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Court Rules Proceeds of a Partition Should be Equally Distributed Between Property’s Co-Owners

This week, the Superior Court of New Jersey’s Appellate Division affirmed the Chancery Division’s holding that the net proceeds of a partition by sale of property should be equally distributed between the property’s co-owners.

In Gabriel v. Wallace, No. A-2449-21 (App. Div. Dec. 28, 2022), two individuals had purchased a piece of property as tenants in common. One party – later the plaintiff – provided her good credit and employment income, while the other party – later the defendant – provided money for the down payment and assumed responsibility for ongoing mortgage payments. Both parties were named on the deed and mortgage. Under the arrangement, the defendant and her husband were to live at the property for a year. After a year, the defendant was to refinance and remove the plaintiff’s name from the deed and mortgage.

The defendant failed to refinance after a year, and nearly a year later stopped making mortgage payments completely, causing the mortgage to go into forbearance. The defendant refused to secure refinancing or remove the plaintiff from the mortgage or deed, and the plaintiff refused to agree to a modification. The plaintiff moved for partition by sale of the property.

At trial, the parties stipulated to a partition of the property and sought the court to determine credits to be awarded to each party. In that respect, the defendant alleged that her husband had made numerous renovations to the property in the two years since it was purchased. The trial court found the defendant’s testimony not credible and ordered an equal distribution of the net proceeds of the partition by sale of the property. The trial court also declined to award the defendant credit for the down payment paid when the property was initially purchased.

The Appellate Division affirmed. The court first noted that despite the general rule that a tenant in common has an absolute right to partition, the particular manner that the partition should be done is left to the discretion of the court.

With respect to the credits awarded to each party, the court then remarked that a co-owner is entitled to credit for improvements to property only to the extent that the property’s value has been enhanced by the improvement. Here, the defendant had not provided sufficient evidence that work allegedly performed on the property by her husband had increased the property’s value.

The Appellate Division also affirmed the trial court’s finding that the defendant was not entitled to credit for paying the down payment, noting that because the plaintiff had provided her good credit and employment income – which was needed to qualify for the sale – both parties had provided things of equal value in the acquisition of the property.

The court similarly dismissed the defendant’s argument that she should be credited for her payment of the mortgage principal, property taxes, and property insurance, observing that these costs were assigned to the defendant in the original agreement. In addition, the defendant’s failure to pay the mortgage caused the mortgage to increase, thus negating any amount she had expended.

 

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