What is a Michigan Partition Action?
In Michigan, joint owners of property can file a lawsuit to partition the property amongst the owners. A basic explanation is that a partition lawsuit will force the court to either divide the property between the owners, or sell the property and divide the sale proceeds between the owners. The most common scenario for a partition action is two or more siblings who have inherited a property as joint owners and cannot manage and use the property harmoniously.
Joint Ownership. This is the first step in determining whether a partition action is available to the owners. There are two main types of joint ownership in Michigan, joint tenants and tenants in common. If the deed does not list the type of ownership, but simply lists two or more owners, it is tenants in common ownership. The distinction between the types of joint ownership is not critical to this analysis; a partition action is available to both types of ownerships. A partition action is not available to property owned as tenants by the entireties (married couples) or property owned by a business entity such as an LLC or corporation. In these circumstances, the property should be split as part of a divorce action or an appropriate action under Michigan’s LLC or corporation acts, as appropriate.
Any joint tenant or tenant in common may sue for a partition of the property. The owner seeking partition does not have to demonstrate any fault or wrongdoing of the other owner; seeking partition is a right of any co-owner.
What type of partition? The next step in evaluating the partition action will be determining how the property will be divided. The court rules and statutes speak first of a geographical partition of the property. A commissioner is appointed by the court to separate the property into parcels for each owner. These new parcels will then be approved by the court, documentation reflecting the new parcels will be recorded, and each parcel will be owned individually by the former co-owners.
While geographical partition may be possible for some properties, it cannot be accomplished for most properties, and certainly not for a property with a single dwelling on it. In these circumstances, the court will appoint someone to conduct a sale of the property, and the proceeds will be divided amongst the owners. The co-owners of the property are allowed to bid and purchase the property.
Equitable considerations and owelty. The court is specifically authorized to take into account the equities of the situation. It has the power to divide the property or distribute money from the property sale unequally if the court believes that is the fair result. This situation normally arises when one owner has paid a higher share of property taxes or expenses. Factors which a court will normally evaluate are the cost of the taxes and expenses, how much each party used the property, and whether the expenses were for upkeep of the property, benefitting all, or were an upgrade to the property, which might have been just for the benefit of the owner paying for that upgrade. There is no bright line test the court will apply, but instead the court has broad discretion to act as it sees fit.
The court even has the power to require one party to compensate another owner, called owelty. Owelty is normally required when the property can be split geographically, but not entirely equally, so one owner is ordered to pay the other owner to even things up.
Practical considerations. Most properties are not capable of fair geographical partition, so the sale mechanism will apply. However, the sale mechanism used by the court is the same sale mechanism used in a foreclosure: minimal notice and an auction at the courthouse. This type of sale typically yields a purchase price much lower than fair market value. In some limited scenarios this may be advantageous to one party, but in most scenarios every party would benefit by a higher sale price.
Second, the dispute often settles by one party buying out the other party’s ownership interest. If there is a disagreement about the value of the property, the parties can agree on a neutral appraisal of the property to set a purchase price. The price is sometimes then adjusted to reflect any disparities in past payments of costs for the property.
A third category of settlement involves a sale to a third party but using a realtor instead of the court process. Typically marketing the property to purchasers will yield a much higher pot of money to split amongst the owners than the fire sale on the courthouse steps. Normally the parties agree upon a realtor, a period of time to list the property, and a floor price for the sale. If the parties cannot agree on a buyout amongst the owners, or neither party has the funds to buy the property, a third-party sale is often the best method to sell the property and split the proceeds.
Summary. Because nearly all partition actions result in a settlement, you might be tempted to think that partition actions are rare or worthless. Neither thought is correct. The main purpose of filing a partition lawsuit, in my opinion, is to force a co-owner to action. I am usually consulted on a partition action where one owner will not pay expenses or is dominating usage of the property (or both!) and will not respond to requests to discuss the situation or use the property fairly. In these situations, a partition action may be the only way to force the co-owner to discuss the situation or stop the bad behavior. A partition action may also be the last resort where one co-owner cannot be found, which occasionally happens when property is gifted to a group of heirs.
If you are caught in a joint ownership situation which you cannot resolve, I would welcome a chance to talk with you about your options. A partition action must be filed in the county where the property is located. If your property is in northern Michigan you should use a local attorney. Please email or call me to discuss your situation.