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Recently I got a call from a farmer who owns a farm with a sibling and the sibling had filed a legal proceeding to force a sale of the farm. The farmer was understandably upset and confused as to how a farm he co-owned could be sold without his permission. Adding to the confusion was the legal terminology used to describe the relief sought - "a sale in lieu of partition". This post will explain what a sale in lieu of partition is and how folks can use farm succession planning to avoid this unfortunate outcome.
What is a Sale in Lieu of Partition?
A sale in lieu of partition is a court ordered sale of property that cannot be divided. It occurs when multiple people have an ownership interest in a property and, instead of reaching an agreement on a buy-out arrangement, one of the parties asks the court to sell the property and divide the proceeds into portions representing the proportionate interests of the owners. A sale in lieu of partition is sometimes referred to as a forced sale because commonly not all of the property owners are happy about court-ordered sale and feel it being forced upon them.
When does a Sale in Lieu of Partition Occur?
According to Section 14-107 of the Real Property Article of the Maryland Code, a circuit court may order a partition of a property upon the request of any joint tenant or tenant in common. When deciding whether to order a sale in lieu of partition courts first consider whether a property can be divided without loss or injury to the parties. Given the inherent difficulties of dividing a single property into portions that are equal to ownership shares, courts often decide the most equitable decision is to sell a property and divide the proceeds in shares proportionate to ownership. Unfortunately, it is common for siblings, who own property as tenants in common, to end up in a sale in lieu of partition. In Maryland a married couple typically owns property as tenants by the entireties and that form of property ownership does not allow for one party to request a court-ordered sale.
How Does a Sale in Lieu of Partition Work?
Once a court orders a sale in lieu of partition, three to five court-appointed commissioners or a trustee are chosen to assess the property's value and handle the sale. See, Maryland Rules, Rule 12-401. Sales through commissioners are typically conducted by judicial auction, while sales through trustees are handled like a typical real estate sale. All of the expenses of the sale, including but not limited to, payment for the court-appointed commissioners or trustee are paid from the proceeds of the sale.
How to Avoid a Sale in Lieu of Partition?
If you own a farm and want to avoid a future sale in lieu of partition the best thing to do is to seek competent estate planning advice. An experienced attorney will be able to devise a farm succession strategy that provides for beneficiaries and protects a farm from a forced sale. If you co-own property and want to avoid a sale in lieu of partition, seek legal counsel sooner rather than later, so you negotiate a buy-out strategy to avoid a forced sale. To find a qualified attorney in your area, check out this legal directory. Mediation is another strategy that can be an effective tool for family members to work through conflict and avoid a sale in lieu of partition. For assistance with mediation, farm families can reach out to the Maryland Agricultural Conflict Resolution Service.