Real Estate Remedies - Part 1 - Chapters 35-37

Question 1

Discuss the use of a partition action to resolve disputes between co-owners of real estate

Answer 1

A partition action is a lawsuit to sever or sell real estate which is co-owned. A partition action severs co-ownership of real estate by either:

• dividing the property into parcels and distributing it in kind among the co-owners, when feasible, or
• selling and distributing the net sales proceeds to the co-owners according to their percentage of ownership.

Co-owners may mutually agree to divide the real estate in a VOLUNTARY PARTITION or sell it under voting provisions in written co-ownership agreement.

Conversely, a PARTITION ACTION will force an involuntary division or sale of the real estate.

Question 2

Determine whether a sale or division of real estate is the most practical outcome in a partition action

Answer 2

The real estate interest which are subject to a partition suit include:

• Fee Estates
• Life estates and
• Leasehold Estates.

However, not all forms of co-ownership or types of property allow for a partition to terminate a co-ownership. Other real estate interest, such as easements or profits of pendry, which is taking minerals from the ground, cannot be separately sold or partitioned.

Any division of the real estate needs to comply with all environmental, zoning and other ordinances affecting the use of the real estate. Thus, when the division of the property by partition is highly impractical, a sale of the property is the most practical remedy.

A co-owner may avoid the unnecessary cost of a partition action at the outset of a dispute between co-owners by:

• selecting the correct form of ownership and
• including in the co-ownership agreement a provision for disposition of the property on termination of the co-ownership.

When real estate cannot be divided equally in a partition action, ___owelty____ is the money paid to even the distribution.

A notice of sale must be given to all parties named in a partition action at least ___20____ days before the sale date.

Question 3

Better understand the need for a LLC vesting for co-owners other than spouses, to keep disputes from affecting title and operations of a property

Answer 3

The least problematic and thus the best form of co-ownership of real estate is an LLC. In the LLC operating agreement, co-owners agree in advance what will happen when one of the members wants to withdraw or is expelled from the group. A member holds no interest in the real estate vested in the LLC, only a vote and entitlement to an accounting of the LLC’s activities.

Question 4

partition action

Answer 4

A PARTITION ACTION is a court proceeding by which co-owners seek to sever their joint ownership and parcel or sell a property. The need for a partition action arises when co-owners cannot agree on the management, division or sale of the real estate they jointly owned.

A partition action is an equitable remedy which has its roots in English common law, called Chancery. The court of equity, Chancery, has great discretion in deciding what is the best resolution for feuding co-owners.

While partition and distribution of the property is the preferred Equitable result, not all forms of co-ownership or types of property allow for a partition to terminate a co-ownership.

• unmarried co-owners vested as joint tenants or tenants in common have an absolute right to partition or sell the real estate owned.
• A partition action is available to unmarried joint tenants or tenants in common who hold title in their individual names
• spouses owning property with title vested as community property are not entitled to sue for partition of the real estate as it is a Community Asset.

Further real estate acquired as joint tenants during the marriage is presumed to be community property, unless they have a statement in the deed or a separate written agreement stating the real estate is not community property. Disputes between spouses to sever community property interest in real estate are handled as part of divorce proceedings, called dissolution.

Question 5

distribution in kind

Answer 5

A DISTRIBUTION IN KIND is the distribution of a LLC limited liability company real estate on dissolution to members as a return of their Capital contributions. When the members agreed to end their co-ownership, they mutually terminate their relationship by dissolving an LLC and an accounting of the LLC’s assets. Generally, the accounting provides for the LLC’s assets to be sold, not partitioned and distributed to members. Thus the sale proceeds are distributed to the Members.

However, members may agree in the LLC operating agreement to a distribution of the LLC property to the individual members as a manner of returning their capital contributions, a distribution called a distribution in kind.

Question 6

referee

Answer 6

A REFEREE is an advisor to the court on the feasibility of the division or sale of co-owned Real Estate. The following are the procedures in a partition action

1. to establish each co-owners interest in a parcel of Real Estate.
2. determine the condition of the real estate title, primarily by use of a Title Company’s litigation guarantee, which is an insurance policy issue based on their search of record title.
3. determine the priority of all liens on the property
4. appoint a real estate broker or attorney as a referee to wade through the facts presented by the co-owners. The referee is an advisor to the court on the feasibility of the partition or sale.

An appointed referee’s activities are subject to judicial review and approval. The referee’s job is to balance the competing interest and arrive at a reasonable division of the property between the co-owners. The referee determines how the property is to be divided and prepares a report for the Court’s review and approval. The report may be contested by the owners.

Question 7

Determine when a quiet title action may be used to clear title to real estate

Answer 7

The record owner of a parcel of real estate judicially eliminates unenforceable claims or other clouds on title, recorded or unrecorded, which are adverse to their ownership of the fee title by quieting title of the claim by a court order.

Question 8

Identify who may file a quiet title action

Answer 8

A quiet title action is a Judicial procedure employed to determine claims to NONPOSSESSORY rights in disputes over title to real estate.

Title dispute over real estate interest which are resolved by a quiet title action include:

• a buyer or their successor against the holder of an easement which was unrecorded and unknown on the date the buyer acquired ownership
• an owner or a buyer against the holder of an expired lien
• an owner against another who claims to be the owner
• a buyer in possession of property under a land sales contract, lease option sale or a similar security device against a lienholder other than the seller or
• an adverse possessor against the holder of title.

A buyer who is an equitable owner may quiet title of adverse claims which threatened their ownership interest in the property. The holder of an interest in real estate other than the fee title, such as an easement, right of way, lien, lease option or by adverse possession, may also use a quiet title action to eliminate claims which challenge the interest they hold in the real estate.

Question 9

List the factors required for a person to prove their right to quiet title to their interest in real estate

Answer 9

Only an occupant who can establish a claim of title to property, such as by adverse possession, Equitable ownership or strict foreclosure and forfeiture by a lender, may quiet title to the property in their name and become the owner of record.

Question 10

cloud on title

Answer 10

A CLOUD ON TITLE is a claim, an encumbrance or condition which impairs the title, not possession, two real estate until eliminated by a Release of Recorded Document, Quit Claim Deed or a Quiet Title Action. Since clouds on title interfere with a transaction, Brokers need to consider effective ways to eliminate them and close the transaction, the original goal of the buyer, seller and agents.

Question 11

cause of action

Answer 11

A CAUSE OF ACTION are facts which are the basis for a claim in a court action. In the case of a quiet title action, conversely, an owner’s possessory remedies, such as ejectment or removal of improvements, are separate causes of action. However, they may be included with a quiet title action when possession of the property is also in question. Ejectment and encroachment actions address possession, not title, are unrelated to quiet title action.

Question 12

bona fide purchaser (BFP)

Answer 12

A BONA FIDE PURCHASER (BFP) is a buyer who purchases a property for valuable consideration in good faith without notice or knowledge of pre-existing, encumbrances or conditions affecting their right to full ownership. An owner who is, or is a successor to, a bona fide purchaser may eliminate claims against their interest in the property arising out of an unknown and unrecorded interest - such as a conveyance, lease, lien or use restriction – by commencing a quiet title action against the holder of the unrecorded interest. A buyer who purchases property from a bona fide purchaser is called a successor in interest. A successor-in-interest to a bona fide purchaser interest is also a bona fide purchaser, even though the successor is fully informed about the cloud on title at the time of their acquisition.

Question 13

quiet title action

Answer 13

A QUIET TITLE ACTION is a court action to remove a cloud and establish title to a property.

Question 14

redemption

Answer 14

REDEMPTION is a property owner or Junior lien holders right to clear title to property of a mortgage lien prior to the completion of a trustee sale or following a Judicial foreclosure sale by paying all amounts due on the Mortgage Debt, including foreclosure charges.

Question 15

forfeiture

Answer 15

FORFEITURE is the loss of money, rights or anything of value due to failure to perform, a remedy abhorred by the courts.

Question 16

restoration

Answer 16

RESTORATION is the return of funds and documents on a rescission of a purchase agreement or transaction sufficient to place all the parties in the position they held before entering into the agreement or closing the transaction.

Question 17

restitution

Answer 17

RESTITUTION is a refund to the buyer by the seller on a rescission of a transaction in the exchange for the restoration of the property to the seller. Restitution is an accounting between the buyer and seller which results in a refund to the buyer in exchange for the return of the property to the seller.

After the accounting is complete by the seller accounting for their losses and the buyers accounting on the forfeiture, if the amount the buyer is entitled to receive is greater than the credit the seller is to receive for their losses, the buyer is entitled to a refund of the difference, called restitution. Restitution is the excess of the buyers payments over money losses incurred by the seller due to the buyer’s breach of the contract and hold over possession of the property. The buyer is entitled to a money judgment for the amount of restitution.

In conclusion the negotiation and execution of a deed-in-lieu of foreclosure on the land sales contract or lease option sale avoids any type of litigation and accomplishes a mutually acceptable result – recovery of the property and a settlement.

Question 18

equitable owner

Answer 18

An EQUITABLE OWNER is a person who purchased a property and has not yet received legal ownership placing title in their name, such as occurs under a purchase agreement, land sales contract or lease option sales agreement.

As an equitable owner, a buyer may quiet title of adverse claims which threaten their ownership interest in the property. Equitable owners include:

• beneficiaries of an irrevocable trust, but not of a revocable inter vivos living trust or simple revocable transfer on death deed (RTDD)
• buyers in possession of property under a contract for deed, land sales contract or lease option sale
• buyers in escrow under purchase agreements
• owners in possession of property who have been defrauded of their legal title.

Question 19

Understand the use of a declaratory relief action by a client to resolve a dispute between real estate owners, tenants or others with an interest in the real estate

Answer 19

To resolve disputes over the use of real estate, a person may file for declaratory relief. The declaratory relief statutes allow a person to obtain a declaration of rights and obligations before an actual claim arises for the recovery of money or property, or a breach of an obligation. The requirements for obtaining a declaratory judgment are:

• an actual controversy exist as to a person’s rights or duties and
• the controversy will likely result in future litigation if not resolved.

Actions for declaratory relief are given priority over the court scheduling of other kinds of actions. When a claim for declaratory relief arises due to a performance already in process, the court will postpone the contested activity, called a stay, until the declaratory relief action is resolved.

The differing parties in a declaratory relief action often enter into a Reservation of Rights Agreement allowing them to preserve their respective claims so they may later pursue them after a court declares their rights.

A person is not required to breach their obligations before they can seek a Judicial determination of their rights.

Declaratory relief may also take the place of a buyer’s or seller’s claim the conduct of the other party is an anticipatory breach of their purchase agreement, lease agreement or note and Trust deed.

Declaratory relief may be sought to interpret nearly any kind of right or obligation. When a party is requesting a declaratory judgment, the party is seeking an official declaration regarding the status of the controversy in issue.

Question 20

declaratory relief

Answer 20

Declaratory relief is an action seeking a Judicial Declaration of the rights and obligations of parties to a disputed situation. Declaratory relief functions as a kind of preventative Justice, settling controversies before they result in litigation to recover money, convey property, rescind a transaction, reconvey property lost to foreclosure or reoccupy a premises after an eviction.

Declaratory relief is based on an individual’s right to know where they stand in relation to the adverse claims made by another person which might affect their position.

To account for preventative Justice, declaratory relief statutes allow a person to obtain a declaration of rights and obligations before an actual claim arises for the recovery of money or property, or a breach of an obligation.

Note when an actual controversy exists, a person is entitled to declaratory relief even if the judgment is against them. They are entitled to have their uncertainty resolved.

Question 21

anticipatory breach

Answer 21

An anticipatory breach is when a buyer or seller repudiates the purchase agreement by their words or conduct before closing. Declaratory relief may also take the place of a buyer’s or seller’s claim the conduct of the other party is an anticipatory breach of their purchase agreement, lease agreement or note and Trust deed.