Legal Question in Real Estate Law in California
Verbal Partnership to Buy - One Party Violated Contract
Hi,
I agreed (verbally) to purchase a duplex with my mother (loan and title in my name only), under the condition that she live in one of the units, rent the other one out, and we split proceeds from sale. Immediately after purchase, she informed me that she did not want to leave the house she was renting, and did not move in. I moved into one unit last year. One month later, she used the rent from the remaining tenant to go on vacation to Mexico (her own account was frozen by the IRS). After that, it was very difficult to contact here. When we did track her down, she said, �Cash me out.�
I sold the house after making significant repairs, cashing in a 401K, and being late on some credit card payments. A previous tenant sued because of a disagreement about first months rent (which my mother forged my signature on). My mother agreed to pay, then never did, resulting in a lien being placed on the house 10 days before closing. I re-reimbursed my mother for all expenses she incurred (including mortgage payments), and now she is suing me.
It is my understanding that she violated our agreement causing me hardship. Do I still owe her half of proceeds? What are my chances in court? Proceeds after closing were around $80,000.
1 Answer from Attorneys
Re: Verbal Partnership to Buy - One Party Violated Contract
You have probably heard by now that oral contracts to buy and sell real estate are not enforceable. While that's generally true both as a matter of common law and modern California statute, there are many exceptions, and I would say that one or more of them would apply to your situation.
Furthermore, some kind of legally-recognized partnership certainly exists here, and the real estate in question was probably partnership property and must be dealt with as such under partnership law, which imposes high standards of fair dealing on each partner.
If the facts really are pretty much as you say and your mother doesn't have any defenses that aren't apparent here, I would say you are entitled to more than half, but probably not all, of the net sale proceeds.
The formal, proper way to wind things up legally is to sue for dissolution of partnership and an accounting. In the meanwhile, assuming you have possession and control of the $80,000, don't spend it. The court will hear your evidence and decide who gets how much. Of course, your mother (after being legally served, of course) may not bother to answer your complaint, and you would then only need to present some evidence at a default hearing.
An equally acceptable and probably faster and cheaper way to end the dispute and get the money divided is for both of you to submit the issues to binding arbitration. You would still need an attorney's assistance, but the cost could be significantly less. However, it takes agreement to submit the dispute.
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