LAYING DOWN THE LAW – Who Gets the House? How the Courts Divide Real Property Between Co-Owners in Partition Actions
July 5, 2018
Christopher J. Charles, Esq.
Bryan Eastin, Esq.
Joint ownership of real estate provides many benefits, including increased buying opportunity, shared expenses, avoidance of probate, and shared risk/liability. Co-ownership also provides opportunities for disagreement. For example, co-owners might not agree on when to sell or how the proceeds should be apportioned. When an impasse like this arises, the law allows the owners to “partition” the property through legal process.
Partition actions are creatures of statute. (See A.R.S. § 12-1211, et seq.) Simply put, an owner can initiate a partition action by filing a complaint in the Superior Court against the other owners, identifying the other owners, their address, the interest claimed in the property by each owner, and a description of the real property. (A.R.S. § 12-1211[A] and [B]).
The Court will conduct a hearing to determine the respective interests of the co-owners and enter a judgment confirming each owner’s interest. The Court will also appoint an independent commissioner to oversee the division of the property. (A.R.S. § 12-1215[B]). Because real estate can rarely be physically divided, the Court typically orders the property be sold and the proceeds divided equitably between the owners.1
Reaching an agreement regarding the co-owners’ respective interests in the property is generally the sticking point. In a recent unpublished opinion, the Court of Appeals addressed this issue. In Egizii v. Egizii (Ariz. App. 2018) WL1755415, an unmarried couple purchased a residential property and held title as joint tenants for approximately 30 years. They acquired the property at trustee sale and took title subject to an existing mortgage. The male co-owner later obtained a second mortgage for $100,000 in his name alone. Both contributed to various expenses and improvements to the property.
The couple subsequently separated and disagreed about what to do with the property. As a result, one of the co-owners filed a partition action. After considering the evidence, the Trial Court ordered that the property be sold and that the proceeds be applied first to closing costs and to pay off the existing mortgage. Then the male co-owner received the following credits: $19,000 for payments he made for homeowner’s insurance; $71,000 for property taxes; and $183,000 for the down payment he contributed at the time of purchase. The remaining balance was split between the two owners. The male co-owner appealed because he was not reimbursed for the mortgage payments he made.
In deciding the appeal, the Court of Appeals identified two important considerations for partition actions. First, when one joint tenant expends money that benefits the other joint tenants, the paying joint tenant is entitled to reimbursement from the other joint tenants. This is known as the “right to contribution” (Egizii v. Egizii, ¶10). In this case, the Trial Court’s calculations did not count the existing mortgage as a common debt and therefore did not order any contribution from the female co-owner.
On appeal, the Appellate Court reversed this decision and confirmed the above rule: “[w]hen one joint tenant expends sums to benefit the other joint tenant, … the paying joint tenant is entitled to reimbursement.” (Id., citing Bowart v. Bowart, 128 Ariz. 331, 337 [App. 1980] [wife was entitled to reimbursement for using her separate funds to pay the spouses’ joint-tenancy obligations, including mortgage payments and taxes].) Thus, the Court held that the male co-owner should have been reimbursed for the mortgage payments he made.
The second consideration stems from the male co-owner’s separate claim that he was entitled to contribution of $72,000 regarding certain improvements to the property that the other co-owner did not help pay for. In rejecting this claim, the Court of Appeals affirmed that the right to contribution for improvements does not depend on the actual amount expended, but upon the value it imparts to all the joint owners. Thus, the male co-owner was entitled to a contribution award for improvements based solely on the resulting increase in value, and not the actual expenditures. (Id., citing In re Marriage of Berger, 140 Ariz. 156, 163 [App. 1983]). In this case, the Trial Court found no increased value from the improvements based on expert witness testimony that the property was best valued as a “tear down.”
In sum, partition actions often serve as the best (and often the only) solution if the owners cannot agree on the disposition of the property. The takeaways for joint owners (or soon-to-be joint owners) to prevent disagreement down the road are:
Confer with counsel before purchasing the property (or soon thereafter) and prepare a written agreement between the co-owners, including a buyout clause.
Keep detailed records of all expenditures.
Ensure that any expenses that equally benefit the co-owners are invoiced to all owners (or to the entity if the owners transfer title to a commonly owned entity such as a single-asset LLC).
If you or someone you know has a question regarding a co-ownership or partition matter, or any other real estate matter, call our office today to schedule a consultation with Bryan Eastin or Christopher Charles.
Bryan L. Eastin is an attorney with Provident Law® practicing in the areas of trust and estate administration and litigation, guardianships and conservatorships, and real estate. Bryan’s practice includes representation of private fiduciaries appointed by the court to serve as guardians, conservators, personal representatives, and/or trustees. Bryan is admitted to practice in Arizona’s state and federal courts, and he is currently a member of the Arizona State Bar Association and the Maricopa County Bar Association. He can be reached via email at firstname.lastname@example.org.
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 is a licensed real estate instructor and he teaches continuing education classes at the Arizona School of Real Estate and Business. He can be reached at email@example.com or at 480.388.3343.