A typical example of when a partition action might arise involves the inheritance of a house from deceased parents. Three children inherit their parent’s house and one of the children is living in the house rent free. The other two siblings want to sell the house and also want to charge the sibling rent since that sibling is living in the house. There is a dispute regarding rent as well as whether or not to sell the house at all. Finally, after negotiations fail, one sibling files an action for partition with the ultimate goal of obtaining an interlocutory judgment and, thereafter, a partition referee to sell the house.

The four primary steps in a partition lawsuit are as follows:

1. Filing a partition action pursuant to  Code of Civil Procedure section 872.210;
2. Obtaining an interlocutory judgment pursuant to Code of Civil Procedure section 872.720;
3. Appointing a partition referee to sell the property pursuant to Code of Civil Procedure section 873.060 after the filing of a report of sale by the referee pursuant to Code of Civil Procedure section 873.280; 
4. The sale of the property by the referee subject to the relevant provisions of the Partition of Real Property Act pursuant to Code of Civil Procedure section 874.319.

If one co-owner of real property refuses to sell, and another owner wants to sell, then the owner that wants to sell may file an action for partition. The manner of sale includes three methods as follows:

1. Partition by Sale
2. Partition by Appraisal
3. Partition In Kind

In California, co-owners of real estate may find themselves in disputes regarding the desire to either hold or sell the property. A resolution to such a dispute involves a process known as partition. The partition process is code-driven and the California Code of Civil Procedure provides a road map as to how to accomplish this process. CA Code of Civil Procedure Section 872.210 establishes the statutory scheme that provides for the sale and division of real estate among co-owners when one owner wants to sell and the other doesn’t. The first step is the filing of a Complaint for Partition. The type of partition must be identified in the complaint as well as the property address, the parties, jurisdiction, venue, encumbrances, equity and the right to partition. A prayer for judgment against the defendant should be sought, including for partition of the respective interests in the property, the costs of partition shall be added to the judgment, that an order setting forth disbursement of net sales proceeds according to applicable equitable adjustments as well as other relief based on the details of the specific case.

It is important to remember that in California, there are three methods of partition: in kind, appraisal and by sale. The method of partition must be identified in the complaint. Partition by sale is the most common. However, Stephen Donell, Partition Referee, has experience in the rarely used partition in kind method of partition.

Ultimately, the goal of the filing of a complaint for partition includes obtaining an interlocutory judgment of partition. California Civil Procedure 872.720 establishes the right for a court to enter an interlocutory judgment of partition. This then sets up the process allowing a partition referee to be appointed. The partition referee is the individual vested with the authority to partition the property. It is important to remember that in California, there are circumstances where one party or another may waive the right to partition. An interlocutory judgment may not be obtained if such waiver is in effect. If a court determines that the full set of requirements are met after the filing of a complaint for partition, then the court is obligated to appoint a partition referee. And that starts the wheels in motion to an actual sale of the property.

In California, there are three ways to partition property. They are all defined by statute. The three methods of partition are

1. Partition in Kind
2. Partition by Appraisal
3. Partition by Sale

By far, the most common type of partition is Partition by Sale. Why? A partition in kind results in the physical division of the property. While this might be appropriate where the “property” includes multiple parcels, it would not be appropriate where the property is a single family home. A Partition by Appraisal is effectuated when the owners agree on the value of the property based on an appraisal and then one owner consents to the sale of their interest in the property to the other owner(s) based on the appraised value. This methodology can only be used if all owners agree to it. If not, then one of the other two methods must be utilized.

What does a partition by sale actually mean? It literally means that the partition referee will list the property for sale, a buyer will be found, the property is sold and then the net proceeds after sale are either lodged with the court for distribution or the partition referee will distribute the proceeds. Various issues come into play, including taxes, offsets and respective ownership rights - all of which are typically adjudicated by the court. Sometimes, a partition referee will be vested with the power to implement a claims procedure whereby the referee will recommend a course of conduct by the court to award or reject claims of creditors after a recommendation is made by the referee.

It literally means that the partition referee will list the property for sale, a buyer will be found, the property is sold and then the net proceeds after sale are either lodged with the court for distribution or the partition referee will distribute the proceeds. Various issues come into play, including taxes, offsets and respective ownership rights - all of which are typically adjudicated by the court. Sometimes, a partition referee will be vested with the power to implement a claims procedure whereby the referee will recommend a course of conduct by the court to award or reject claims of creditors after a recommendation is made by the referee.

The timeline associated with a partition action involves many variables. After the complaint is filed and the interlocutory judgment is obtained, a partition referee will then be appointed. The partition referee, in accordance with the order, will usually take possession of the property. If there is an occupant in place, often the referee will need to remove the occupant. Depending on whether or not the occupant is cooperative, this process can take anywhere from a few weeks to months. After the property becomes vacant the referee will then have the property cleaned and will obtain a broker opinion of value to establish a baseline valuation for the property. The proposed sale price will be circulated among all interested parties and lawyers. Thereafter, the property will be marketed for sale, assuming there are no major repairs that need to be performed. The marketing process will generally last approximately 30 to 60 days while the selection of the buyer and negotiation of the PSA/inspections will take approximately 30 days.

Generally, the referee will file an ex parte motion with the court seeking an order to confirm sale and assuming no overbid procedures are required, the sale would be approved at the hearing. In California, a 60 day appeal period would generally necessitate either a waiver of the appeal or the escrow could not close until the appeal period is exhausted, which is 60 days from the date the notice of entry of order confirming sale is circulated to all parties. Therefore, based on a variety of facts and circumstances, the time frame involved in selling a property out of partition in California is between 3 months on the low-end to up to potentially a year depending upon a variety of circumstances.

The benefits of a partition action include the ability of one or more owners to sell a property when one or more than one additional owner(s) do not want to sell. This could include family members or partners that do not get along with each other. In addition it could involve one owner stealing money from another or refusing to cooperate in maintaining the property or in funding repairs or paying for insurance etc. Sometimes, common ownership of properties between family members or partners can be very problematic. This remedy allows for the sale of the property over the objection of one or other owners. This is a benefit which allows ownership to be modified in such a way that the property is partitioned. It also will provide a benefit because the cash generated by the sale can be utilized for other purposes including to acquire additional property. One drawback is the fact that a lawyer will generally need to be hired and a lawsuit must be filed. The process can be expensive if it is opposed and it can be time-consuming depending upon a variety of circumstances. In addition, if one owner is living at the property and refuses to vacate, legal action may be required in order to seek to have the other owner removed from the property. Overall, if respective owners do not get along and ownership among the various parties is no longer workable, the benefits far outweigh the negatives as relates to selling property through partition in California.

The cost of partition will depend in large measure on the level of cooperation that the partition referee receives by the owner's. For example, is the property occupied or vacant? If occupied will the occupant voluntarily vacate? Is the referee provided with books and records of the property which will allow the property to be easily valued? Is the property in clean condition and has it been maintained well? Do the lawyers involved get along and will the lawyers cooperate with the Referee or will any of the lawyers actively interfere with the Referee? Also, will the parties agreed to a stipulation where they waive their appeal rights? Or will an appeal be filed? Is insurance in place and are there any problems with title? All of these factors will impact the cost of partition. Generally the cost of partition would vary on the low end of $10,000 to potentially much larger fees depending upon the level of cooperation the referee receives, the condition of the property, whether there are title issues, whether a private sale or public sale with overbid is utilized and whether the referee is required to file monthly reports with the Court.

The receivers and partition referees at FedReciver,Inc. have decades of experience. This includes experience as receivers in state and federal courts throughout the country as well as having served as partition referees cumulatively in more than 900 cases. Based on the extensive experience in real estate including professional designations in property management, real estate brokerage licenses, expert witness work and being recognized as industry leaders in the partition and receivership industry, our professionals provide efficient services based on decades of experience, knowledge and training. This results in cost savings, efficiency and successful case outcomes. Stephen Donell is a RCFE - residential care facility for the elderly which is an accreditation provided by the California Department of Social Services. As such he has experience in being a receiver over assisted living facilities in California. In addition to real estate, our professionals have operated retail businesses, distribution companies, manufacturing and other specialized businesses in many fields including technology, clothing, health care and professional services.

There are no prohibitions against using a realtor as a partition referee. However, a partition referee has specific court mandated duties including the Report of Sale, Motion seeking Confirmation of Sale, potentially filing monthly reports with the court and compliance with the statutory scheme established in a particular state. It is imperative that whoever is appointed as referee, that he/she has the requisite knowledge to perform his/her duties pursuant to court order. This includes understanding that the referee has a duty to all creditors and is working solely as an agent of the court. Knowledge regarding title insurance, property insurance, repairs and maintenance, 1031 exchanges, state tax withholding, FIRPTA, tenant landlord law, risk management and local court rules are necessary. So while there is no prohibition to utilizing a realtor as a referee, unless that realtor has experience in the foregoing areas, this choice may not be advisable.

A partition referee is appointed in connection with the filing of a lawsuit involving the partition of real property. After an interlocutory judgment is obtained, a partition referee may be appointed. The partition referee takes possession in order to sell the property pursuant to the court order.

The partition referee must be a neutral third party, and court-appointed. The specific duties and responsibilities of a Los Angeles partition referee are set forth in the California Code of Civil Procedure CCP 872, et seq.

There are many similarities between a court-appointed partition referee and a court-appointed receiver. Both of these individuals are neutral and are appointed by the court pursuant to a court order.

A partition referee handles the sale of the property through the sale and distribution of net proceeds to co-owners, a physical division of the property, or the sale of one co-owner’s interest in the real property to the other co-owner. The partition referee takes these actions pursuant to a court order and must use reasonable care to ensure that the actions taken are in the best interest of the estate.

If a property is owned in part by one person and others, one owner may sue for partition and such action filed by a co-owner may proceed to do so pursuant to (C.C.P 872.210(a)(1)). After the Complaint is filed, a determination must be made by the court regarding the right of the co-owner to seek partition. Once that is ruled upon, based on a variety of circumstances including (C.C.P. 872.710(b); C.C.P 872.710(c) and C.C.P. 872.730), partition may then be permitted. The court then may appoint a referee to carry out its orders including, after ruling that a partition may proceed, the issuance of an interlocutory judgment as well as manner of partition per (C.C.P. 872.720(a)). The court may appoint a referee to divide or sell the property per (C.C.P. 873.010(a)). After the referee files the referee bond, the referee’s compensation is fixed (C.C.P 874.010), thereafter the referee may perform the  acts necessary to perform his/her duties (C.C.P. 873.060). The referee would thereafter serve any occupants with notice of appointment as referee, and the process of marketing and listing the property for sale would commence. If the occupancy is not cooperative, then the referee may need to take steps to remove the occupant as mandated by state and/or local ordinance or pursuant to other available remedies such as ejection.

If a co-owner of real property wants to sell, but the other co-owner(s) refuse to do so, an investigation into the availability of seeking partition should be performed. If negotiations fail and the co-owners cannot agree on a sale strategy, a lawyer should be consulted. The lawyer can provide advice regarding applicable statutes/codes and how to proceed regarding a complaint for partition and interlocutory judgment.

A receiver is a provisional remedy. It is not a cause of action. A partition is a cause of action. A complaint for partition may be filed. No existing litigation is required to proceed with the initial pleadings for partition; however, existing litigation is required in order to seek appointment of receiver. A receiver may or may not have the authority to sell a property, while a partition referee who is appointed in connection with a partition by sale, will always have such authority, subject to an order confirming sale and sale report being prepared and filed by the partition referee. A receiver may or may not involve real property. Sometimes a receiver is appointed over a business or in other circumstances the receiver is only appointed for a limited purpose such as to perform an accounting and to provide additional reports to the parties and the court. However, a partition referee’s duties are very specific and are set for in the California  Code of Civil Procedure. A receivership is a completely unrelated to a partition referee, although from a functional standpoint, if a receiver is provided with the authority to sell a property, there are many similarities to the duties of a partition referee, such as working to reasonably obtain the highest market value, to address creditor claims and to obtain an order confirming sale.

A partition referee in California may be appointed by the court after the filing of a Complaint for Partition and issuance of an interlocutory judgment. Depending on a variety of circumstances, this process may take between 2-4 months.

Receivers are paid in accordance with the Order Appointing Receiver. Ordinarily, a receiver is paid on an hourly basis and is required to circulate monthly reports including a statement of fees. Often, a receiver may pay himself/herself after circulation of a statement of fees as long as there are no objections. In other situations, a receiver may need to file a motion seeking a hearing to approve and pay fees. If funds are not available to pay the receiver (from estate assets), a receiver may borrow funds, under certain circumstances and subject to court approval, through the issuance of a receiver’s certificate. The receiver borrows funds from a lender subject to the terms contained in the certificate which serves  as the functional equivalent to a note. The certificate along with the order approving certificate may be recorded against the real property or a lis pendens may be filed to effectuate a lien if the recorder's office will not record the certificate.

While both receivers and bankruptcy trustees may be faced with administering estates that are facing financial difficulties, their roles are quite different.

Bankruptcy Trustee:

1. Context: A bankruptcy trustee is appointed in a bankruptcy case when an individual or business files for bankruptcy under the U.S. Federal  Bankruptcy Code. Bankruptcy is a cause of action. One can file a lawsuit for bankruptcy.
2. Role: The trustee manages the bankruptcy estate, reviews financial disclosures and bankruptcy petitions, oversees the liquidation of non-exempt assets (in Chapter 7), or administers repayment plans (in Chapter 11 or 13).
3. Authority: The trustee has the authority to act, per statute/court order, on behalf of the creditors and the court to ensure the bankruptcy process proceeds according to legal guidelines. They primarily focus on maximizing payments to creditors, in order of priority, from the debtor's estate.
4. Legal Framework: Bankruptcy trustees operate under federal bankruptcy law and are specifically trained to handle bankruptcy cases. There is very little flexibility in a bankruptcy case - when compared and contrasted with a receivership matter.

Court-Appointed Receiver:

1. Context: A court-appointed receiver is typically involved in a variety of legal contexts outside of bankruptcy, often in civil litigation or in situations involving business disputes, asset management, or regulatory issues. A receivership is not a cause of action. One may not file a lawsuit for receivership. A receivership is a remedy available in connection with existing litigation and it may be filed in either federal or state court.
2. Role: A receiver is appointed by a court to take control of a business or assets to protect the interests of creditors or stakeholders, manage disputes, or preserve the assets pending the outcome of a legal case.
3. Authority: Receivers can manage the operations of a business or liquidate assets as directed by the court. Their primary goal is often related to protecting and preserving assets rather than maximizing payments to creditors; however, a court may empower a receiver to sell assets for the benefit of creditor.
4. Legal Framework: Receivers operate under state law and the specific instructions of the court, which can vary widely depending on the situation and jurisdiction. There is a great deal of flexibility within a receivership. A receivership court is a court of equity.

In order to be appointed as a receiver, a receiver must first be nominated by a party. A receiver generally must be qualified to serve as receiver over the particular asset(s) within the receivership estate. A receiver must have a properly formatted CV, references and he/she must qualify to obtain a receiver’s bond. Professional licenses and/or designations may be helpful for an individual to qualify as receiver; however, generally, there are no receiver-specific licenses to become a receiver.

The first role of the receiver is set forth in the Orde Appointing Receiver. Generally, a receiver must first qualify to serve as receiver by filing an oath and bond. Thereafter, the asset under receivership is obtained by the receiver. This is either done by obtaining physical possession of the asset or by notifying creditors/tenants of the appointment of receiver; thereafter, the receiver collects income of the property or the business. In a federal equity receivership, the receiver generally must file an Initial Report within ten days of his/her appointment.

The role of a court appointed receiver is defined primarily by the order appointing receiver or any subsequent orders issued by the court clarifying the duties, obligations, authority and responsibilities of receiver. Traditionally, a receiver is known as an arm or agent of the court. The receiver is the court's receiver. Other than in instances where a receiver is appointed in aid in execution of judgment, or the receiver is working solely for the benefit of the judgment creditor, a receiver is neutral. A receiver may simply be appointed to preserve and maintain an asset or the receiver may be charged with an invasive, complex, costly and burdensome forensic accounting analysis of the operations of the business. This might include third-party claw-back litigation, claims procedures, sale of assets, contract analysis, defense and prosecution of existing and/or new litigation, tax administration, creditor and investor negotiations as well as the day-to-day operation of the business. In some instances a receiver will be required to provide monthly or quarterly reports to the court. Generally, a receiver will provide monthly or quarterly reports to the parties in the litigation. 

The role of the receiver will be impacted greatly by whether or not the receiver is a limited purpose receiver or an equity receiver. If the receiver is appointed on a limited basis then the receiver will generally take possession of assets that are collateral for a loan or a judgment. If a receiver is appointed on an equity basis then the receiver is actually the receiver over the ownership entity of the asset which might be real estate, intellectual property or a business. In this instance, the receiver actually operates the ownership entity as well as any underlying assets. The role of the receiver can change from time to time based upon further orders of the court as new information is learned or as the underlying litigation progresses. Existing litigation must be present in order for a receiver to be appointed. Receivership is not a cause of action; rather, it is an equitable remedy.

When a receiver is appointed over a company, the receiver will generally undertake an analysis of the operations of the Company including taxes, receivables, payables, payroll, inventory, litigation, insurance, marketing, business licenses as well as an overall analysis regarding the propriety of the business itself to verify that it is operating in a lawful manner. Depending upon whether or not the long-term goal of the receivership is to operate the business as a going concern or to simply liquidate and sell the business, the receiver may or may not make the appointment of receiver public. In some instances the receiver is very concerned about relationships with trade vendors or customers. However, if the Company has been engaged in allegedly illegal conduct, than the receiver will likely immediately shut down operations. In some cases a receiver is appointed solely to perform a financial analysis of the company and will not be engaged in day-to-day operations at all.

A receiver generally has an obligation to all creditors including taxing agencies. A receiver will advise (not including some limited purpose receiverships) taxing agencies of the appointment of receiver and will need to undertake an analysis regarding what tax obligations may exist. The receiver will verify whether or not tax returns are current and appropriate professionals will be retained by the receiver to assist in the operation of the business. Key personnel will be interviewed and their role, function, compensation and performance will be  analyzed as will the policies and procedures of the company. A risk analysis may be performed regarding insurance, possible premises liability issues, OSHA and wage-hour compliance etc. The receiver has a duty to use reasonable care to manage the business and/or the assets owned by the business and to use his or her business judgment in doing so. In many instances this is challenging, especially in the early phases of the receivership because the receiver may not have access to good business records for the business owners may be actively interfering with the efforts of the receiver to perform his/her duties.

In many instances a company will continue to operate under the guidance of a receiver and very little changes will be apparent to the outside world. A receiver may be marketing the business for sale and will be preparing a due diligence package allowing third-party purchasers to evaluate and value the business. In other instances, a receiver may need to make material changes to the operation of a business when the receiver identifies problems based upon noncompliance of laws or customs and practices in the particular industry within which the business operates. Finally, a receiver may determine that it is required to immediately suspend operations of the business. This may occur for a variety of reasons including allegations of fraud, mismanagement, insolvency and/or other considerations. Each case stands on its own and is entirely different.

The responsibilities of a receiver are specifically identified in the order appointing receiver. This may include financial analysis only. Or, it may include the actual operation of the business or real estate. The receiver may also only perform certain tasks based upon phases. For example, a receiver may be required to provide an initial report to the court after which the court will determine whether or not the receivership estate should or should not continue. Responsibilities of a receiver may also include addressing creditor claims, legal compliance with laws, codes and ordinances as well as tax obligations. However, the specific responsibilities are generally set forth in the initial or subsequent orders of the court and they may vary based upon the lifecycle of the receivership, new information as the case matures and possible changes in the underlying litigation. Essentially, a full equity receiver steps into the shoes of the owner and takes over operations of all elements of the business including taxes, investor relations, marketing, accounts payable, receivables or in the case of real estate, collection of rents, payment of invoices and repairs and maintenance of the property. A receiver may ultimately market and sell a business and/or real estate pursuant to existing or further orders of the court. It is important for a receiver not to take actions beyond those identified in the order appointing receiver.