Summer 2003 • Issue 10, page 1

So, You Want to be a Partition Referee?

By Pasternak, David*

(An overview of the statutory duties and practical challenges of this unique position)

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 §§872.0101 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) The trial court then appoints and supervises the partition referee.

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 may not. 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) Following his or her appointment, the partition referee usually asks the Court to authorize a specific listing agreement, a sale or an auction contract. If the parties communicate with an experienced partition referee before the court issues the interlocutory partition judgment, this subsequent motion and hearing (and costs related thereto) can be avoided by inserting specific sale instructions and procedures in the proposed interlocutory judgment. For example, the proposed judgment can authorize the partition referee to list the real property for sale with a specified broker for a specified listing priced for a specified time (such as 90 days) with a specified sales commission.

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.

The partition referee can and should negotiate the highest possible price on the best terms when selling the property. The partition referee should not necessarily accept any offer without trying to negotiate a higher price. It is also important that any final contract of sale specifies that court confirmation is required before any sale is final and that overbidding may occur in court.

The partition referee files a report and noticed motion to confirm the sale after the property has been sold in accordance with the court’s instructions. In the case of real property, escrow usually opens and the buyer engages in his/her due diligence during this same period. However, if the partition referee has some sincere doubt about the purchaser’s ability or intention to ultimately close the transaction, the partition referee may chose to delay filing this motion until those doubts are allayed.

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:

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

It is also a good idea for the partition referee to specify in the motion the minimum permissible overbid, for the information of the court and interested parties. Section 873.740(a) requires that any overbid be in writing and exceed the proffered sales price by at least ten percent (10%) of the first ten thousand dollars of the offered price and five percent (5%) of the offered sale price in excess thereof. As an example, if the partition referee submits a $500,000 offer for court approval, the minimum overbid would be $525,500 ($1,000 — 10% of the first $10,000, plus $24,500 — 5% of the remaining $490,000).

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. The partition referee also should inform the purchaser’s realtor about the possibility of overbidding in court, and that it is advisable for the purchaser and his/her realtor to attend the hearing if they are interested in participating in a judicial auction if one commences. Overbidding is infrequent, though it does occur on occasion. 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 (§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. 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.

Then, 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.

¹All citations are to the California Code of Civil Procedure.

*Mr. Pasternak, a member of Pasternak, Pasternak & Patton, 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 the same as counsel. He recently represented a former L.A. Superior Court judge serving as a partition referee.