Real Property “Partition”: When Owning Property with Others Becomes Contentious

Owning real property in New York (a Home, a Condominium Unit, a Building) brings with it a sense of fulfillment and accomplishment, as well as the ability to generate financial gain.

However, situations do arise where co-owners cannot agree on whether to sell the property or hold on to it; where one owner experiences financial hardship and can no longer afford to contribute monetarily to maintain the property (i.e., mortgage payments, insurance, real property taxes). The most experienced “hiccup” occurs when a family member passes, and leaves a premises to loved ones, and certain heirs wish to live in the home but cannot support the payments, and where others already have their own home to support. As such, often, “inheriting a home” is not always a beneficial event, but rather creates stress ridden situations.

The most practical initial approach to engaging such scenarios would be to reach an amicable agreement by and between all the co-owners as far as dividing or selling the property without resorting to lengthy and expensive litigation. Formal “sit downs” and/or the introduction of a neutral third party to serve as a “mediator” are an excellent means of “alternative” dispute resolutions. Nevertheless, these methods do not always prove successful, whereby judicial intervention is inevitable.

When this occurs, a “Partition Action” results.

A Partition Action is a lawsuit filed in court by a co-owner(s) of real property to end any existing co-ownership. Any party with a vested ownership interest in the property must be named in the lawsuit, and the court is then charged with effectuating a fair and reasonable division and/or disposition of the property.

There are three (3) types of Partition Actions available as remedies in these instances.

Partition by Sale:   This is the most common action, and exists where the court orders the property to be sold and the NET SALE PROCEEDS (after any existing mortgage, liens, open taxes, etc. are paid) are distributed to the co-owners based on their respective percentage (%) of ownership interest.

Partition by Allotment/Appraisal:  The Court will mandate that a formal “appraisal” of the home be conducted delineating the exact fair market value of the home whereby one or more of the owners can “buy out” the interest of the others based on this value.

Partition in Kind: This is the most atypical kind of partition action and occurs where the court will “physically divide” the land among the owners. This scenario occurs where undeveloped or vacant land is the subject of the dispute.

In a Partition Action, there are many factors and variables that need to be taken into careful consideration as far as “dividing up” the expenses as well as the Net Sale Proceeds.  For example, for a Partition by Sale scenario where one co-owner is seeking to “buy out” the other owner, if one of the owners has been occupying and inhabiting the home, and contributing more towards the carrying costs than any “absentee owner”, the occupying resident should not expect to have his/her financial contributions “offset” the equity interest of the non-inhabitant owner.  Afterall, the home resident was paying to utilize and reap the benefits of occupancy, use, and control of the home. In addition, an accounting analysis of who contributed to the financing when the home was initially purchased (down payment, “cash to close”) must be performed to make certain that all owners are “reimbursed” via a “credit/debit” ( towards the determined purchase price), for their capital contribution(s).  Additionally any improvements, upgrades or the like that are made by and/or financially paid for by any owner also needs to be given proper scrutiny as these items not only need to offset the other owner’s net financial payout, but also the “increased future market value” of the home (for the successful owner after the partition action is concluded) should be considered; as the successful owner will now own the home “free and clear”, without any mortgage/lien encumbering the home and also now be in a position to sell the home at a  realized “higher value” as a result of the added benefit of the upgrades/renovations.

The right to Partition can sometimes be restricted by a pre-existing written agreement or Memorandum, i.e. a “right of first refusal”, a Testamentary Instrument (Trust/Will), a pre-nuptial agreement, etc. Also, New York State has adopted the Uniform Partition of Heirs Property Act (UPHPA), codified as RPAPL §993, whereby inherited properties by “tenants in common” are protected from “forced sales” and preservation of the Testators/Deceased intentions are sought to be protected whereby a mandatory “settlement conference” must occur, and/or a “right of first refusal” to one of the heirs to purchase the property must be afforded.

In summation, owning real property is not always a “joyous experience”.  Most often people believe that only where a Tenant becomes delinquent in their rental payments and refuses to leave is the only situation where owning a home becomes precarious. That said, co-ownership and inheritance present the most potentially perplexing scenarios that can “taint” the superficial “happiness façade” when it comes to property ownership, so be sure to consult a seasoned attorney if you are ever placed in a situation where co-ownership or inheritance creates a problematic situation.

DISCLAIMER: THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TO BE RELIED UPON AS LEGAL ADVICE. NO ATTORNEY CLIENT RELATIONSHIP IS CREATED BY THIS PUBLICATION. AN INDEPENDENT LEGAL OPINION SHOULD BE OBTAINED BY THE READER.