Disputes over the partition or division of Arizona real property are all too common. Sometimes, heirs are taken advantage of, losing years of family wealth. Arizona House Bill 2521 introduces the Uniform Partition of Heirs Property Act (UPHPA), which amends Title 12 by adding a new Chapter 27, starting at A.R.S. § 12-3401.
This legislation is designed to address the specific challenges associated with the partition of real property held in common by heirs, when there is no agreement governing the disposition of the commonly owned property. The act sets forth a legal framework intended to ensure more equitable and efficient resolutions to these complex situations.
The purpose of the Uniform Act is summarized on the Uniform Laws Commission website:
The Uniform Partition of Heirs Property Act (UPHPA) helps preserve family wealth passed to the next generation in the form of real property. If a landowner dies intestate, the real estate passes to the landowner’s heirs as tenants-in-common under state law. Tenants-in-common are vulnerable because any individual tenant can force a partition. Too often, real estate speculators acquire a small share of heirs’ property in order to file a partition action and force a sale. Using this tactic, an investor can acquire the entire parcel for a price well below its fair market value and deplete a family’s inherited wealth in the process. UPHPA provides a series of simple due process protections: notice, appraisal, right of first refusal, and if the other co-tenants choose not to exercise their right and a sale is required, a commercially reasonable sale supervised by the court to ensure all parties receive their fair share of the proceeds.
Key Definitions:
- Ascendant: An individual who precedes another individual in lineage, in the direct line of ascent up the family tree (e.g., parents, grandparents).
- Descendant: An individual who follows another individual in lineage, in the direct line of descent down the family tree (e.g., children, grandchildren).
- Collateral: An individual who is related to another individual under the law of intestate succession of this state but who is not the other individual’s ascendant or descendant (e.g., siblings, cousins).
- Heirs Property: Real property held in tenancy in common that meets all of the following conditions: there is no agreement in a record binding all the cotenants that governs the partition of the property; one or more of the cotenants acquired title from a relative, living or deceased; and certain percentages related to ownership or kinship are met among the cotenants.
Application and Implementation:
The new provisions apply specifically to partition actions filed on or after the effective date of this chapter (90 days after the close of the current legislative session, the Fifty-sixth 2nd Regular Session), ensuring that all parties have a clear understanding of the rules that govern their specific case. Upon filing a partition action, the court must first determine if the property qualifies as “heirs property” under the definitions provided.
Heirs Property
Under the statute, “heirs property”
means real property that is held in tenancy in common and that satisfies all of the following requirements as of the filing of a partition action:(a) there is no agreement in a record that binds all the cotenants and that governs the partition of the property. (b) one or more of the cotenants acquired title from a relative, whether living or deceased. (c) any of the following applies: (i) twenty percent or more of the interests are held by cotenants who are relatives. (ii) twenty percent or more of the interests are held by an individual who acquired title from a relative, whether living or deceased. (iii) twenty percent or more of the cotenants are relatives.
Since “heirs property” requires that it be acquired from a relative, living or deceased, a partition action under this statute can only be initiated after the transfer of title to a relative. Such transfers could occur by several means, such as:
- Gift deed
- Beneficiary deed
- A Deed of Distribution from the Personal Representative to the heir pursuant to A.R.S. § 14-3907(A)
- An Affidavit of Succession to Real Property pursuant to A.R.S. § 14-3971(E)
Thus, this new partition statute should not come into play as part of the administration of the estate.
If the property does not qualify as “heirs property” for whatever reason, such as someone wants to initiate a partition action before any part of the property is transferred to an heir, there is still a mechanism to do so. Arizona retains its general partition statute and under A.R.S. § 14-3911, the personal representative or the decedent’s heirs or devisees may petition the probate court to partition estate property if two or more of them are entitled to distribution of undivided shares in the property before their shares have been distributed to them.
If the property qualifies as “heirs property” and partition is being pursued under this Act, the court is then required to partition the property according to UPHPA, unless the co-owners agree otherwise.
Appraisal/Fair Market Value Determination
Before partition, among other things, unless the co-owners agree on the value, the Court must determine the fair market value of the heirs property. This may be done either through a court-ordered appraisal or an agreed valuation method. If the Court orders an appraisal, the Court must appoint a disinterested real estate appraiser licensed in the State of Arizona to value the property assuming there is only one owner. The appraiser is required to file a “sworn or verified” appraisal with the Court. The Court then has ten days to give notice of the appraisal value, that a copy of the appraisal report is available at the clerk’s office and that a party may file a written objection to the appraisal not later than thirty days after the notice.
The parties then have thirty days from the notice within which to file a written objection with the Court. If a party raises an objection they must “state the grounds for the objection.”
Irrespective of whether an objection is made to the appraisal, the Court is required to determine the fair market value of the property. The parties may offer and the Court may consider other evidence of the value.
If the cost of the appraisal exceeds the evidentiary value of the appraisal the Court may waive the appraisal requirement prior to determining the fair market value.
Buyout Rights
If any of the owners requested partition by sale after the determination of value, the Court is required to give notice to all the other owners that they have the right to buyout the interest of the owners who requested partition by sale. Any qualifying owner who wishes to exercise the right to buyout the interest of the owner who requested the sale must give notice of their election within forty-five days after the notice. The buyout price is the fair market value determined by the Court multiplied by the “selling” owner’s fractional ownership interest in the entire property. There are various more detailed procedures depending on whether one or more co-owners elects to purchase the interest of the owners who requested partition by sale.
Service of Process and Notice
The new statute does not govern the methods by which notice or service must be given, so that is likely governed by Arizona’s Rules of Civil Procedure, which generally requires personal service. The new law does require that notice be posted on the property if the plaintiff requests to give notice of the action by publication. The sign must state that a partition action has been commenced, identify the name and address of the Court and the legal description of the property. The Court may order that the sign also reflect the name of the petitioner and any known respondents or other owners.
Methods of Partition Under UPHPA:
Under the Arizona Uniform Partition of Heirs Property Act (UPHPA) the Court may order partition by either of two methods. These methods only apply if there is property remaining to be partitioned after any co-owner exercised their right to purchase the ownership interest of the one who requested partition by sale.
1. Partition by Sale: A court-ordered sale of the entire heirs property, conducted via methods such as open-market sale, sealed bids, or auction. The net proceeds are then divided according to their percentage shares. Section 12-3409 includes different options and detailed procedures for conducting the sale.
2. Partition in Kind: The division of the property into physically distinct and separately titled parcels, which is generally favored unless it would result in manifest prejudice to the cotenants. If a buyout is concluded or if there remains a cotenant requesting partition in kind, the court must consider partition in kind unless it finds that such partition would result in manifest prejudice to the cotenants. This determination involves evaluating the practicability of physically dividing the property and assessing whether such division would significantly reduce the property’s value or adversely affect the cotenants’ interests. For example, if there are two heirs who equally inherited two acres of raw unimproved land and each acre is basically the same, the Court could simply enter an order subdividing the property into two lots and allocate one for each heir. This obviously cannot be done if the property has a home or other improvements.
If the Court orders partition in kind, the Court may also order one or more co-owners to make payment to another owner so that their share of the property and any payment taken together make the partition just and proportionate to the value of the interests held.
Partition Alternatives and Other Considerations:
If a sale is necessary, the court must appoint a broker to manage the sale. The parties may agree on the broker. If not, the Court will appoint one, ensuring the property is sold for its fair market value and in a commercially reasonable manner. This article aims to provide a general overview of UPHPA and some of the details of how to partition heirs property. The statute includes substantial details and nuances not covered in this article.
Conclusion:
Arizona’s UPHPA effectively addresses the specific needs of partitioning heirs property, providing a structured approach to handle what are often sensitive and complex family property issues. By setting clear definitions, procedural guidelines, and equitable solutions, Arizona’s new partition law aims to prevent the potential loss of family wealth through forced sales and to mitigate familial disputes over property.
At Berk Law Group, P.C., we have handled many partition and other property disputes. We are adept at navigating the complexities introduced by the new Uniform Partition of Heirs Property Act, offering our clients comprehensive legal support in partition actions and other property disputes in Arizona. If you are facing challenges with Arizona heirs property or need expert guidance in managing property partitions, our experienced team is here to help. Contact us today to learn how we can assist you, or learn more about partition actions.