Pre-Litigation Settlements of Partition Matters

settlementOur firm receives many inquiries from co-owners of properties.  As longtime readers of this blog are aware, a partition action can be brought in the appropriate Court when co-owners cannot agree on the disposition of real property.  Such an action would demand that the Court appoint a Referee to determine the respective shares of the co-owners, and, if necessary, actually sell the property.

However, there are often situations in which the parties may agree to the disposition of the property without resorting to actual litigation.  In this pre-litigation period, the parties, through their attorneys, may negotiate a resolution in which either one party can buy the other’s share of the property, or agree to jointly sell the property and share the proceeds.  In such a situation, experienced counsel should prepare a written agreement, to ensure compliance with the parties’ understanding.

What provisions should be included in such an agreement?  The agreement should first state that the parties are co-owners of the property, and the exact amount of their percentage shares of ownership.  Next, there should be terms for the disposition of the property.  For example, two brothers inherit a house from their parents, and agree to sell the property and share the proceeds equally.  The agreement should state that the parties will cooperate in hiring a licensed real estate broker to market and sell the property.  The agreement may even include more details, such as the name of the real estate broker, and the initial listing price for the property.

Another issue that should be addressed in writing is what happens if there are no offers for the property at the initial listing price.  The agreement may state that after a given amount of time on the market (for example, forty-five days), the broker may reduce the asking price by a certain percentage (such as five percent).  This will ensure that the property does not remain on the market indefinitely.

An agreement to resolve a partition action may also allow one party to buy out the interest of the other.  An example would be an unmarried couple that jointly owns a condominium apartment.  They then split up, with one remaining in the apartment, and the other moving out.  In such a situation, the individual residing in the apartment may want to buy out the interest of the other owner, and become sole owner.

In such a situation, an agreement would need to state the exact sum that the co-owner needs to pay the other.  Such a sum would be based on negotiations between the parties, and would include credits or debits for each party’s respective contributions towards the initial purchase of the property, as well as their contributions towards maintaining the apartment, such as mortgage payments, repairs, and maintenance fees.

Once an amount is agreed upon, the agreement would also state the time frame in which the buyout would be completed.  If the purchasing party needs to obtain a loan, more time might be required to close the transaction.

Finally, the agreement must also contain a paragraph stating that, in the event a party does not comply with its terms, the other party may file the agreement in Court and seek remedies consistent with the agreement.  Although the purpose of such an agreement is to avoid litigation, if a party fails to comply with its terms, litigation may then be necessary in order to enforce the agreement.

Our firm has extensive experience in preparing and enforcing agreements to partition real property, and welcomes all inquiries in this area.

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