We’ve blogged before about the legal mechanism (called partition) whereby joint owners of real property can break that joint ownership through a lawsuit when they aren’t able to agree on what to do with it. That process is described in general terms in our last blog on the topic, here:
The purpose of this article is to look at what happens from a dollars-and-cents standpoint once an order of partition is entered, and the property is sold.
The starting point for a judge in determining who is entitled to what portion of the proceeds from a partitioned property is to figure out each party’s proportional ownership interest in the property. Many times the parties each own an equal share of the property, but that is not always the case – owners can own disproportionate shares.
After a judge has determined who owns what proportionate share of the property, they have to decide whether any owner is entitled to a credit for any expenses that they individually paid towards the property. The idea here is that each co-owner should be responsible for their proportionate share of expenses, and if one co-owner has paid for more expenses related to the property, they should be entitled to a credit for those payments when the property is sold. That means that 50/50 owners of a property are not necessarily going to evenly split the proceeds resulting from a partition action – if one owner paid most of the expenses related to the property, they may receive substantially more (or even all!) of the proceeds that result from a partition sale.
What expenses will a judge give an owner credit for? A non-exclusive list: down-payment, mortgage payments, taxes, insurance, repairs necessary for the upkeep of the property, and costs related to improvements that the owners agreed upon. One owner may also receive a credit for a portion of the rental value of the property if the other owner maintains exclusive possession of the property for a period of time, and the property is unable to be rented to benefit all owners.
The owner who paid expenses does not get credit for the entire amount of the payment – they are only entitled to a credit for the portion of the expense they paid for the other owner(s). For instance, if a property is owned 50/50, an owner who pays 100% of the mortgage payments on the property is only entitled to a credit of 50% of the amount paid, because that is the amount that was paid on behalf of the other owner.
A quick example with some simple math. Evan and Jamie own a house together and live in it. Jamie gets fed up with Evan’s constant snoring and decides to move out. They can’t decide what to do with the house, so a partition action is filed. The sale of the property results in $400,000.00 of net proceeds. How does that get split? The court first determines that Evan and Jamie were equal owners of the property, so it starts with an assumption of an even split of proceeds: $200,000.00 to each. But Jamie points out that he paid the full $100,000.00 down payment on the house – the judge gives him a $50,000.00 credit for that payment. Evan points out that he paid all of the mortgage payments since they bought the house — $300,0000.00 in total. The judge gives him a $150,000.00 credit for that. So, in the end, Jamie ends up with $100,000.00 in proceeds and Evan ends up with $300,000.00. Not an even split in the end!
The takeaway from this article is that partition actions do not result in a clean split of proceeds between the various owners of property. Owners considering a partition action should consider what the split of proceeds will be after the property is sold, and all parties are given appropriate credits for amounts they have paid. As always, we suggest you contact your real estate attorney should you have any questions.
Berlin Patten Ebling, PLLC
Article Authored by Daniel Guarnieri, Esq. firstname.lastname@example.org
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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