Partition is a legal action taken by two or more parties who own a piece of property but are unable to independently agree on what to do with the property. This property could be a house, condominium unit, a multi-unit residential property, or a commercial property. It can be an action that business partners take if they come to a dispute over real property that they need to go to court to solve.
While partition can be conducted by two or more parties who live together at a property, or are invested in real property together, in Florida it is most common in trust and estates actions. For trust and estates actions, partition will take place against real property left to the beneficiaries. To further explain this process further, partition actions involve individuals who inherit property from family members but are unable to come to an agreement on what to do with the property. The inheriting individuals will file an action with their respective court system. The court will step in and make the most equitable decision, at least from the court’s perspective, for the parties. The court may decide to sell the property, which party should have ownership rights, how to manage the deed, or if the property should be leased out as a business.
There are a few ways that partition can determine how the monetary value of the property is split between the heirs or owners of the property. Often the split is done evenly between the parties or split as instructed by the will. But what about if there are liens or encumbrances on the property? How are they resolved?
What is important to note is that Florida is a lien theory state. Florida law maintains that any lender or mortgager (most often banks) that have a lien (monetary debt) on the property for an outstanding loan must be paid out first before any profits from the sale are given to the inheriting family members. If a partition by sale action commences the court will arrange for the property in question to be sold at auction. The proceeds of that sale will be distributed to the heirs or owners of the property; however, any liens must be satisfied.
For example, three siblings inherit a home in Coral Gables from their mother who recently passed away. The three siblings cannot agree on what to do with the property. The youngest wants to move into the house, the oldest wants to sell the house and split the profits, and the last sibling wants to list the house as a rental property for Miami’s lucrative tourism market.
The siblings go to court and the oldest sibling hires EPGD Business Law to represent their interests in wanting to sell the house. The case of the house goes to court in a partition action. The court agrees that selling the house and splitting the profits is the best action, siding with the oldest sibling. As previously stated, the sale will be conducted through an auction guided by the court.
The auction sales commences and the home sells for $655,000. However, there was $150,000 remaining of the mortgage the siblings’ mother originally took out with a Miami bank. Since Florida is a lien theory state the $655,000 profit from the home sale will first payout the remaining $150,000 mortgage to the bank so that the mortgage lien is settled (a mortgage is known as a voluntary lien, meaning that the individual voluntarily took on the monetary debt). Once the mortgage is paid out, the remaining $505,000 of profit from the sale of the home will be split among the siblings; Leaving each sibling with roughly $168,333.
If you believe that a partition action is a possible remedy for you or your family’s estate planning needs please give EPGD Business Law a call. One of our experienced, attentive, and knowledgeable Trust and Estate Attorneys will be happy to assist you.