PARTITION ACTIONS OF REAL ESTATE: WHEN CO-OWNERS CANNOT AGREE ON WHAT TO DO WITH A PROPERTY
Introduction: Buying Property with a Co-Owner
Buying a house with a significant other or a business partner often starts out well, with both parties putting a lot of thought and effort into finding their favorite neighborhood, getting the best deal, and refurbishing the home.
Often enough, though, significant others end their relationship and business partners come to disagreements over how to best manage the property.
In some cases, both parties have put in equal effort and money into the house, while in others one party may have put significantly more resources into the property in the form of management, mortgage payments, and other improvements.
Further, parties often disagree about the future of the property. For example, one side may want to sell while the other does not. In these situations, what can a party legally do in Pennsylvania without requiring the approval or agreement of the co-owner?
Filing a Partition Action
The easiest option is for the parties to come to a private agreement that considers the time, money, and effort each side has put into the property.
When this is not possible, either because of mutual hostility or disagreement, then either side may file a partition action in court to equitably divide the property. Filing for partition is an absolute right – it does not require the approval or signature from the co-owner and courts are required to divide the property absent a contract, will or other agreement that says otherwise.
It is important to note that only tenants in common or joint tenants may make use of partition. A tenancy by the entirety – property owned by a married couple – cannot make use of partition and must instead resort to divorce proceedings to divide marital property. Generally, co-owners will have purchased the property as joint tenants or tenants in common unless they were married at time of purchase.
Dividing the Property
Courts have three options when faced with a partition action.
First, a court may decide to physically divide the property amongst the co-owners, with each party receiving their share. This is known as a “partition in kind” and it is generally not an option since physically dividing a property into proportionate shares is usually too complicated.
Second, a court may consider a sale of interests in the property by one co-owner to another. This is called a “partition by allotment” and might be favorable for a party that wants to retain ownership of the property.
Third, a court may decide that a sale of the property to third parties is the best option, with the proceeds going to the co-owners based on their respective ownership interests. This is referred to as a “partition by sale.”
What if You Have Put More Money into the House than the Co-Owner?
Partition actions are considered equitable remedies. This generally means that courts will consider what is fair to each party, and specifically for a partition action, courts will consider how much each co-owner has contributed in terms of a down payment, mortgage payments, taxes, rents received, and other resources or services rendered.
Let’s look at an example. You and your significant other (not married) purchase a house together worth $300,000. You make a down payment of 20%, or $60,000, and your significant other does not contribute anything. You each pay $750 monthly towards the mortgage and split the $4,000 property tax bill. At some point your relationship breaks down and you cannot come to an agreement about dividing the house.
What can you do to either get control of the house or sell the property without having to get any approval from the co-owner?
You may bring an action for partition to equitably divide the property. Let’s assume the court orders a partition by sale (a sale to a third party) and the house sells for $320,000. When distributing the proceeds, the court will take into account the resources each party has put into the property, and in this case, the court may credit you an additional $60,000 since that is the amount you put in above your co-owner.
Negatives to Partition
The example described above seems simple enough. But in reality, most cases are not resolved quickly, and the facts are not so neatly divided, since parties will likely contest how much each co-owner contributed to the property in money and resources.
Even if the case is resolved favorably for you, it may take years to resolve, which means that litigation costs will eat away at some of the proceeds to which you might be entitled.
Mediation
Thankfully, you have another option if you want to avoid the high costs and delays of partition litigation. By hiring an attorney, you can pursue mediation with your co-owner and negotiate a settlement that can typically be completed in months rather than years.
Choosing mediation does not mean you forfeit your right to file a partition action in court. Instead, mediation by a skilled attorney can help reduce the costs of litigation and lower the risks involved with going to court – chiefly, that a judge might not fairly consider the resources you put into the property. In order to qualify for mediation, all parties must consent to it.
Conclusion
Property disputes among co-owners are difficult to solve whether the opposite party is a business partner or significant other. By taking a careful approach you can avoid the high costs, delays, and risks involved in a partition action. Our office can work with you to map out a strategy that works best for you. Contact us to learn more at 215-717-2200.