UNIFORM PARTITION OF HEIRS PROPERTY ACT
Introduction and Summary
The
Uniform Partition of Heirs Property Act is an act of limited scope addressing a
widespread, well-documented problem of the deprivation of property rights and
loss of wealth that many low to middle-income owners of family real property
have experienced over the past several decades.
These poorer Americans finds themselves subject to highly unstable
ownership which stands in sharp contrast to the type of secure property rights
wealthier families by and large enjoy.
Further, the loss of real property-related wealth these low to
middle-income families have experienced has been particularly devastating to
these families given the fact that real property constitutes by far the single
greatest asset that these property owners typically own unlike the much more
diversified asset portfolios that wealthier families typically enjoy.
The
law has made the tenancy in common, a common ownership structure under which
two or more cotenants own undivided interests in particular property, the
default ownership structure for two or more family members who inherit real
property. But certain key features of
tenancy in common ownership under the default rules create serious problems for
those who seek to maintain ownership of their property for themselves and their
descendants, or at least the wealth represented by such real estate holdings.
·
Any tenant in common may sell his or her
interest or convey it by gift during his or her lifetime without the consent of
his or her fellow cotenant, making it easy for non-family members -- including
real estate speculators in a number of instances -- to acquire interests in
family real estate. At a tenant in
common’s death, his or her interest in the tenancy in common property may be
transferred under a will, or if the will is not probated in time or if there is
no will, under the laws of intestacy.
·
A significant feature of tenancy-in-common
ownership -- a feature that this Act does not disturb -- is the universal right
of any cotenant to file a lawsuit petitioning a court to partition the property,
even if that cotenant only recently acquired its interest in property that the
other cotenants and their ancestors had owned for a long time and even if that
interest is very small (e.g., a 5
percent or even smaller interest).
·
In resolving a partition action, the two
principal remedies that a court may order are partition in kind of the property
into separate sub-parcels, with each sub-parcel proportionate in value to each
cotenant’s fractional interest or partition by sale, in which case the property
is forcibly sold in its entirety with the proceeds of the sale distributed
among the cotenants, again in proportion to their relative interest in the
property. In the overwhelming majority
of states, statutes governing partition mandate that partition in kind is the much
preferred remedy because a forced sale of one’s property has always been viewed
as an extraordinary remedy that undermines fundamental property rights.
·
Despite the general statutory preference for
partition in kind, courts in a large number of states typically resolve
partition actions by ordering partition by sale which usually results in
forcing property owners off of their land without their consent. This occurs even in cases in which the
property could easily have been divided in kind or when an overwhelming
majority of the cotenants or interest holders had opposed partition by sale or
even in some cases when the only remedy any cotenant petitioned the court to
order was partition in kind and not partition by sale.
·
An actual preference for a partition by sale in
many states has arisen in part because courts often only consider the theoretical
beneficial economic effect of ordering a partition in kind as opposed to a
partition sale. The many courts that
utilize this approach do not place much value on upholding basic property
rights and do not take account of the non-economic value that many owners place
upon their property. These non-economic
values can be substantial as families often value their family real property for
its ancestral and even historical significance and its capacity to provide
shelter that in some cases may prevent homelessness.
·
Further, courts typically order the property
sold at an auction utilizing forced sale procedures that are notorious for
yielding sales prices well below market value. A sale under these forced sale conditions normally
economically harms the tenants in common by depriving them of the market value
of their property but give the buyer an unjustified windfall because the
property is acquired at a significant discount from its market value and often
for fire sale prices. The forced sale conditions
under which partition sales occur virtually guarantees that wealth will not be maximized
for tenants in common even though judges frequently order partition sales because
they claim that a partition sale will be wealth maximizing for the cotenants.
·
To make matters worse, in many states, cotenants
who unsuccessfully resist a request for a court-ordered partition by sale are
then required to pay a portion of the attorney’s fees and costs incurred by the
cotenant who petitioned the court for a partition by sale, forcing them in
effect to pay for the deprivation of their property rights and their resulting
loss of wealth. These fees and costs are
in addition to the attorney’s fees they must pay the attorney they hired in
their unsuccessful effort to resist the sale and maintain ownership of their
property.
·
Given these rules and practices that many courts
utilize in partition actions, there have been a number of unscrupulous real
estate speculators who have purchased very small interests in family-owned
tenancy in common property with the sole purpose of seeking a court-ordered
partition by sale. Often these
speculators have been the winning bidder in the subsequent sale of the property
even though their winning bid constituted just a fraction of the property’s
market value.
For
these reasons, estate planners and real estate lawyers believe that tenancy-in-common
ownership under the default rules represents one of the most unstable forms of
real property ownership. To address the
dangers of this form of ownership, these professionals routinely advise their wealthy
and legally-savvy clients to enter into privately negotiated tenancy in common
agreements with their fellow cotenants or work with their other cotenants to
reorganize their ownership under a different ownership structure altogether
such as a limited liability company. However, a substantial percentage of tenancy
in common property owners are not able to afford the services of these
professionals or do not understand the legal benefits of hiring such
professionals because they do not understand the inherent risks of owning
property under the default rules of the tenancy in common.
Accordingly,
this Act seeks to remedy the serious problems of the deprivation of property
rights and loss of wealth resulting from the default use of tenancy-in-common
ownership and the rules governing the tenancy in common by providing a further
set of coherent, default rules reforming the worst substantive and procedural
abuses that have arisen in connection with the partition of tenancy-in-common
property. Specifically, this Act imports
many of the property preservation and wealth protection mechanisms already
commonly used by wealthy and legally-sophisticated family real property owners
as well as protections courts in other countries now afford cotenants in
partition actions as a result of recent reforms, and establishes those
mechanisms as the default rules for partition of real property held in a tenancy
in common for two or more generations.
This Act does not apply to any real property which is the subject of a
written tenancy-in-common agreement which contains a provision governing the
partition of the property (all such agreements typically contain such a
provision) or which is owned in under any other form of ownership (e.g., a joint tenancy, limited liability
company, partnership, limited partnership, trust or corporation) other than the
tenancy in common.
Widespread Issue Among Low to
Moderate-Income Property Owners
There
is a subset of tenancy in common property owners who are particularly
vulnerable to losing their property and significant wealth as a result of a
court-ordered partition sale. Scholars
and practitioners who have worked with poor and minority property owners have
observed that a particularly high percentage of these owners tend to own their
real property under the default rules governing tenancy-in-common ownership and
not under a private agreement among the cotenants governing the ownership of
the property. This phenomenon is
explained in large part by the fact that many low to middle-income property
owners transfer their real property by intestate succession instead of by will
which is consistent with studies that have documented low will-making rates
among Americans of more modest means.
The
more that property is transferred from one generation to the next by intestate
succession, the more likely it is for an increasingly large number of tenants
in common to acquire an interest in the property, resulting in increasingly
unstable ownership given that each cotenant possesses an unfettered right to
request a partition by sale of the entire property irrespective of the wishes
of the other cotenants. Given the
prevalence of this pattern of property transfer, real property transferred from
one generation to the next and held in a tenancy in common is referred to
colloquially in many communities from those in the Southeast to those in
Appalachia to those in Indian Country as heirs property. Families who own tenancy in common property
within these communities refer to their family property as “heirs property”
whether members of these families acquired their interests by intestate
succession, by will, or by gift. Given
the widespread usage of the term heirs property within these communities, this Act
utilizes the term heirs property and defines it under Section 2 consistent with
how these communities understand the term and does not restrict the term to
property acquired by intestacy as usage of the term heirs may suggest in some
technical sense.
Many
if not most of these heirs property owners have little or no understanding of
the legal rules governing partition of tenancy in common property as studies
have revealed, due to the fact that many of the rules are
counterintuitive. For example, many of
these owners believe that their property ownership is secure because they pay
property taxes, they live on the land, and they make productive use of the
land. They also believe that their
property may only be sold against their will if a majority or more of their
other cotenants agree which gives some of these families with a large number of
members with an interest in the property false confidence that their ownership
is particularly secure.
They
think it is inconceivable that one cotenant with a very small ownership
interest can force a sale against the wishes of all other cotenants. Unfortunately, the first time that many of
these owners are informed about the actual legal rules governing partition is
after a partition action has been filed, and often after critical, early court
rulings have been made against them. In
contrast, there have been many well-documented cases in which an outside
speculator who acquired a very small interest in a parcel of heirs property
that had been owned by a family for decades has been able to convince a court
soon after the speculator acquired its interest to order a partition by sale of
the property despite the fact that the family opposed the request for a
partition by sale and despite the family’s longstanding ownership. In short, the law of partition and of
partition sales often functions to give those cotenants who petition a court to
force a sale upon their fellow cotenants an eminent domain-like power of
condemnation. Unlike eminent domain,
however, under a partition sale, fair market value compensation need not be
paid to those who end up losing ownership of their property at the conclusion
of the forced sale.
Partition Sales and Land Loss in Certain Select Communities:
African-Americans
have experienced tremendous land loss over the course of the past century. For example, although African-Americans
acquired between 16 and 19 million acres of agricultural land between the end
of the Civil War and 1920, African-Americans retain ownership of approximately
just seven million acres of agricultural land today. Scholars and advocates who have analyzed
patterns of landownership within the African-American community agree that
partition sales of heirs property have been one of the leading causes of
involuntary land loss within the African-American community. A considerable body of legal scholarship has
highlighted the fact that partition sales have been a leading cause of
African-American land loss. Different newspapers and news services have
published several articles documenting the manner in which particular
African-American families have lost land that had been in their families for
generations after an outsider had acquired a small interest from a family
member and then in short order was able to convince a court to order the
property sold at a partition sale. The
Associated Press’s 2001 award winning series on African-American land loss
entitled Torn From the Land brought
national attention to the manner in which partition sales have stripped
African-American families of large amounts of land and wealth.
As a
result of this legal scholarship and media attention, the American Bar
Association’s Section on Real Property, Trust and Estate Law established its
Property Preservation Task Force several years ago. Along with the public interest law firms and
community-based organizations which have been working on heirs property issues
for decades, the A.B.A.’s task force has been working to decrease the incidence
of forced sales of heirs property that has so negatively impacted
African-American and other poor and minority property owners. Nevertheless, the various organizations that
have been working on addressing heirs property issues will continue to wage an
uphill battle until the law governing the partition of heirs property is
reformed to make it more just and to make tenancy-in-common ownership more
stable.
Although the issue
of the substantial loss of African-American land due to partition sales has
received more national attention than the issue of land loss in other
communities that has resulted from partition sales, it is important to
recognize that forced partition sales have negatively impacted other
communities as well, especially other low-income and low-wealth communities
that have had little understanding of the default rules governing partition of
tenancy in common property. For example,
Mexican-Americans lost hundreds of thousands of acres of land as a result of
partition sales of their community-owned property in the aftermath of the
Mexican-American War when many land claims were settled by questionable means
by federal officials under the Treaty of Guadalupe Hidalgo. In most instances, the land was sold for a
price that was far below the market value of the land.
This occurred in part because,
like heirs property owners today, the members of the community who had rights
to the land prior to the partition sales were not able to bid effectively at
the auctions because they were land rich but cash poor.
Property owners in other communities
also have been impacted. For example, in
parts of Appalachia, heirs property has been hypothesized to be correlated
with, and a cause of, the persistence of poverty. Case studies suggest that heirs property
owners in Appalachia are often concerned that one of their fellow cotenants
might sell their interest to a wealthy buyer who will request a court to order
the property partitioned by sale and then will purchase the property at the
auction. Some American Indians have also had their
property sold against their will at partition sales. Today, much of the land that American Indians
own consists of heirs property.
Legislative reforms geared at addressing these heirs property issues in
Indian Country have largely failed. The
latest reform effort, the American Indian Probate Reform Act of 2004 has yet to
be fully tested.
One of the more controversial aspects of AIPRA
from the perspective of many Native Americans involves statutory rules that
enable the Interior Department to conduct forced sales of small fractional
interests in commonly owned Indian trust or restricted land without the consent
of the co-owners.
Heirs
property ownership has presented vexing problems to property owners in cities
such as New Orleans. In New Orleans, many
poor property owners were not able to draw upon governmental programs such as
the “Road Home” program administered by the Department of Housing and Urban
Development that were established in the wake of Hurricane Katrina to provide
financial assistance to property owners who had been harmed. A significant percent of these poor property
owners owned heirs property which created merchantable title problems that needed
to be resolved before the property owners could qualify for the governmental
programs. These problems could not be
resolved without hiring attorneys whom most of these property owners could not
afford in contrast to the surprisingly large number of wealthy heirs property
owners who were able to hire attorneys to resolve their title problems. As in rural areas, partition sales have also resulted
in the deprivation of property rights and the loss of wealth in urban areas
undergoing economic improvement.
Partition Sales and Loss of Wealth
Those who own tenancy in common
property under the default rules are not only at risk of losing their real
property at a forced partition sale, but also are in danger of losing a
significant portion of their wealth. In
many states, a court will order a partition by sale under an “economics-only”
test in which the court considers the hypothetical fair market value of the
property in its entirety as compared to the fair market value of the
sub-parcels that would result from a partition in kind. If the court finds that the fair market value
of the property as a whole is greater than the aggregated fair market value of
the sub-parcels, the court will order a partition by sale. Under this approach, the tenants in common
theoretically should receive an economic benefit from the partition by sale.
In fact, most tenants in common are
economically harmed when a court orders a partition by sale. First, the courts usually order the property
sold at auctions in which the property is sold utilizing the procedures used
for forced sales such as a sale under execution. These forced sales are notorious for selling
property well below the fair market value of the property which is ironic
because judges often order the partition sale in the first instance because
they claim that the cotenants will receive an economic benefit based upon an
assumption that the sale will yield a fair market value price. When auction sales are challenged for yielding
low sales prices, courts rarely overturn such sales as most courts utilize a
“shock the conscience” standard to evaluate the sale. Under this standard, sales have been
confirmed even though the property sold for twenty percent or less of the
market value of the property even though the court ordered a partition sale in
the first instance because it indicated that a partition sale would likely
provide the cotenants with an economic benefit.
Next, a number of fees and costs
must first be paid to others before the remaining proceeds of a sale are
distributed to the tenants in common.
These fees often include costs incurred in selling the property
including the fees of court-appointed commissioners or referees (often 5
percent or more of the sales price), surveyor fees, and attorneys’ fees which
usually constitute 10 percent of the sales price in the many states that permit
such an attorney’s fee award in a partition action. At the time a court orders a partition by
sale under an economics-only test, these fees and costs are not taken into
account although they can in fact be quite substantial and undermine any
hypothetical economic benefit a cotenant would receive from a partition sale.
Poorer families who own heirs
property often lose significant wealth when their property is sold at a
partition sale. This occurs because
these heirs property owners are not able to bid competitively at the auction
because they are unable to secure any financing to make an effective bid and
because they are cash poor. Banks and
other lending institutions will not accept a partial interest in a tenancy in
common as collateral to secure a loan and most of these heirs property owners
cannot otherwise obtain financing because they often have few other assets to
offer as collateral to secure a loan.
Given that partition sales often attract few bidders, an auction of
heirs property that is conducted without any bids made by cotenants who are
members of a family is likely to yield a particularly low sales price.
Partition
sales that result in an involuntary loss of property rights as well as in a
potential loss of wealth may be very disadvantageous, and even devastating to
one or more of the cotenants and their descendants, depending on the facts of
the particular case. The purpose of this
Act is to ameliorate, to the extent feasible, the adverse consequences of a
partition action when there are some cotenants who, for various reasons, desire
to retain possession of some or all of the land, and other cotenants who would
like the property to be sold. At the
same time, the Act recognizes the legitimate rights of each cotenant to secure
his, her, or its relative share of the current market value of the property and
to seek to consolidate ownership of the property. The Act makes every effort to accomplish these
goals.
UNIFORM
PARTITION OF HEIRS PROPERTY ACT
SECTION 1. SHORT TITLE. This [act] may be cited as the Uniform
Partition of Heirs Property Act.
Legislative Note: This Act is likely to be an additional
chapter, subchapter, or subpart of the state’s existing partition statute.
SECTION 2. DEFINITIONS. In this [act]:
(1) “Ascendant” means an individual who precedes
another individual in lineage, in the direct line of ascent from that
individual.
(2) “Collateral” means an individual who is
related to another individual but who is neither that other individual’s ascendant
nor descendant.
(3) “Descendant” means an individual who follows
another individual in lineage, in the direct line of descent from that individual.
(4) “Determination of value” means an order of a
court determining the fair market value of heirs property under Section 6 or 10
or the value of the property agreed to by all cotenants.
(5) “Heirs property” means real property held in
tenancy in common that satisfies all of the following requirements:
(A) There is no agreement in a record binding all
the cotenants that governs the partition of the property.
(B) One or more of the cotenants acquired title
from an ascendant, a descendant, or a collateral whether living or deceased.
(C) One
or more of the following apply:
(i) 20
percent or more of the interests are held by cotenants who are related by
blood, marriage, or adoption;
(ii)
20 percent or more of the interests are held by an individual who
acquired title from an ascendant, a descendant, or a collateral whether living
or deceased; or
(iii)
20 percent or more of the cotenants are related by blood, marriage, or
adoption.
(6) “Partition
by sale” means a court-ordered sale of the entire heirs property, whether by auction
or open-market sale conducted in the manner described in Section 10.
(7) “Partition
in kind” means the division of heirs property into physically distinct and
separately titled parcels.
(8) “Record” means information that is inscribed
on a tangible medium or that is stored in an electronic or other medium and is
retrievable in perceivable form.
Comment
1. Section 2(1): Common usage defines ancestor as “one from
whom a person lineally descended.” Wills v. Le Munyon, 107 A. 159, 161 (N.J.
Ch. 1919). However, statutes of descent
often narrow the term to “any one from whom an estate is inherited.” Id. Thus,
use of the term ancestor could be interpreted to exclude property acquired from
a living person. In contrast, ascendant
encompasses anyone who precedes an individual in lineage such as an
individual’s parents or grandparents, whether living or deceased. The term ascendant is used in a number of
statutes encompassing many different subject matter areas. See,
e.g., Ark. Code Ann. §
28-9-202 (2009); Conn. Gen. Stat.
§ 45a-755 (2010); Iowa Code §
428A.2 (2010); Fla. Stat. §
732.403 (2009); La. Civ. Code Ann.
art. 1301 (2009); Miss. Code Ann.
§ 93-13-253; P.R. Laws Ann. Tit. 31
§ 2413 (209); Tex. Estates Code Ann. §
676 (Vernon 2009).
2. Section 2(2):
Collaterals include an individual’s sisters, brothers, aunts, uncles,
nieces, and nephews. See, e.g., In re Estate of Thiemann, 992 S.W.2d 255, 256 n.3 (Mo. Ct. App.
1999).
3. Section 2(3):
Descendants include, for example, an individual’s children and
grandchildren.
4.
Sections 2(1)-2(3): The specific
classes of people who may be considered ascendants, descendants, or collaterals
shall be defined under state law.
5.
Section 2(5): Heirs property is
defined in this act to include only a subset of tenancy in common property. At minimum, for tenancy in common property to
be considered heirs property, title must be acquired by at least one of the
cotenants in an intergenerational transfer from a family member of that
cotenant who was either that cotenant’s ascendant, descendant, or collateral at
the time title was transferred. Further,
the act does not apply to tenancy in common property in which all of the
cotenants are subject to a binding agreement, including binding agreements that
run to successors and assigns, that governs the partition of the property. Tenancy in common property that is acquired by
investors in part to qualify for federal like-kind exchange treatment under
Section 1031 of the Internal Revenue Code and that is subject to an agreement
governing the partition of the property is excluded from this act. Furthermore the act does not apply to “first
generation” tenancy in common property established under the default rules and
still owned by the original cotenants even if there is no agreement in a record
among the cotenants governing the partition of the property.
6. Section 2(5)(A): If tenants in common acquire their interests
through a deed or a will that does not govern the manner in which the tenancy
in common property may be partitioned, the deed or will alone shall not be
construed to be an agreement in a record among all the tenants in common that
governs the partition of the property within the meaning of Section 2(4)(A).
7.
Joint tenancy property is not covered by this act. In order for any real property that was
initially owned by two or more individuals as joint tenancy property to be
covered by this act, one or more of the joint tenants must sever the joint
tenancy in accordance with the requirements of state law. Once a joint tenancy is severed, this act may
apply if the property is determined to be heirs property under this act even if
two or more individuals who had formerly been joint tenants prior to severance
of the joint tenancy and who did not take any action to sever the joint tenancy
remain joint tenants with one another after severance with respect to a
particular interest in the tenancy in common.
See 7-51 Richard R. Powell, Powell on Real Property
§ 51.04(1)(a) (Michael Allen Wolf ed., 2009). See also
Carmack v. Place, 535 P.2d 197 (Co. 1975).
8. Section 2(8): Information that constitutes a “record” under
this Act need not be recorded.
(a) In an action to partition real property under
[insert reference to general partition statute] the court shall determine
whether the property is heirs property. If
the court determines that the property is heirs property, the property must be
partitioned under this [act] unless all of the cotenants otherwise agree in a
record.
(b) This [act] supplements [insert reference to
general partition statute] and, if an action is governed by this [act],
replaces provisions of [insert reference to general partition statute] that are
inconsistent with this [act].
Comment
1.
Section 3(a): After this act
becomes applicable to a partition action which has been filed, a final order of
a court partitioning any real property held under a tenancy in common is
subject to challenge if the court did not determine whether the real property in
question is heirs property as defined under this [act].
2.
Section 3(a): After a court has
determined that the property in question in a partition action is heirs
property, all of the cotenants may agree to partition the property utilizing an
agreed upon method or procedure that is different from the procedures required
by this act provided that the agreement is contained in a record.
SECTION 4. NOTICE BY POSTING.
(a)
This [act] does not limit or affect the
method by which service of a complaint in a partition action may be made.
(b)
If the plaintiff seeks an order of
notice by publication and the court determines that the property may be heirs
property, the plaintiff, not later than 10 days after the court determines that
the property may be heirs property, shall post [and maintain while the action
is pending] a conspicuous sign on the property that is the subject of the
action. The sign must state that the action has commenced and identify the name
and address of the court and the common designation by which the property is
known. The court may require the
plaintiff to publish the name of the plaintiff and the known defendants on the
sign.
Comment
1. Section 4(b):
Under certain circumstances, some state statutes require that a sign or
notice be posted in a conspicuous place on real property that may be subject to
a forced sale. See, e.g., Ariz. Rev. Stat. Ann. § 42-18266 (2010) (requiring
the placing of a sign under certain circumstances in a conspicuous place on
property that is subject to foreclosure for delinquent taxes describing the
property, indicating that the property is subject to foreclosure, and giving
notice about the manner in which the owner may redeem the tax lien) ; Cal. Civ. Code § 2924f (West 2010)
(requiring under most circumstances in nonjudicial foreclosures by power of
sale that a copy of the notice of sale containing relevant information about
the power of sale action be posted in a conspicuous place on the real property
in question).
SECTION 5. [COMMISSIONERS]. If the court appoints [commissioners] pursuant
to [insert reference to general partition statute], each [commissioner] must,
in addition to the requirements and disqualifications applicable to [commissioners]
in [insert reference to general partition statute], be disinterested, impartial,
and neither a party to nor a participant in the action.
Legislative Note: The term commissioner is used by nearly every
state. However, there are some
exceptions. For example, California uses
the term referee and Georgia uses the term partitioner.
(a) Except as otherwise provided in subsections
(b) and (c), if the court determines that the property that is the subject of
the partition action is heirs property, the court shall determine the fair
market value of the property by ordering an appraisal pursuant to subsection (d).
(b) If all cotenants have agreed to the value of
the property, the court shall adopt that value.
(c) If the court determines that the evidentiary value
of the appraisal is outweighed by the cost of the appraisal, the court, after
an evidentiary hearing, shall determine the fair market value of the property
and notify the parties of the value.
(d) If the court orders an appraisal, the court
shall appoint a disinterested real estate appraiser licensed in this state to
determine the fair market value of the property assuming sole ownership of the
fee simple estate. On completion of the
appraisal, the appraiser shall file a sworn or verified appraisal with the
court.
(e) If an appraisal is conducted pursuant to
subsection (d), not later than 10 days after the appraisal is filed, the clerk
of the court shall send notice to each party with a known address, stating:
(1) the appraised fair
market value of the property;
(2) that the appraisal
is available at the clerk’s office; and
(3) that a party may object to the appraisal not
later than 30 days after the notice is sent, stating the grounds for the
objection.
(f) If an appraisal is filed with the court
pursuant to subsection (d), the court shall conduct a hearing to determine the
fair market value of the property no sooner than 30 days after a copy of the notice
of appraisal is sent to each party under subsection (e), whether or not an
objection to the appraisal is filed under subsection (e)(3). In addition to the court-ordered appraisal,
the court may consider any other evidence of value that is offered by a party.
(g) After the hearing under subsection (f), but
before considering the merits of the partition action, the court shall determine
the fair market value of the property and notify the parties of the value.
Comment
1. Section 6(a): Some states require that any property that may
be subject to partition by sale shall first be appraised before a court decides
whether to order partition in kind or partition by sale. See,
e.g., N.M. Stat. § 42-5-7
(2009). Other states require that nearly
all real property that is to be sold under an order or a judgment of a court
must be appraised before the property is sold.
See, e.g., Ky. Rev. Stat. Ann. § 426.520 (West 2010).
2. Section 6(b): The court may not adopt a monetary value for
the property that only some of the cotenants but not others have agreed upon
even if the only cotenants that have not agreed to the value of the property
are cotenants that are unknown, unlocatable, or otherwise remain unascertained.
2. Section 6(d): Some states require that property that is to
be sold by partition by sale be appraised by one or more disinterested persons
under certain circumstances. See,
e.g., Minn. Stat. § 558.17 (2009) (providing
that the court order property subject to partition by sale to be appraised by
two or more disinterested persons before the property is sold if the court
orders the property sold at a private sale instead of at a public auction). Other states require a person a court may
appoint to appraise real property under certain statutes to be state-certified
and in good standing with the state appraisal authorities. See,
e.g., Okla. Stat. tit. 52, §
318.5 (2009).
3. Section 6(d): State statutes and case law typically refer to
one person’s exclusive ownership of property as “sole ownership.” See,
e.g., Cal. Civ. Code § 681 (2010)
(The ownership of property by a single person is designated as a sole or
several ownership); Fla. Stat. §
711.502 (2009) (“Only individuals whose registration of a security shows sole
ownership by one individual . . . may obtain registration in beneficiary
form”); Mont. Code Ann. 70-1-305 (2009);
S.D. Codified Laws § 43-2-10
(2009) (“The ownership of property by a single person is designated as a sole
or several ownership.”). See also In re Robertson, 203 F.3d 855, 860
(5th Cir. 2000) (when partitioning former community property, the assets are
divided between the former spouses and “the assets of which each former spouse
acquires sole ownership is reclassified by law as the separate, exclusive
property of that former spouse.”).
(a) Following
the determination of value under Section 6, the court shall notify the parties
of the procedures set forth in this section for cotenant buyout.
(b) The
interest of any cotenant that requested partition by sale is available for
purchase by other cotenants.
(c) Not later than 15 days after the court
gives notice pursuant to subsection (a), any cotenant that did not request
partition by sale may give notice to the court of its desire to make the
cotenant’s entire interest available for purchase under this section. If the interests of all cotenants that did not
request partition by sale are made available for purchase under this
subsection, the court shall order the property sold pursuant to section 10.
(d) On motion of any cotenant that did not
request partition by sale that is made not later than 30 days after the court
gives notice pursuant to subsection (a), the following interests shall also be
available for purchase, but only all of the interests as a single unit:
(1) the interest of any cotenant that timely
offers its interests for sale under subsection (c); and
(2)
the interest of any cotenant that is the
subject of default [entry][judgment].
(e) Not later than 45 days after expiration of
the period in subsection (d), any cotenant whose interest is not available for
purchase pursuant to subsections (b) or (c) may give notice to the court that
it elects to purchase the available interests.
The purchase price for each available interest is the value determined
under Section 6 multiplied by the fractional interest to be purchased. Each electing cotenant may buy the portion of
the available interests equal to that electing cotenant’s existing percentage
ownership divided by the total percentage ownership of all cotenants electing
to buy.
(f) After the expiration of the period in
subsection (e), the court shall:
(1) determine the interest that each electing
cotenant is entitled to buy and the purchase price; or
(2) if no cotenant elects to buy, the court shall
proceed under Section 8(a) and (b).
(g) If the order is issued pursuant to subsection
(f)(1), the court shall set a date, not sooner than 60 days from the
determination, by which electing cotenants shall pay the purchase price into
the court. After this date:
(1) If all electing cotenants pay, the court
shall issue an order reallocating all of the cotenants’ interests and disburse
the amounts held by it to the persons entitled thereto.
(2) If no electing cotenant pays, the court shall
proceed under Section 8(a) and (b) as if the available interests were not purchased.
(3) If one or more but not all of the electing
cotenants do not pay, the court, on motion, shall issue an order that determines
the percentage interests remaining and the purchase price.
(h) After the court issues an order under
subsection (g)(3), the following rules apply:
(1) Not later than 20 days after the date of the
order, each of the electing cotenants that paid may elect to purchase all of
the remaining available interests by paying the price into the court.
(2) If more than one cotenant pays the price for
all the remaining available interests, each buys the part of the remaining
available interests that is equal to that cotenant’s original percentage
ownership divided by the total original percentage interest of all cotenants that
paid the price pursuant to this subsection, and the court shall issue an order
reallocating all of the cotenants’ interests, disburse the amounts held by it
to the persons entitled thereto, and promptly refund any excess payment held by
it.
(3) If no cotenant pays the price for the
remaining available interests, the court shall determine whether the
funds paid into court are sufficient to purchase the entire interests of all
cotenants that petitioned for sale.
(4) If the funds are sufficient, the court shall
allocate the entire interests of all cotenants that petitioned for sale among
the paying cotenants, disburse the amounts held by it to the persons entitled
thereto, and promptly refund any excess payment held by it.
(5) If the funds are not sufficient, the court
shall proceed under Section 8(a) and (b) as if all the available interests of
cotenants had not been purchased.
Comment
1. This Act includes a buyout of interests
mechanism as the first preferred alternative to partition by sale for reasons
of judicial economy (i.e. because it may allow the court to avoid both
partition in kind as well as partition by sale, and the relatively greater
associated time and costs of the two latter remedies), to encourage
consolidation of ownership, and to accomplish the larger goal of establishing a
default, statutory approach to partition of inherited property that mirrors the
best practices used for family property owned by the wealthy and
legally-aware. Private tenancy-in-common
agreements, whether for family property or commercial property, virtually
always provide that a cotenant that wishes to exit ownership must first offer
his interest for sale to other cotenants.
2. Although this section is one of the longer sections
of the Act, it is streamlined compared to most, if not all, buyout provisions
in written private agreements such as limited liability company operating
agreements, and tenancy-in-common agreements, and compared to buyout statutes
in those states which have them. This
streamlined buyout mechanism is consistent with the default rule nature of the
overall Act.
Most of the detail of the section
arises from the need to describe the procedural steps, and different
mathematical proportions, applicable at various stages in the buyout process,
to ensure uniform implementation and to guide courts, which may not be familiar
with buyout contracts or their corporate cousins, subscription agreements. Overall, however, implementation of a buyout
procedure in a given case is likely to be by far the fastest and simplest
remedy to implement, both in comparison with partition in kind and partition by
sale. Even allowing for motion practice,
the expectation is that the buyout provisions of this Act could be and
typically should be completed within a maximum
of four to six months after the court establishes the value of the underlying
real property (which must be done in any case under the Act).
3. Only those cotenants that seek partition by
sale are mandatorily subject to the buyout.
A cotenant who seeks partition by sale has already determined that he or
she wishes to be divested of any portion of the real property owned in
common. This is not necessarily true of
cotenants that seek partition in kind or cotenants that are respondents in the
partition proceeding. A principal
historical justification for the remedy of a forced sale in many contexts has
been to allow owners no longer desiring to participate in ownership to
exit. A buyout mechanism such as the one
in this section accomplishes this purpose without divesting owners who affirmatively
indicate their preference for continuing ownership.
4. The section contemplates that, upon prompt
motion, cotenants who did not seek
partition by sale also may be allowed to
offer their interests for sale and that the interests of defaulting
cotenants may be mandatorily subject
to the buyout. This provision is
intended to foster consolidation of interests, while at the same time allowing
the court to determine whether expanding the pool of interests to be purchased
is appropriate or practical under the circumstances. And, while it is always true that cotenants
could buy and sell interests outside of a court proceeding, the statutory
buyout provision has the benefit of using an appraised, court-set valuation,
and a clear process with short timeframes.
5. The buyout section in the Act contemplates
that the price for interests made available for purchase (mandatorily or with
leave of court) will be the simple result of multiplying the court-determined
value of the entire real property (usually appraised value, but sometimes a
value agreed on by all parties) by the partial interest made available for
purchase (whether expressed as a fraction or as a percentage).
So, for example, if John Smith, who
owns a 10% cotenant interest in Greenacre, which is heirs property, brings an
action for partition by sale, and the appraised value of Greenacre accepted by
the court is $100,000, then John Smith’s cotenancy interest will be priced at
$10,000 for statutory buyout purposes, and each of the other cotenants will
have the right to purchase a pro rata share of Smith’s cotenancy interest for a
pro rata share of the $10,000 price.
Note that this likely overvalues
the Smith interest under classic concepts of valuation (because the $10,000
price disregards the discount for Smith owning only a 10%, minority interest,
and disregards the further discount typically applied by valuators to interests
in tenancy in common property because of its inherently unstable
characteristics). The drafters
concluded, however, that the simplicity of the math and the quid pro quo of
somewhat enhanced value compensated for making Smith’s interest mandatorily
subject to the buyout by statute.
6. In overview, the buyout section of this Act
contemplates that the court will:
- establish
the value of the entire real property;
- allow
cotenants other than the petitioner for sale 45 days to express interest
in purchasing the interests available for purchase (so the court can then
determine pro rata shares and prices for each purchaser, using simple
mathematical formulas);
- give
the purchasers who timely expressed interest in buying an additional,
brief period to be determined by the court (at least 60 days, but
preferably not much longer, due to the fact that property values are a
function of market conditions over time) in which to pay the purchase price
into court;
- if
there is a failure of some purchasers to timely post money, the court will
conduct a quick , 20-day, “savings” round in which any purchaser who
timely posted money can buy the entire interest of all purchasers who
failed timely to post money (and if more than one purchaser “saves” the
buyout by posting such entire amount, then the cost and interest in
question is split pro rata among those purchasers who act to save the
buyout); and
- close
the buyout, by paying the purchase price to the former cotenant who has
been bought out, and issuing an order stating the new cotenancy interests
among the remaining cotenants.
If the buyout fails for any reason
or if there is any cotenant remaining at the conclusion of the buyout that has
requested partition in kind, the Act contemplates that the court will then
proceed to partition in kind or partition by sale (in that order).
7. If cotenants who did not seek partition by
sale wish to sell their interests, they may notify the court of their desire to
sell. On motion, these interests as well
as the interest of any defaulting cotenant may be made available for sale as a
unit. Such allowance, however, is
subject to sufficient purchase money coming forward from buying cotenants to
purchase both the petitioner for sale’s interest and the other interests made
available on motion. The buyout section
instructs the court to favor completing a sale of the interest(s) of the
petitioner(s) that are mandatorily subject to sale above a failure of the
buyout due to inadequate purchase money payments by buyers for any other
interests that are made available for purchase on motion of a cotenant.
8. The pro rata share any given cotenant may
purchase is equal to his original share in the tenancy in common property
divided by the total share of all those cotenants that elected to buy. And the price to be paid by any given
purchaser is that same fraction or percentage multiplied by the total value of
the interest to be purchased.
So, continuing with the example
begun in paragraph 5, above, assume Betty Smith Jones who owned 10% of
Greenacre, George Smith who owned 20% of Greenacre, and Harriet Long who owned
15% of Greenacre, were the only cotenants of John Smith who timely notified the
court of their desire to purchase John Smith’s 10% interest in Greenacre. The total percentage interest in Greenacre of
all potential purchasers who timely gave notice of desire to buy is thus
45%. The owners of the other 45% cotenancy
interests in Greenacre either did not wish to purchase or did not timely
respond and so become ineligible to participate in the buyout of John Smith.
In this example Betty has a right
to purchase 10/45ths of John Smith’s interest, George has the right
to purchase 20/45ths of John Smith’s interest and Harriet has the
right to purchase 15/45ths of John Smith’s interest. The court would determine these percentages
and notify each of Betty, George and Harriet of the interests they could
purchase, and the related purchase price each of them would have to pay. Since John Smith’s 10% interest in Greenacre
was statutorily valued at $10,000 in the example, the price to Betty is $10,000
x (10/45), or $2,222.22, the price to George is $10,000 x (20/45), or
$4,444.45, and the price to Harriet is $10,000 x (15/45), or $3,333.33. Obviously minor amounts of rounding will be
required in some cases, as above, where the price to be paid by George is
rounded up by one penny so that John Smith can receive the full $10,000 for his
10% interest.
Now further assume that the court
orders that all purchasers pay their respective purchase price into court 90
days after the court order is docketed, and that Betty and George timely pay
their $2,222.22 and $4,444.45 into court, but that Harriet fails to do so. Under the buyout section of the Act, the
court will then notify each of Betty and George that 15/45ths (i.e.,
one-third) of John Smith’s 10% interest is still available for purchase and
that either Betty or George may purchase the entire such interest for $3,333.33
by paying that further sum into court within 20 days (absent which the buyout
will fail and the court will proceed to determine whether partition in kind is
possible or whether only partition by sale is appropriate).
Assume that each of Betty and
George timely post $3,333.33 with the court in the “savings” round (i.e., a
further total of $6,666.66, in addition to the aggregate $6,666.67 already
posted by Betty and George in the initial round). Under these circumstances, the court will
allow each of Betty and George to purchase a further pro rata share (meaning
pro rata as between them) of Harriet’s 15/45ths portion of John
Smith’s 10% interest. In the case of
Betty she may purchase a 10/30ths share of the portion Harriet
failed timely to buy (Betty’s original percentage interest in Greenacre divided
by the total original percentage interests of the two cotenants who timely
posted money in the first buyout round and the “savings” round, Betty’s
original interest of 10% plus George’s 20% interest). George, similarly, may purchase a further
20/30ths share. Betty will
ultimately pay $1,111.11 and George will ultimately pay $2,222.22; the
remaining amounts posted by each of them in the savings round will be returned
to them ($2,222.22 will be returned to Betty and $1,111.11 will be returned to
George).
The court then issues an order in
which it reallocates John Smith’s original 10% interest in Greenacre to Betty
(10/45 plus [10/30 x 15/45]) and George (20/45 plus [20/30 x 15/45), pays to
John Smith the $10,000 for his bought-out interest, and leaves the percentage
interests of Harriet and the other cotenants who did not participate in the
buyout unchanged. To complete the
example, as a result of the order the interests of the remaining cotenants (who
are satisfied to remain cotenants) are:
45% various cotenants who did not participate in the buyout and whose
interests are unchanged by the buyout, 15% Harriet who attempted to participate
in the buyout but could not come up with the money, and whose interest so
remains unchanged by the buyout, 13.333% Betty and 26.667% George.
(a) If all the interests of all cotenants that
petitioned for sale that become available for purchase pursuant to Section 7
are not purchased by other cotenants or if after conclusion of the buyout under
Section 7 there is any cotenant remaining that has requested partition in kind,
the court shall order partition in kind unless the court finds, after
consideration of the factors listed in Section 9, that partition in kind will
result in [great] [manifest] prejudice to the cotenants as a group. In considering whether to order partition in
kind, the court shall approve a request by two or more parties to have their
individual interests aggregated.
(b) If the court does not order partition in kind,
the court shall order partition by sale pursuant to Section 10 or, if no cotenant
requested partition by sale, the court shall dismiss the action.
(c) If the court orders partition in kind, the
court may also require that one or more cotenants pay one or more other cotenants
amounts so that the payments, taken together with the value of the in-kind
distributions to the cotenants, will make the partition in kind just and equal.
(d) If the court orders partition in kind, the
court shall allocate to the cotenants that are unknown, unlocatable, or are the
subject of a default [entry][judgment], if their interests were not bought out
pursuant to Section 7, a part of the property representing the combined
interests of these cotenants as determined by the court [and this part of the
property shall remain undivided].
Comment
1. In many states, a court may order a partition
in kind of part of the property and a partition by sale of the remainder. See,
e.g., Cal. Civ. Proc. §
872.830 (West 2010); Neb. Rev. Stat.
§ 25-21,103 (2009). However, in a
limited number of other states a court may only order either a partition in
kind or a partition by sale of the whole property. See,
e.g., Fernandes v. Rodriguez, 761 A.2d 1283, 1289 (Conn. 2000). This act neither prescribes nor prohibits a
partition in kind of part of the heirs property and partition by sale of the
remainder. For example, there may be
circumstances in which cotenants receiving part of the property in kind would
receive substantially less than their pro rata share of the economic value of
the whole property without a cash payment from the sale of the part of the
property to be sold and might wish the court to retain jurisdiction for
purposes of completing the partition by sale of the remaining portion of the
property (rather than employing “owelty,” discussed in the next comment). It is in circumstances such as the
last-mentioned case that the court should consider exercising its equitable
discretion to implement a mixed remedy and to fashion such appropriate
procedures as justice may require, drawing on the procedures and principles of
this act. If a court decides to order
such a mixed remedy, the court may consider whether, in such a process, there should
or should not be a further right to buy out interests before ordering a
partition by sale of part of the property.
2. Section 8(c): This subsection provides for the remedy of
“owelty” which is an equitable remedy. See, e.g., Code of Ala. § 35-6-24 (2010); Cal. Civ. Pro. § 873.250 (West 2009). Courts order owelty payments when it is not practical
to physically divide an estate into equal shares, but the difference can be
compensated by monetary payments. Dewrell
v. Lawrence, 58 P.3d 223, 227 (Okla. Civ. App. 2002). In recent decades, courts have tended to
underutilize the remedy of owelty which has resulted in property being sold by
partition by sale in many instances in which partition in kind could have been
ordered. See, e.g., Faith Rivers, Inequity
in Equity: The Tragedy of Tenancy in Common for Heirs’ Property Owners Facing
Partition in Equity, 17 Temp. Pol.
& Civ. Rts. L. Rev. 1, 76 (2007) (noting
that heirs property owners could obtain fair and equitable divisions of
property if courts stopped taking the easy option by ordering partitions sales
and utilized tools such as owelty payments).
See also John G.
Casagrande Jr., Note, Acquiring Property
through Partitioning Sales: Abuses and Remedies, 27 B.C. L. Rev. 755, 778 (1986).
3. Section 8(d):
Several states have provisions whereby a court may order a partition in
kind and designate a part of the property for cotenants who remain unknown or
unlocatable at the conclusion of the action.
See, e.g., Alaska Stat. § 09.45.290 (2010); Ark. Code Ann. § 18-60-414 (2010); Cal. Civ. Proc.
§ 873.270 (West 2010); Haw. Rev.
Stat. § 668-9 (2010); Mich. Comp. Laws § 3.402 (2010); N.D. Cent. Code 32-16-12
(2010); Or. Rev. Stat. § 105.245 (2010); S.D. Codified Laws § 21-45-15 (2010); Utah
Code Ann. § 78B-6-1212 (2010); Wash. Rev. Code § 7.52.080 (2010).
(a) In determining whether partition in kind
would result in [great][manifest] prejudice to the cotenants as a group, the
court shall consider the following:
(1) whether the heirs property practicably may be
divided among the cotenants;
(2) whether partition in kind would apportion the
property in such a way that the fair market value in the aggregate of the
parcels resulting from the division would be materially less than the value of
the property if it were sold as a whole, taking into account the condition
under which the court-ordered sale would likely occur;
(3) evidence of the collective duration of ownership
or possession of the property by a cotenant and one or more predecessors in
title or predecessors in possession to that cotenant who are or were related by
blood, marriage, or adoption to that cotenant or to each other;
(4) a cotenant’s sentimental attachment to the
property, including any attachment arising because the property has ancestral
or other unique or special value to the cotenant;
(5) the use being made of the property by a
cotenant and the degree to which the cotenant would be harmed if the cotenant could
not continue the same use of the property;
(6)
the degree to which the cotenants have contributed their pro rata share of the
property taxes, insurance, and other
expenses associated with maintaining ownership of the property or have
contributed to the physical improvement, maintenance, or upkeep of the property;
and
(7) any other relevant factor.
(b) The court may not consider any one factor in
subsection (a) to be dispositive, but shall instead weigh the totality of all
relevant factors and circumstances.
Comment
1. Under this section, a court in a partition
case must consider the totality of the circumstances, including a number of
economic and non-economic factors, in deciding whether to order partition in
kind or partition by sale. In partition
cases, a number of courts have utilized such a totality of the circumstances
approach in deciding whether to order partition in kind or partition by
sale. See, e.g., Delfino v. Vealencis, 436 A.2d 27, 33 (Conn. 1980) (“It
is the interests of all of the tenants in common that the court must consider;
and not merely the economic gain of one tenant, or a group of tenants.); Schnell
v. Schnell, 346 N.W.2d 713, 716 (N.D. 1984) (holding that economic and
non-economic factors, including sentimental value, should be weighed by a court
in a partition action); Eli v. Eli, 557 N.W.2d 405, 409-411 (S.D. 1997) (citations
omitted) (in explicitly adopting a totality of the circumstances test, the Supreme
Court of South Dakota stated that “[o]ne’s land possesses more than mere
economic utility; it ‘means the full range of the benefit the parties may be
expected to derive from their ownership of their respective shares.’ Such value
must be weighed for its effect upon all parties involved, not just those
advocating a sale.”); Ark Land Co. v. Harper, 599 S.E.2d. 754, 761 (W. Va.
2004) (holding that “in a partition proceeding in which a
party opposes the sale of property, the economic value of the property is not
the exclusive test for deciding whether to partition in kind or by sale. Evidence of longstanding ownership, coupled
with sentimental or emotional interests in the property, may also be considered
in deciding whether the interests of the party opposing the sale will be
prejudiced by the property's sale.”).
2. Section 9(a)(2): Under this subparagraph, among other possible
considerations of the condition under which the property may be sold, the court
must assess whether the cotenants would receive a greater economic benefit from
a sale of the whole property due to possible economies of scale that would
result from selling the whole property that could not be captured from
partition in kind of the property. In
conducting this assessment, a court must take into consideration the type of
sales condition under which any court-ordered sale would occur as property that
is sold at a forced sale such as a sale upon execution or a foreclosure sale
typically results in property being sold at prices that are substantially below
the fair market value of the property.
Such a resulting discount from the fair market value of the property due
to the forced sale conditions may render partition in kind to be as or more
economically beneficial to the cotenants than partition by sale of the whole
property even in instances in which economies of scale could be realized if the
whole property were to be sold instead under fair market value conditions. See
generally, Thomas W. Mitchell, Stephen Malpezzi, & Richard K. Green, Forced Sale Risk: Class, Race, and The
“Double Discount”, 37 Fla. St. U. L.
Rev. (forthcoming 2010).
3. Section 9(a)(3): Under this subparagraph, the court shall
consider, among other considerations, longstanding possession of the property
by any cotenant or certain predecessors in possession to that cotenant. Adverse possession, for example, raises this
issue. Adverse possession statutes
require possession over the course of a number of years before a person may
actually take title to the property. See, e.g., 735 Ill. Comp. Stat. 5/13-101 (2009) (requiring twenty years of
adverse possession); Wis. Stat.
§§ 893.25, 893.26 (2008) (requiring twenty years or ten years if color of
title). Thus, because many states allow
tacking of possession, it is possible that a cotenant may have acquired
possession of the property from an ascendant who had been in possession of the
property for many years despite the fact that the statute of limitations for
adverse possession had not run thereby preventing the ascendant in prior
possession from obtaining valid title to the property.
4. Section 9(a)(4): For many families or communities, real
property ownership has important ancestral or historical meaning. See,
e.g., Chuck v. Gomes, 532 P.2d 657, 662 (Haw. 1975) (Richardson, C.J.,
dissenting):
“[T]here are interests other than financial expediency which I recognize as
essential to our Hawaiian way of life. Foremost is the individual's right to retain
ancestral land in order to perpetuate the concept of the family homestead. Such right is derived from our proud cultural
heritage. . . . [W]e must not lose sight of the cultural traditions which
attach fundamental importance to keeping ancestral land in a particular family
line.”
See also Phyliss
Craig-Taylor, Through a Colored Looking
Glass: A View of Judicial Partition, Family Land Loss, and Rule Setting, 78
Wash U. L.Q. 737, 766-768,
772-774 (2000); Thomas W. Mitchell, From
Reconstruction to Deconstruction: Undermining Black Landownership, Political
Independence, and Community Through Partition Sales of Tenancies in Common,
95 Nw. U. L. Rev.505, 523-526 (2001).
(a) If the court orders a sale of heirs property,
the sale must be an open-market sale unless the court finds that an auction
would be more economically advantageous and in the best interest of the
cotenants as a group.
(b) If the court orders an open-market sale and
the parties, not later than 10 days after the entry of the order, agree on a real
estate broker licensed in this state to offer the property for sale, the court
shall appoint that broker and establish a reasonable commission. If the parties do not agree on a broker, the
court shall appoint a disinterested real estate broker licensed in this state to
offer the property for sale and shall establish a reasonable commission. The broker shall offer the property for sale in
a commercially reasonable manner at a price no lower than the determination of
value and on the terms and conditions established by the court.
(c) If the broker appointed under subsection (b)
obtains within a reasonable time an offer to purchase the property for at least
the determination of value, the broker shall comply with the reporting
requirements set forth in Section 11 and the sale may then be completed in
accordance with state law.
(d) If the broker appointed under subsection (b)
does not obtain within a reasonable time an offer to purchase the property for
at least the determination of value, the court, after hearing, may:
(1) approve the highest outstanding offer, if
any;
(2) redetermine the value of the property and
order that the property continue to be offered for an additional period of time;
or
(3) order that the property be sold at an auction.
(e) If the court orders an auction, the court
shall set terms and conditions of the sale. The auction must be conducted under [insert
reference to general partition statute or, if there is none, insert reference
to foreclosure sale].
(f) If a purchaser is entitled to a share of the
proceeds of the sale, the purchaser must receive a credit against the price in
an amount equal to the purchaser’s share of the proceeds.
Comment
1.
Section 10(a): Under an open-market sale, the buyer and
seller negotiate at arm’s length and the sales price is not influenced by any
particular exigency of either the buyer or the seller. See
Dennis v. County of Santa Clara, 263 Cal. Rptr. 887, 892 (Cal. Ct. App.
1989). In some states, a court may order
real property that is to be sold under an order to partition by sale to be sold
by open-market sale or private sale as this type of sale is referred to in
Minnesota and in other states. See, e.g., Minn. Stat. § 588.17 (2009); N.M. Stat. § 42-5-7 (2009). See also Wilson v. Skogerboe, 414 N.W.2d 521 (Minn. Ct. App. (1987)
(court-appointed referee sold property under a private sale after showing the
property to numerous prospective buyers).
Courts that have utilized an open-market sale to sell property ordered
sold under a partition by sale have claimed that an open-market sale would
yield a better sales price than the sales prices that could be expected if the
property were sold at a public auction. See, e.g., Orgain v. Butler, 496 S.E.2d
433, 435 (Va. 1998) (reversing chancellor’s order that property be sold at a
public auction given commissioner’s report that recommended that property be
sold on the open market by a real estate broker because such an open-market
sale would yield the best price obtainable).
2. The preference for open-market
sales draws upon an international trend in which law commissions and courts in
countries such as Scotland have recognized that forced sales such as partition
sales should be conducted by open-market sale instead of by public auction in
order to better preserve the wealth of a real property owner who is subject to
a forced sale.
3. Section 10(b): Courts in partition actions that have ordered
property sold at an open-market sale have often required the property to be
marketed by a real estate broker under commercially reasonable conditions. See,
e.g., McCorison v. Warner, 859
A.2d 609, 614 (Conn. Super. Ct. 2004) (In McCorison, the court referred to an open-market sale as defined in this act as a
private sale and ordered that the property be listed by a real estate broker
for up to two years provided that at least twenty-five percent (25%) of the
parties agreed to continue to have the property listed by a broker after the
first year if the property had not been sold by that time).
SECTION 11. REPORT OF OPEN-MARKET SALE.
(a) Unless required to do so within a shorter
time by [insert reference to general partition statute], a broker appointed
under Section 10(b) to offer heirs property for open-market sale shall file a report
not later than seven days after receiving an offer to purchase the property for
at least the value as determined under Section 6 or 10.
(b) The report required by subsection (a) must contain
the following information:
(1)
a description of the property to be sold to each buyer;
(2)
the name of each buyer;
(3)
the proposed purchase price;
(4)
the terms and conditions of the proposed sale, including the terms of
any owner financing;
(5)
the amounts to be paid to lienholders;
(6)
a statement of contractual or other arrangements or conditions of the
broker’s commission; and
(7) other material facts relevant to the sale.
SECTION 12. UNIFORMITY OF APPLICATION AND CONSTRUCTION. In
applying and construing this uniform act, consideration must be given to the
need to promote uniformity of the law with respect to its subject matter among
states that enact it.
SECTION 13. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL
AND NATIONAL COMMERCE ACT. This [act] modifies, limits, and
supersedes the federal Electronic Signatures in Global and National Commerce
Act, 15 U.S.C. Section 7001, et seq., but does not modify, limit, or supersede
Section 101(c) of that act, 15 U.S.C. Section 7001(c), or authorize electronic
delivery of any of the notices described in Section 103(b) of that act, 15
U.S.C. Section 7003(b).
SECTION 14. TRANSITIONAL PROVISION.
This [act] applies to partition actions filed on or after the effective
date.
SECTION 15. EFFECTIVE
DATE. This [act] takes effect . . . .
