When two or more people own the same property, one of the owners CAN accomplish a forced sale of the jointly owned property. This often occurs due to inheritance, divorce, or business ventures gone bad. Maybe you're being threatened with a forced sale. Or maybe you're interested in forcing a sale yourself. This article provides basic information on the forced sale process for jointly owned property. As a real estate attorney, I specialize in property law (including forced sales). Often, clients get stuck in a messy joint ownership situation. Whether it's inherited property or a relationship gone bad, joint ownership causes many disputes and problems.
HOW CAN YOU FORCE THE SALE OF JOINTLY OWNED PROPERTY? WHAT IS A PARTITION LAWSUIT?
Usually, a forced sale occurs through a partition lawsuit. A partition lawsuit (also called a partition action), is a court process to divide up a property between co-owners. Partition splits the real estate baby. Think of a "partition wall" in a house. Partition simply means "division."
HOW DOES A FORCED SALE WORK?
Obviously, no one literally wants to split the baby or cut the house in half. But strangely enough, the partition process begins with the following question:
Can we literally divide up the property between its owners?
If possible, Courts prefer to literally divide the property in equal pieces and give each joint owner a piece. However, this sort of "in-kind" division only occurs with acreages and other property susceptible to in-kind division. Courts cannot literally split a residential property "in-kind", for the obvious reason depicted above.
If the Court can't literally divide the property, it must be sold with the purchase price divided among the owners. For example, if each person owns 50%, each person receives 50% when the property sells.
BUT, see the discussion below regarding adjustment of profit splits based on "fairness" factors.
Since a partition lawsuit requires court approval, the process takes several months. The Plaintiff must name each so-owner as a party to the lawsuit and follow detailed legal procedures. The specific procedures depend on state law. Basically, an appraiser values the property, and then the Sheriff sells it at auction. Everything occurs under Court supervision. In Oklahoma, the property cannot sell for less than 2/3rds of the appraised value. If no one bids more than 2/3rds of the appraised value, the property does not sell. At that point, you must set a new auction date and try again.
To ensure that the property brings a high price at the auction, it is very important to market the property prior to the auction. Work with a real estate attorney and a real estate agent who understand the partition process. Otherwise, you may end up with an undervalued property, or you may have no bidders at the auction.
HOW DOES THE MONEY GET SPLIT?
Normally, the Court divides up the money in proportion to ownership interests. If you own 75% of record title, then you get 75% of sale proceeds. Attorney fees, realtor costs, and Court costs may reduced your share of profits.
However, what if one owner pays the mortgage, taxes, and all expenses? What if one owner invested lots of money in the property? Certain factors can change the amount of money each owner receives from the sale. The profit splits can change based on "fairness" factors. Even if each person owns half of record title, one person might receive more than half of the money due to unequal sharing of property burdens or benefits.
The process for adjusting money splits is typically called an "accounting." Each party can call for an accounting during the partition lawsuit. As part of the accounting, the Court "takes into account" each party's level of investment in the property. How much did each party benefit from the property? How much did they spend? Crunch the numbers and determine the most equitable division of profits. Due to this accounting process, the sharing percentage of profits might differ from the percentage of record title ownership.
Before calling for an accounting, keep in mind that an accounting costs money. Fighting over numbers costs lots of attorney fees. The attorneys probably get paid from the sale proceeds. So, if you spend several thousand in attorney fees to get an extra 10% of the profits, your extra profit might get eaten up by your extra attorney fees. Don't call for an accounting unless the accounting significantly increases your share of profits.
WHY SEEK A FORCED SALE OF JOINTLY OWNED PROPERTY?
Joint owners may seek a forced sale for the following reasons, among others:
- Inheritance. Many times, the owners of inherited property don't agree on what to do with the property. Siblings often encounter this dilemma. Some want to sell, while others want to keep the property in the family. Maybe the inherited property became a rental and someone mishandled the profits and losses. If the owners mistrust each other, the co-ownership relationship must end quickly. The property cannot sell in the normal way unless all of the co-owners sign a deed to the buyer. To be clear, each co-owner could sell his or her partial ownership of the property, but that's not much good to a buyer who wants 100% ownership. Without a forced sale option, a single holdout could prevent the other co-owners from selling the property.
- Divorce or Separation. Co-ownership makes perfect sense for a happy couple. But when the romantic relationship dies, the co-ownership relationship likely dies along with it. One party moves out, and the remaining party assumes control of the property and full responsibility for the mortgage. But what if they stop paying the mortgage? Maybe the occupant agreed to pay the mortgage, but the party who moved out is still equally responsible for the loan. So, if the occupant stops paying, the absent party will take a credit hit. If the occupant refuses to sell voluntarily, the only option is a forced sale. However, credit problems are not required for a forced sale. There are many reasons one party may wish to sell after divorce. Generally, each joint owner has the right to a forced sale.
- Joint Venture or Business Partner. Perhaps you jointly owned a property with your friend or family member, but the venture failed or the relationship soured. At this point, continuing a joint ownership relationship would be pointless. But you cannot sell without the other party's signature. A forced sale could be the solution.
CONTACT ME FOR HELP
If you want to force a sale, defend against a forced sale, or simply understand the partition process, please feel free to contact me.