On July 23, 2021, Governor Newsom signed into law Assembly Bill 633 which enacts the Uniform Partition of Heirs Property Act, AKA the Act, which is meant to enhance opportunities for intergenerational wealth accumulation and transfer to the heirs of a deceased person who did not have a will, a trust or any other method of conveying a property at the time of his/her death.
Currently, if several heirs jointly inherited a property and there was no will, trust or other method of conveying the property at the time of the owner’s death, the property is passed down to the heirs through an "intestate transfer”. This means that each heir receives a fractional interest in the undivided property.
This type of ownership, known as tenancy in common, is highly volatile because a tenant in common who wishes to sell his/her ownership stake, could petition the court to request a partition action in order to force the sale of the property.
Unfortunately, over the years, some real estate speculators and developers have taken advantage of some of these tenants in common by acquiring a small share of a property at below market price and then forced the sale of the entire property in order to purchase it under the fair market value price.
The aim of the Act is to prevent these abuses and put a break on further loss of inherited real property wealth through forced sale practices. In other words, AB 633 aims to modernize the current partition law and implement a fair process, under court supervision, for “ tenants in common” heirs during a partition sale.
As a result, among other things, the new bill:
1).Enacts the Uniform Partition of Heirs Property.
2).Establishes that the Act will apply to actions to partition a real property that are filed on or after January 1, 2022.
3). Defines "heirs property" to mean real property that meets all of the following conditions if a natural person dies intestate and a relative inherits their interest in real property – provided that the property a) is held in tenancy in common. b) Its partition is not governed by an agreement that binds all of the cotenants. c) One or more of the cotenants acquired title in the property from a relative, whether living or deceased. d) At least one of the following conditions applies: i) Twenty percent or more of the interests in the property are held by cotenants who are relatives. ii)Twenty percent or more of the interests in the property 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.
4). Requires, in any action to partition real property, that the court first determines whether the property is heirs property. If it is heirs property, the real property must be partitioned under the Act, unless all of the cotenants agree otherwise.
5).Defines "determination of value" to mean a court order that establishes the fair market value of heirs property, using the Act's procedures. If the court orders an appraisal, the court shall appoint a disinterested real estate appraiser licensed in this state to determine the fair market value of the property.
6).Requires a court, once a determination of value is completed, to notify the cotenants that any of them (except those cotenants who requested the partition by sale) may buy the interests of the cotenants who requested partition by sale.
The above information is given for informational purposes only. To understand how the new Uniform Partition of Heirs Property Act might impact your personal situation, please consult an attorney.