In our last blog post, we considered whether a person should use an attorney or a real estate agent to help buy or sell a home. After reading that post, you now understand that there is no universally correct answer: real estate attorneys and real estate agents serve different roles, with each bringing different skills and abilities to the table. The uniqueness of each particular situation will influence whether to hire one or the other (or potentially both). Proceeding henceforth with an awareness of which type of professional to call upon and why, we now examine a specific scenario in which the counsel of an attorney would be appropriate, if not necessary.
In the world of real estate, it is axiomatic that not everyone agrees all of the time. Lawyers are frequently tasked with resolving disputes between feuding parties, some of which pertain to jointly owned property. Examples abound. One party may wish to sell a parcel of land, a building, or a house, and the other party may wish to keep it. Alternatively, one person may wish to rent a property to a third party, and the other may wish to leave it unoccupied. As you can see, the fulfillment of these competing wishes or diverging interests cannot coincide.
Family inheritances, divorces, and failed cohabitations between non-married persons are common culprits of these conflicts. One solution to ending joint ownership, and therefore ending the conflict, is a partition. With our law firm being located in the state of Kansas, we will take a brief look at the laws in Kansas as it relates to real property partitions.
A partition can result in a property being physically divided between the owners into separate portions or sold outright and the proceeds being split according to each party’s percentage ownership. “Partition provides a method whereby two or more persons who own property together may put an end to the multiple ownership, so that each may own a separate portion of the property or, if a division in kind is not feasible, the property may be sold and each owner given an appropriate share of the proceeds.” Gore v. Beren, 254 Kan. 418, 422, 867 P.2d 330, 334 (Kan. 1994) (quoting Miller v. Miller, 222 Kan. 317, 320, 564 P.2d 524 (1977) (citing 59 Am. Jur. 2d, Partition, sec. 3, p. 773)). Those alternative solutions, each made possible by a partition action, yield completely different results. A property being physically divided means that the parties are agreeing to, or the court is ordering, a unique split of the once undivided tract of real estate. The property is kept, but ownership is made specific to a delineated part of the real estate. Given the various types of real estate that cannot be physically divided (or at least not in a feasible manner), such as single family residences, a forced sale of the property can and does serve as a remedy secondary to a division in kind.
The right of partition, despite the procedural costs involved in exercising said right, enjoys a favored status in the law. “[Partition] is said to be a right much favored in the law because it secures peace, promotes industry and enterprise, and avoids compelling unwilling persons to use their property in common.” Id. The right of partition is “based on the equitable doctrine that it is better to have the control of property in one person than in several people who may have divergent views as to its proper control or management[.]” Gore, 254 Kan. at 423 (quoting Miller, 222 Kan. 317, Syl. p 4, 564 P.2d 524). Nonetheless, so long as it is not in contravention of Kansas statutes, a judge may refuse partition if it would result in extraordinary hardship or oppression. K.S.A. § 60-1003(d). There is logic behind partitions. Forcing people to remain in unwanted “partnership” with one another as it relates to co-ownership of real estate would not seem to be a recipe for productivity. The right of partition’s favored status in the law appears to effectively, though perhaps not efficiently, promote that purpose.
Because partition actions can result in the forced sale of properties, property owners should not be surprised if their property sells at a partition sale for a price that represents merely fifty percent, or potentially less, of its market value. Elizabeth Mertz et al., The New Legal Realism: Translating Law-And-Society For Today’s Legal Practice, Cambridge University Press (2017). “[M]ost courts consider the sales price for a partition sale to be adequate if the sales price represents 20 percent or more of the fair-market value of the property”. Id. The Supreme Court of Appeals of West Virginia, West Virginia’s highest court and its court of last resort, has held that, due to partition sales being forced sales, bids amounting to fifty percent or less of the appraised or arm’s length value of the real estate will be upheld. Koay v. Koay, 178 W. Va. 280, 283, 359 S.E.2d 113, 116 (1987). Closer to our Kansas City metropolitan area, in the case of Dougherty v. McKeever, 502 S.W.2d 430 (Mo. Ct. App. 1973), the court found that, even with the testimony of two real estate brokers that the property in question had a fair market value of $20,000, said property selling for $5,000 did not justify the setting aside of the sale.
The above paragraph casts a dark shadow over the wisdom of utilizing partition actions if value is of concern. While the policy arguments in favor of the right of partition are sound, the practical, economic consequences are not as convincing. Real estate owners, especially real estate investors, often put economic considerations at the top of their priority list. Selling a property for fifty percent (or less) of its market or appraised value would be financially and emotionally devastating to them. In some situations, well in advance of a dispute between or among co-owners, expressly and mutually waiving, by written contract, the right of partition may be prudent so as to prevent being faced with a forced sale for limited economic value.
Attorneys are frequently put into service when family inheritances, divorces, and failed cohabitations between non-married persons cause joint ownership of property to no longer be desirable. The partition action is one potential path towards a remedy that an attorney may explore, but it is worth considering in advance whether a written waiver of that legal procedure would be the right move to preserve the economic value of the real estate in question. Here at Kincaid Business & Entrepreneurial Law, LLC ®, we enjoy advising homeowners, entrepreneurs, and investors about their real estate matters. Writing real estate contracts and other legal documents, advising on real estate disputes, and providing legal guidance for homeowners or homebuyers are tasks we do regularly. Please contact us at 913-735-7707 or schedule with us here if we can be of service to you, your business, or your family.
Matthew T. Kincaid