This Article Ran in the GEORGIA REAL ESTATE REPORT, December 2006. Vol. 7, No. 12 at 5.
What is a Partition and Why Would I Want One?
By: Hugh C. Wood, Esq.
Suppose, some years ago you purchased investment property with your good friends to make money on the run up of prices the real estate market. Now you need the money because your kids are going to college and you want to sell. You partners don’t want to sell. What can you do?
Suppose, your momma dies and leaves you and your two sisters 200 acres of property within driving distance of Atlanta. You visualize a subdivision with 400 homes, a big clubhouse and a swim/tennis on it. Your two sisters see riding stables and an organic farm on the same land? What can you do?
Suppose, you and your same sex partner buy an expensive home together. One day you come home from work. A new sports car is in the driveway, the locks are changed and your furniture is out on the lawn. What can you do?
You may have fallen into the purgatory of the partition of real property.
When multiple owners (co-tenants) find themselves in joint ownership of real property in Georgia and cannot decide whether to hold for the future or sell today, they may have to resort to the Partition of Real Property. That particular odd part of real property law is found at the Official Code of Georgia Annotated Section 44-6-140 (equitable partition), 44-6-160 (statutory partition), et seq. and also at 44-6-166.1. (another statutory partition). If you find yourself in this world, in this day of complete access to all information on the Internet, go read those statutes on your own before your lawyer or your partners lawyer’s read them to you.
Partition can be your friend. If you are a minority interest holder in property and you simply cannot convince your other brothers and sisters to sell “momma’s” property you inherited and probate is over, you can force their hand by filing an action to forcibly sell the property and turn your minority percentage into cash. However, it is not as easy as it seems.
By contrast, if you own a fractional interest in a Fortune 500 company, how do you get rid of your ownership? You call your broker. He or she checks the market and sells you stock at market and sends you the cash, less his commission. You then only have to worry about your sales price minus your acquisition basis to deal with the IRS and our good friends at the Georgia Department of Revenue.
Can you do the same with a fractional ownership in real property? No. There is no liquid market for a fractional interest in real property.
In a case that resolved some years ago, the brother and sisters split over the brother’s desire to develop the 200 acres of inherited family land into a tightly packed subdivision versus the sisters’ desire to maintain the land as open land for gardening with a few existing homes on it. The case settled after an ugly partition action was brewing toward a conclusion.
Suppose you find yourself in a similar dilemma. What do you do? No small article such as this can substitute for real legal advice. Go hire a competent attorney. However, as Movant or Petitioner, you would file your action in the Superior Court where the real estate is located. [If accounting issues exist, you don’t know how much money one party invested toward the land, who has paid the taxes for the last 10 years, or one party has kept the rents for a number of years, you may also have to file “for an accounting,” among cotenants.] You need to give the other co-owners 20 days notice prior to filing. Then, depending which part of the Code applies, the Court will look to determine whether the real property can be divided by “metes and bounds,” (divided by a survey) or whether it must be sold for cash. If it has improvements or buildings on it, division by “metes and bounds,” is not usually possible. If the property can only be divided by a sale and “partition of the money,” then you will find yourself heading toward a forced sale of your land. Under one statute, the Court will appoint three (3) appraisers. They will arrival at a legal value for your property. You can buy out the other owners by paying the money to the court and buying them out at the legal price. However, they can buy you out at the legal price, too. Thus, if the “legal” price is too low, you get your money and get kicked off your land. If you refuse to sell and you were the only one who filed the partition action and you refuse to sell, the Judge may dismiss your case and charge you with all costs and legal fees to that point. Fun, huh?
If the other owners don’t pay your legally established cash price (sometimes they just don’t have the money), the Judge will set up the land for a forced sale on the courthouse steps. The parties get whatever cash price the land sells for divided by their percentage ownership. Usually, reality and panic trump bravado at this stage and the vast majority of valuable properties settle before going down the courthouse steps for an unknown price that will become the forced legal price.
Sometimes partition is prohibited. Condominium documents, by their nature, prohibit partition. Most new LLC documents prohibit the partition of real property while the LLC holds the property. Real Estate Trusts may find themselves mired in equitable accounting problems and unable to resort to statutory partition. Husband and wife in a garden variety divorce (if there is such a thing) cannot resort to partition while the divorce is pending. Chapter 19 (the domestic relations Code) controls the dissolution of real and personal property in a divorce.
However, if you have no way to liquefy your minority interest in land and you really need the cash, partition is a good place to turn. Partition of property has the unique ability to turn fractional interests in land into cash.
Hugh C. Wood, Esq.
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