Wednesday, November 11, 2009

PARTITIONING COLORADO REAL ESTATE: HOW TO FORCE A SALE

Any party with an interest in real property can force a partition. But, partition in kind (physical partition) is favored over a forced sale. A Colorado district court may only direct the sale of property which is subject to being partitioned under limited circumstances. See 4 Thompson on Real Property § 38.04 , (David Thomas ed. 1994). To force a sale a party must have a court appointed commissioner (one or more) report to the Court and have the Court find that “partition of the property cannot be made without manifest prejudice to the rights of any interested party.” C. R. S. § 38-28-107 [emphasis added]. Only in that event does the Court have the power to direct a public sale. Id. But, what is “manifest prejudice” and how do you prove it?

“Manifest prejudice” is directly addressed in Young Properties v. Wolflick, 87 P.3d 235, 238 (Colo. App. 2003), which states:

"No Colorado court has defined 'manifest prejudice' in the context of a partition action. However, other jurisdictions require a showing of 'great prejudice' before partition by sale may be ordered. In our view 'great prejudice' is equivalent to 'manifest prejudice.' See Webster’s Third New International Dictionary 1375 (1986) (defining “manifest” as capable of being readily and instantly perceived, obvious, overt). In those other jurisdictions, great prejudice has been shown when either (1) the physical characteristics of the land make it impracticable to divide into equal parts; or (2) the value of the whole is materially greater than the sum of its parts. See Ashley v. Baker, 867 P.2d 792, 796 (Alaska 1994) (test for prejudice is whether combined value of the shares would be materially less than the whole); Wilcox v. Willard Shopping Ctr. Assocs., 208 Conn. 318, 544 A.2d 1207 (1988) (partition in kind of shopping center held to be impracticable); Boltz v. Boltz, 133 Wis.2d 278, 282, 395 N.W.2d 605, 607 (Ct. App. 1986); Thompson on Real Property, supra. We agree with those decisions. [Emphasis added.]"

Thus, if you can show that the physical characteristics of the land make it impracticable to divide into two equal parts or that the value of the whole is materially greater than the sum of any parts that could be created by physical partition, you should obtain an order forcing a public sale.

Physical Characteristics Making It Impracticable to Divide Property Into Equal Parts

Disparities in such factors as topography, slopes, views, drainage, access, water zones, sewage disposal, or existing utilities may make it impracticable to physically divide the property without substantial prejudice to anyone. The law also allows for creative, but logical arguments about properties based on their location. For instance one can argue the absence of an approved site-specific development plan for property whose location makes its highest and best use a residential neighborhood community makes physical partition inherently speculative and prejudicial. This conclusion flows from the inability of owners to reasonably calculate future development costs or revenues without the vested rights which arise by operation of law upon governmental approval of a site specific development plan. See, C.R.S. § 24-68-101, et seq.

Value of the Whole Materially Greater Than the Sum of Parts

Certain land is more valuable as a whole than when divided into smaller parcels. This is true when various physical features (water, views, road access, drainage) must exist together to create higher value. For property slated for residential neighborhood community development, land use planning and engineering experts may be able to demonstrate the entire acreage has a greater net value than would the sum of the net values of parcels resulting from physical partition. This conclusion obtains when smaller parcels would be created that either cannot be developed or for which additional Special Districts, engineering, planning, and legal costs would decrease net value substantially. Thus, when certain properties are subject to being partitioned physically, a party may be able to show the separate costs for soil evaluations, water and sewer engineering studies, and the other various aspects of engineering and community planning required would be duplicated or substantially increased.

In conclusion, either one of two factors alone may justify a finding that a property cannot be partitioned without manifest to any interested party. One factor is that the physical characteristics make it impracticable to divide into parts. The other factor is that the value as a whole is greater than the sum of the values of the parts to result from partition.

Posted By: Wesley B. Howard, Esq.

Homebuyer Tax Credit Extended and Liberalized

The popular tax credit available to first-time homebuyers was extended and liberalized by enactment of the "Worker, Homeownership, and Business Assistance Act of 2009" (H.R. 3548) on November 6, 2009.

The top credit for qualifying first-time home purchases is $8,000 ($4,000 for a married person filing separately) or 10% of the residence's purchase price, whichever is less.

The first-time homebuyer credit is extended to apply to a principal residence purchased before May 1, 2010, and also applies to a principal residence purchased before July 1, 2010, pursuant to a written contract entered into prior to May 1, 2010.

In addition to first-time homebuyers, the credit may be claimed by a homeowner who is a "long-term resident," which means a person who maintained the same principal residence for any 5-consecutive year period during the 8-years ending on the date that the person purchases the subsequent residence. There is no requirement that the current home be sold in order to qualify for the credit, but the new residence must become the homeowner's principal residence. The maximum credit for aqualifying existing homeowner is $6,500 ($3,250 for a married individual filing separately), or 10% of the purchase price of the subsequent principal residence, whichever is less.

For purchases after November 6, 2009, the homebuyer credit phases out at higher modified AGI levels. For individuals, the phaseout range is between $125,000 and $145,000, and for persons filing joint returns, the range is between $225,000 and $245,000.

There also is a new price cap for the credit. For purchases after November 6, 2009, the homebuyer credit cannot be claimed for a home if its purchase price exceeds $800,000. Importantly, there is no phaseout. If the purchase price exceeds $800,000 by any amount, the entire credit is lost.

The new law includes several new anti-abuse rules. These include: (1) beginning with the 2010 tax returns, settlement statements for the qualifying residence must be attached to the taxpayer's returns; (2) for purchases after November 6, 2009, the taxpayer must be at least 18 as of the date of purchase; (3) for purchases after November 6, 2009, the taxpayer cannot be a person who can be claimed as a dependent by another person for the tax year of purchase; and (4) certain related-party restrictions.

Posted By: Brent W. Houston, Esq.