November 27, 2022

Partition is any division of real property between co-owners, resulting in individual ownership of the interests of each. 24 N.Y. Jur. 2d Cotenancy and Partition § 116. Partition can be forced by an action between joint tenants or tenants in common for the division of their property between them, according to their respective interests, or if such division cannot be made, then for a sale and a similar division of the proceeds. Barton v. Reynolds, 81 Misc. 15, aff’d as modified on other grounds, 158 AD 951 [4th Dept 1913].

Partition actions can be emotionally difficult for the parties in question. Frequently, partition cases pit family members against each other. In that sense, such proceedings are not unlike in a divorce. Recently, Itkowitz PLLC handled two such cases. Both involved adult family members who, as children, grew up in the subject houses. The plaintiffs we represented were both in their early sixties, and both needed to cash out of their respective family homes.

In one case, the partition action involved two sisters[1]. The defendant-sister had raised her children in the residence, rent free. It had been many years since the plaintiff-sister (or client) had lived there, and she was eager to turn her part of the home into cash to buy a business she planned to carry her into retirement. The defendant-sister resisted the plaintiff-sister’s partition efforts. The defendant-sister had equity in the house, but she had no cash to purchase the plaintiff-sister’s portion of the house. We see this frequently when one sibling has been allowed to remain in the subject building, rent-free, for multiple decades. The person in residence feels entitled to be there, especially if they have invested money and labor in the upkeep of the home, even if they have lived rent-free for decades.

We found a mutually beneficial solution in the following manner. First, the matter was placed on the trial calendar. Second, this office connected the defendant-sister and her counsel with a few excellent choices for mortgage brokers. The defendant-sister was able to get a commitment from a bank to refinance the property and buy out the plaintiff-sister. Everyone got what they needed. The defendant-sister got closure, and the confidence to know that the home was now truly hers. Our client, the plaintiff-sister, got $200k for her retirement business venture.

The second case involved three brothers. Our client (plaintiff-brother) had a twenty-five percent (25%) share of the house, which he had not lived in for many years. Neither defendant-brother #1 nor defendant-brother #2, who each owned thirty-seven and a half percent (37.5%) interests in the house, had lived there for years either. The house had long been rented, but plaintiff-brother never received any share of the net income from the property. We filed a partition action to force a buyout of our client’s 25% interest. Once the matter was put on the trial calendar, and a pre-trail conference was held, our client obtained an agreement from the defendant-brothers to buy out his 25%, subject to an accounting of his share of the rental income.

In both examples explored above, our client was a family member with an interest in the property who wanted to liquidate that interest, tying up personal and financial loose ends in their lives. However, could you imagine if our clients or their siblings had sold their interests to a well-funded and aggressive real estate speculator, who sued the remaining siblings, not for a mutually beneficial and fair solution, but to force the sale of the property at a fraction of its cost so the speculator could swoop in and buy the home on the cheap? Well, that kind of thing was happening all over the place. Therefore, recently, the State Legislature enacted Real Property Actions and Proceedings Law Law (“RPAPL”) § 993 or the “Uniform Partition of Heir Property Act” (“UPHPA”), which became effective December 6, 2019. All partition actions commenced after the effective date of the Legislation are now governed by this law.

The express purpose of the UPHPA is to prevent predatory real estate speculators from buying a fractional part of a family property and forcing a sale at inequitable prices. The UPHPA contains procedures and timelines for resolving the various issues that arise in a partition action quickly, efficiently, and in a fair manner. Pertinent sections of the new law are discussed below.

“Heirs property” is defined at RPAPL § 993(2)(e):

‘Heir Property’ means real property held in tenancy in common which satisfies all of the following requirements as of the filing of a partition action:

(i) there is no agreement in a record binding all of the co-tenants which governs the partition of the property;

(ii) any of the co-tenants acquired title from a relative, whether living or deceased; and

(iii) any of the following applies:

(A) twenty percent or more of the interests are held by co-tenants who are relatives;

(B) twenty percent or more of the interests are held by an individual who acquired title from a relative, whether living or deceased;

(C) twenty percent or more of the co-tenants are relatives of each other; or

(D) any co-tenant who acquired title from a relative resides in the property.”

The UPHPA gives the Court wide latitude to weigh the totality of the circumstances in determining how the property should be divided, if possible, or sold. A key provision, which ideally should reduce the litigation costs and delay in such proceedings, is the mandate of an early settlement conference, before discovery commences. Thus, the UPHPA provides that upon the filing of a request for judicial intervention (such as a request for a preliminary conference), triggers the court to promptly send a notice to all parties concerned scheduling a settlement conference. At such conference, the parties or their attorneys shall appear in person or by counsel “fully authorized to dispose of the entirety or any portion of the case.” RPAPL § 993(5)(c).

Another key provision in the UPHPA directs the parties to “negotiate in good faith” to reach a result that is “fair and equitable” and if the court determines that the plaintiff is not negotiating in “good faith” then the court “shall” dismiss the action. This gives the court a powerful tool to compel an agreement upon pain of dismissal. RPAPL § 993(5)(f). In other words, a stranger to the family or property who purchases a fractional interest cannot unreasonably force a sale which would be inequitable or otherwise unfair to the heirs who also own fractional shares of the property.

The UPHPA further provides a mechanism for determining the value of heirs property. If the co-tenants cannot agree on the value of the property or a methodology to compute the value, the court shall order an appraisal of the property by a disinterested real estate appraiser to determine the market value. In the event the appraisal is challenged, the court shall determine the fair market value after a hearing on the issue.

Once the value is determined, the UPHPA provides that the court will then utilize the fair market value to determine the buyout price of any co-tenant who desires to be bought out, giving first priority to co-tenants who desire to acquire and who reside in the property. In the event of a buyout of a portion of the interest in the property, the funds for the purchase must be deposited in the court. Failing that, the court may order a purchase in kind, i.e., a purchase of the remaining fractional interests or a partition by sale of the entire property. In the event the court orders an open-market sale, the parties can agree on a broker to conduct the sale. If the parties do not agree, the court will choose a disinterested broker to perform the sale. There is also a specific procedure for the court to order a sale by sealed bids or auction.

2nd Ave Holding 1 LLC v. Lowenbraun, 2021 WL 1501594 [Supreme Court, New York County 2021], claims to be the first published case where there was an RPAPL § 993 hearing. The case is 20 pages long and gives us a good idea of RPAPL § 993 in action. In Lowenbraun, plaintiff had a 1/6^th interest in the subject property. First, there was motion practice in the case, wrangling over whether the subject property was “heirs property” as per RPAPL § 993. The court concluded that it was heirs property. When the parties could not reach a settlement, a duly licensed and disinterested real estate appraiser was appointed by the court to determine the fair market value of the property, pursuant to RRAPL § 993(6)(d). Plaintiff, thereafter, objected to the appraisal, and submitted an independent appraisal. Defendants did not like the court-appointed appraiser’s conclusions either, and were allowed to put in their own independent appraisal. The parties agreed via stipulation that their appraisal reports would substitute for direct testimony of the appraisers.

An interesting issue in Lowenbraun concerned how the presence of Rent Stabilized tenancies should be weighed for purposes of the various appraisals. A Rent Stabilized property may be valued as an income-producing property or as a piece of an assemblage for a development. One litigant was concerned that comps for the subject property were inflated because the valuation of development parcels was considered. The court in Lowenbraun went through all aspects of all three appraisals. Then the court considered the parties post-trial briefs. The court in Lowenbraun gave consideration to the experience of the various appraisers and how much they were compensated by the parties that hired them.

The court in Lowenbraun noted that RPAPL § 993 does not state the date, for purposes of valuation that a court should use. This was a particularly important issue in Lowenbraun because of the occurrence of the Pandemic in the middle of the case and the appraisals. In the end, the court relied upon an average of the appraisals.

RPAPL § 993 is definitely something we should all keep our eyes on.

Respectfully submitted,

Jay Itkowitz and Michelle Itkowitz

[1] Some of the details have been changed to protect the innocent.