What happens when joint property owners disagree on whether to sell their property? This could involve friends, business partners, or unmarried couples. Hopefully the joint owners have a written agreement such as a partnership agreement, operating agreement for their limited liability company, or a tenants in common (TIC) agreement. But what if the joint owners neglected to negotiate a written agreement before they acquired the property together? If one party wants to sell and the other doesn’t, an awkward impasse arises.
Fortunately, the law provides a solution to solve such an impasse: a partition action. That is legal mechanism used to resolve disputes when two or more people jointly own real estate. The most common scenario is when one of the joint owners no longer wishes to own the property, but the owners cannot agree on how to reach that goal.
Types of Partition Actions
Two different types of partition actions are possible under Arizona law. One or both options may be available to the joint property owners, depending on the circumstances.
Partition in Kind
A partition action allows a joint owner to obtain a court order to divide the property, which allows them to sell their portion of the property. This type of partition may be helpful in the case of an undeveloped parcel of land that the court can divide into two or more separate parcels. The owner who wishes to sell their parcel is free to do so once the court has divided the parcels. A partition in kind is extremely rare, but a possibility if the property is undeveloped.
Partition by Sale
More commonly, individuals will pursue a partition by sale. In this type of partition action, the owner’s real estate attorney can seek a court order to sell the entire property and equitably divide the proceeds between the owners. For instance, a partition by sale may be the only possible solution if the property consists of a single parcel with a single-family home on it. In that situation, there may be no other way to equitably divide the property between the owners for a sale of only one owner’s share of the property.
Filing to Compel Partition
Under A.R.S. § 12-1211, any real estate owner can file a partition action in the superior court in the county in which the real estate is located. In the owner’s petition for partition, the owner’s real estate attorney must include the following information:
- A description of the real estate, including its location, and its approximate value as determined by a REALTOR® or appraiser
- Name all owners of the property and their residences
- Provide an accounting to identify the share or interest of each owner
Selling the Real Estate
In most cases, the only realistic option is partition by sale. As a result, when the joint owner files to compel the partition of real estate, if the owners cannot agree on how to sell the real estate, the court will appoint one or more “commissioners” to sell the real estate. The commissioners typically are Arizona real estate brokers or similar professionals who regularly handle these types of transactions. The court usually will pay the commissioners a reasonable sales fee for handling the sale of the property.
There are generally no defenses that ultimately block a partition action from resulting in a property sale unless the property owners can agree on an alternative solution. As a result, partition actions often result in a forced sale of the property and the distribution of the sale proceeds according to the percentage of ownership interests that each owner has in the real estate. The only exception might be if one or more of the other owners can agree to buy out the ownership interest of the owner who has filed the partition action.
Distributing the Proceeds of the Sale
Generally, owners will receive proceeds of the sale divided according to their respective interests in the property. However, owners should keep in mind that in dividing the physical property or the proceeds of the property’s sale, the judge can consider factors that might affect the interest that each owner has in the property. For instance, suppose that one of two joint owners paid most or all of the mortgage payments during the period of joint ownership, or one owner paid to make substantial improvements to the property. In those situations, the owner who contributed to the property financially may have a greater degree of ownership than the other owner or owners.
Christopher Charles regularly represents property owners in partition actions and other matters. If you or someone you know has a joint property ownership issue, or other real estate matter, contact us today to schedule an office meeting or virtual consultation with one of our real estate attorneys.
Christopher J. Charles is the founder and Managing Partner of Provident Law ®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS ® (the “AAR”). Mr. Charles holds the AV ® Preeminent Rating by the Martindale-Hubbell Peer Review Ratings system which connotes the highest possible rating in both legal ability and ethical standards. He serves as an Arbitrator and Mediator for the AAR regarding real estate disputes; and he served on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions. Christopher regularly teaches continuing education classes at the Arizona School of Real Estate and Business, and he can be reached at chris@ProvidentLawyers.com or at 480-388-3343.