Legal Question in Real Estate Law in California

Re: Tenant in Common Sale

If all owners of a parcel of property do not agree to sell the property, then a partition action can be filed to force a sale of the property. However, the property will then be sold by a "referee" who will sell the property at an auction, for an amount ususally way below market value. It would be in your best interest to have a contract with the co-owner that says that should she refuse to sell the property, you would be entitled to any damages you would suffer, including the difference between the market value of the property and what the property actually sells for.

Re: Tenant in Common Sale

To answer your question, co-owners have a set of rights that is not entirely intuitive and not often well understood by folks who buy together.

First, you cannot sell any more than you own. You could theoretically sell your 60% interest to a stranger, but not her 40%, and vice versa. Needless to say, neither the demand nor the value of fractional interests in real property is very high.

Coupled with this is the principle that ownership as tenants in common or as joint tenants gives each what are called "undivided" rights. This means you get to occupy 100% of the house and 100% of its land, and SHE gets to occupy 100% of each. There is no "my part" and "your part" in a physical sense. This is a major reason why there is no real market for partial interests - they come with a built-in, non-evictable roommate of sorts.

It is also true that a co-owner can pledge his or her part interest as collateral by mortgage or deed of trust, but savvy lenders won't make such a loan without all co-owners becoming co-borrowers, because the collateral value of a part interest is virtually nil -- well, pretty low, anyway.

Further, if you move out and she continues to live there, she doesn't owe you rent, because her possession is an incident of (part) ownership. However, if she rents to a third party, you would be entitled to 60% of the net rental income, after expenses.

The law provides a remedy for unhappy co-owners. Either can sue for what is called partition. The name of this special kind of lawsuit goes back to days when most property could be divided physically - the half-section ranch would be subdivided into two quarter sections. Nowadays with most property improved with homes and strict subdivision laws in place, this is usually impractical, so most partition is done by court-supervised sale and division of the net proceeds in proportion to the former owners' interests, adjusted for excess payments one or the other may have made for mortgages, property taxes, insurance and necessary repairs. Other items may also be subject to adjustment in a partition.

A possible concern is that if the contributions to up-front acquisition costs such as the down payment and closing costs differs from the percentage ownerships taken in title, these interests might be subject to reapportionment in line with the down payment contributions under the principle of purchase-money resulting trust. If an out-of-balance ownership is intended, because one is making a gift or the other is promising something down-stream in offset, the parties should have an agreement in writing detailing the reasons.

Finally, it is not only possible, it is very desirable, to have a written agreement covering all aspects of the parties' deal, including the unforseen. Even if you remain happy with the deal the rest of your lives, your heirs will be glad you spelled out the fate of the property in writing!