Serving as a partition referee is similar to serving as a superior court receiver, but with some significant differences.

First and foremost, while California receivership law is often found in case decisions, there is a detailed statutory scheme regarding partition referees. The duties and responsibilities of a partition referee are detailed in Title 10 of the California Code of Civil Procedure at §§872.201 et seq., which deal with the partition of real and personal property. Usually the underlying lawsuit involves the partition and sale of co-owned real property. Sometimes the parties at odds inherited property and are unable to agree on its sale or operation. Other times, the litigants acquired property jointly as joint venturers, partners, co-habitants, or simply co-owners, and have a similar disagreement.

Unlike most receiverships, a partition referee is appointed post-judgment – after the court has issued an interlocutory judgment that determines the interests of the parties in the property and orders its partition. (§872.720) It is easy for a litigant to obtain that interlocutory judgment. The litigant merely needs to prove co-ownership of the property, and a disagreement about whether or not it should be sold. The trial court then appoints and supervises the partition referee.

A party obtaining the appointment of a partition referee can reduce the partition referee's fees and costs by communicating with the proposed partition referee before obtaining the interlocutory judgment, and through the partition referee selecting a realtor, obtaining a broker's opinion of value for the property and obtaining a proposed listing agreement. The moving party can then insert the name of the listing realtor, the listing price, and the sale commission amount in the interlocutory judgment. While the partition referee does not need to obtain a court order specifying all of these details, a prudent partition referee does so in order to avoid future disputes about the identity of the listing realtor, the sale price, or the sale commission. By putting these details in the interlocutory judgment, the moving party avoids a motion, hearing, and the resulting delay in the partition referee's efforts to sell the property. Because the parties usually don't agree that the property should be sold, it usually is impossible to obtain a stipulated order regarding these (or any other) details.

The appointing court may require the posting of a bond by the partition referee, (§873.010(b)(1)), but while a receiver always has to post a bond, a partition referee usually is not required to do so. Like a receiver, the partition referee (or any party) may file a motion for instructions regarding the partition referee’s duties. (§873.070) The partition referee may hire attorneys, realtors, auctioneers, and other professionals, with court approval. (§873.110 et seq.)

While a partition referee may occasionally be appointed to divide co-owned property, far more often the partition referee is instructed to sell the property, with the proceeds thereafter divided among the co-owners. The property may be sold by public auction or by private sale, as determined by the Court. (§873.520) Like receivership sales, private sale is much more common than public auction.

The partition referee must determine if there are any tenants or occupants at any real property to be partitioned. It is not unusual for the partition referee to have to file an unlawful detainer proceeding (with appropriate court authorization) to evict occupants or tenants before listing the real property for sale. Unfortunately, when necessitated, these proceedings increase the costs of administration and delay the sale of the property. Anytime a partition referee obtains possession of real property with a vacant structure on it, like a receiver, the partition referee should post "No Trespassing" signs in order to avoid the all too frequent nuisance of squatters.

The partition referee can and should negotiate the highest possible price on the best terms when selling the property, and should not necessarily accept any particular offer before trying to negotiate a higher price. It also is important that, like the listing agreement, any final sale contract should specify that court confirmation is required before any sale is final, that overbidding may occur in court, and that the property is sold where is/as is, without any representations or warranties.

The partition referee files a report and noticed motion to confirm the sale after the partition referee has contracted to sell the property in accordance with the court’s instructions and the prospective buyer has waived all contingencies. However, in reality, the court will usually hear the motion on an ex parte basis because most buyers are anxious to close their sales quickly, financing may have short cut-offs, and the market may change if there is a lengthy hearing delay in this era of congested trial courts. In the case of real property, escrow usually opens and the buyer engages in his/her due diligence before waiving contingencies. Before contracting with a buyer, the partition referee should be satisfied that the prospective buyer has the financial ability to close the transaction timely.

Section 873.710 requires that the partition referee’s motion to confirm the sale must include (along with other appropriate data) all of the following:

1. A description of the property sold to each purchaser.
2. The name of the purchaser.
3. The sale price.
4. The terms and conditions of the sale and the security, if any, taken.
5. Any amounts payable to lienholders.
6. A statement as to contractual or other arrangements or conditions as to agents’ commissions.
7. Any determination and recommendation as to opening and closing public and private ways, roads, streets, and easements.
8. Other material facts relevant to the sale and the confirmation proceeding.

Before bidding, an overbidder must deposit a cashier's check with the partition referee equal to the buyer's deposit, which check is returned to the overbidder if he/she is not the high bidder. If the overbidder is the high bidder, the deposit is at risk if the overbidder fails to close timely. When there is a successful overbidder, only the name of the purchaser and the purchase price changes; otherwise, all purchase contract terms remain unchanged. The overbidder does not get additional time to close escrow, and must have completed his/her due diligence prior to the confirmation hearing and have the financial ability to close timely. If there is overbidding, it is a good idea for the partition referee to encourage unsuccessful bidders to remain in backup positions, and to have the court issue an order authorizing a sale to backup bidders if the high bidder fails to close timely and forfeits his/her deposit. The partition referee thereby avoids the necessity of having to return to court for new sale authorization to another buyer.

In order to encourage overbidding, the listing realtor should continue to market the property while it is under contract for sale, and should contact everyone who expressed an interest in the property and inform them about the sale confirmation hearing and the opportunity to overbid. While not required, if real property is being sold, it also is a good idea for the partition referee to serve the sale confirmation motion on the purchaser’s realtor, inform the purchaser’s realtor about the possibility of overbidding in court, and specify that it is advisable for the purchaser and his/her realtor to attend the hearing if they are interested in participating in a judicial sale should one commence. Overbidding is infrequent, though it does occur on occasion (and more frequently in times like now when demand for real property is high and interest rates are low). Overbidding most often occurs when real estate is rapidly escalating in value, when there were multiple competing purchase offers before the partition referee conditionally accepted the highest offer and one of the competing purchasers reappears in court with a new higher offer, or when one of the parties to the suit (or someone affiliated with one of the parties) attempts to purchase the property in court. While a litigant purchaser may credit a set-off against the purchase price (CCP §873.770), the partition referee should make sure that the net cash to be received includes adequate funds to satisfy all liens, costs of the sale, and costs of administration (including the partition referee’s anticipated fees and costs).

Upon approving the sale, the court will issue an order authorizing the partition referee to sell the property to the specified purchaser (or designee) on specified terms (or terms substantially similar thereto). It is a good idea for the partition referee’s proposed order to specify that the property can be sold to the purchasing bidder’s designee, or on terms substantially similar to the proposed agreement. This avoids the possible necessity of a last minute motion and hearing for approval of relatively insignificant matters. If the property being sold is real property, the partition referee should promptly deposit a certified copy of the Court order approving sale in escrow so the purchaser can obtain title insurance.

After sale, the partition referee files a final report and motion to disburse the remaining funds among the parties, for approval of the partition referee’s fees and costs, and to terminate the appointment. The interlocutory judgment usually provides guidelines for the partition referee’s recommended division of the sale proceeds among the parties. Sometimes an accounting is necessary because the parties may not have equally divided costs or income from the property. If the partition referee is uncertain how the funds are to be allocated, the report should say so and ask the court to make those determinations. An experienced partition referee will include requested orders in this motion paralleling standard orders typically requested in a receiver’s final report - such as a requirement that the parties defend and indemnify the partition referee against any future claims, and that the court retains jurisdiction over any such claims.

Following the court’s approval of the partition referee’s final report and account, the partition referee usually receives his/her initial and only payment for serving as the court’s partition referee.

All citations are to the California Code of Civil Procedure.

This article was originally published in the Summer 2003 issue #10 of Receivership News. There has been an uptick in partition cases, so the author has graciously updated the original article for this issue of RN.

*Mr. Pasternak, a member of Pasternak & Pasternak, a Century City law firm, is a founding Co-Chair of the L.A./Orange County branch of the California Receivers Forum. He serves as a receiver, provisional director and partition referee, and represents those fiduciaries as counsel.