exception is if the parties had previously agreed to not partition the property.

The Uniform Partition of Heirs Property Act (UPHPA) modified the above statutory framework, effective January 1, 2022, creating a right for certain co-owners to force a buy-out based on an appraised value of the property.  California Code of Civil Procedure (“CCP”) §874.311 Et Seq.The UPHPA applies to “Heirs Property”—defined as property (i) owned at least 20% by relatives and (ii) where the interest of the party seeking to buy-out was acquired by a relative.  Under the UPHPA, when an action for partition is filed by a co-owner of inherited property, the other co-owners/heirs are provided with an opportunity to buy out the property at fair market value.  California Code of Civil Procedure Section 874.316.

What does the Act Apply to?

The Partition of Real Property Act applies to all property held by tenants in common unless (1) they have an agreement not to partition the property, or (2) they have a written agreement specifying another procedure for partition of the property.  Thus, unless an action was filed January 1, 2022 and December 31, 2022, or prior to that time period, the Partition of Real Property Act applies to all property held by tenants in common unless one of the above two exceptions applies, whether or not the property is “heirs” property.  It does not, however, apply to property held by joint tenants.

Determining Fair Market Value

With limited exception, the Court is required to determine the “fair market value” of the property, and to do so “before considering the merits of the partition action.”  CCP 874.316(a), (g).  The exceptions are:

• if cotenants have agreed to the property value, or they have agreed to a different valuation method;
• if the Court determines that cost of an appraisal is not worth it, in which case the Court is to determine the value after an evidentiary hearing (this seems to only be applicable to very rare cases in California, as appraisals are relatively low-cost compared to property values, and one would expect the attorney’s fees related to an evidentiary hearing to far exceed the cost of an appraisal). CCP 874.316(b)-(c).

After a licensed appraiser submits the appraisal, which must be sworn or verified, the Court must send notice to the parties within 10 days (“Notice of Fair Market Value”). CCP 874.316(e).

The parties have 30 days after the Notice of Fair Market Value is mailed to object to the appraisal if they want, stating the grounds for the objection. CCP 874.316(e)(3).

Whether or not any party objects to the appraisal, the Court must set a hearing, no sooner than 30 days after the Notice of Fair Market Value, to determine the fair market value.  At this hearing, the Court may consider any relevant evidence offered, in addition to the appraisal itself.  CCP 874.316(f)

Buy-Out Procedure

After determining the Fair Market Value, the Court sends notice to the parties that any party other than a cotenant who requested Partition by Sale may buy out all the interests of the cotenants that requested Partition by Sale (“Buy Out Opportunity Notice”). CCP 874.317(a).

The parties have 45 days after the Court sends the Buy Out Opportunity Notice to notify the Court that it elects to buy all the interests of the other cotenants. CCP 874.317(b).

The parties also have 45 days after the Court sends the Buy Out Opportunity Notice to request the Court to authorize the sale of the interest of defendants who were served but did not appear in the action.  CCP 874.317(h).

If no parties elect to buy out the cotenants, the Court shall order Partition in Kind, unless Partition in Kind would result in great prejudice, in which case it shall order a Partition by Sale. CCP 874.317(d)(3), 874.318(a)-(b).

If more than one party elects to buy out all interests of the cotenants, each shall have the opportunity to buy out all interests based on their existing fractional ownership of the property divided by the total fractional ownership of all cotenants electing to buy. CCP 874.317(d)(2).

If one or more parties elect to buy, the Court will send notice to all parties of the election to buy out the other cotenants (“Buy Out Election Notice”).  The Court shall set a date no sooner than 60 days after the Buy Out Election Notice is sent for the parties to deposit their apportioned price with the Court.  CCP 874.317(d)-(e).

Reapportionment of Interests

If one party which elected to buy out timely deposits their apportioned price, the Court shall issue an order:

• reallocating the remaining interest to that cotenant;
• disbursing the amounts to the cotenants based on their fractional ownership interest.  CCP 874.317(f)(1).

If more than one party which elected to buy out timely deposits their apportioned price, the Court shall:

• issue an Order reapportioning the interests of the paying cotenants (the amount of each cotenants interest I based on their existing fractional ownership of the entire parcel divided by the total existing fractional ownership of all cotenants);
• disburse amounts owed to cotenants whose interests were sold;
• disburse amounts in excess back to paying cotenants (where the cotenants each deposited the remaining interest, there will be surplus)
• CCP 874.317(d)(2), (e)(1), (f)(3).