Can a Co-Owner Take Out a Mortgage Without Your Consent?

6142023-300x300Yes. California law allows a co-owner to take out a mortgage without the other co-owners consent or knowledge. 

Co-owning property with other parties can be quite a responsibility that can be difficult to manage. One particularly stressful aspect of managing property is managing the debt that comes with financing the property. Some parties may even want to take out more debt without letting their fellow co-owners know. If such a debt or encumbrance on the property is taken, it is still enforceable and allowable and can result in the sale of the entire property. 

California Law on Co-Owner Mortgages Without Consent

California case law holds that each co-tenant can sell or encumber his own interest in the property without consent from the other co-tenants. (Zieve Brodnax & Steele, LLP v. Dhindsa (2020) 49 Cal.App.5th 27, 35) This means that a co-owner can take out a mortgage on his portion of the property, and he does not even need to let the other co-owners know. When a co-owner takes out a second mortgage, this is called a junior mortgage or junior lien because, in a foreclosure sale, it would have less priority than the primary lien. 

Multiple cases in California rule that it is proper for a co-owner to take out junior liens without approval or consent from the other co-owners. One example is in Kane v. Huntley Financial (1983) 146 Cal.App.3d 1092. Here, Stephen and Rosemary, a married couple, lived together as joint tenants in a home. (Id., at 1094.) After the couple began divorce proceedings, Stephen took out a loan from Huntley Financial and used the home as security. (Id.) Rosemary had no knowledge of this loan. (Id.) The trial court ruled this encumbrance as valid, which the Court of Appeal upheld. (Id., at 1096.) 

What happens when a Co-Owner Fails to Pay the Joint Mortgage?

Even though the junior lien may only attach to one co-owner, it does not relieve the other co-owners of responsibility. The junior lienholder can file for foreclosure on the property if a co-owner is behind on payments, just the same as the primary lienholder since any beneficiary or trustee named in a deed of trust can bring a foreclosure suit. (CCP § 725a) The junior lienholder can request a court-ordered sale of the property to pay off the debt. (CCP § 726, Schoenfeld v. Norberg (1970) 11 Cal.App.3d 755, 766.) It is essential for parties to understand that even with a debt that is only applicable to one co-owners share, foreclosure of the entire property can still occur under the proper conditions. 

Full sale of the property in these circumstances, however, applies only to tenants in common and not to joint tenants. If only one joint tenant is subject to the junior lien that must be paid, the court can force a sale of that joint tenant’s interest, which would sever the joint tenancy. (Pepin v. Stricklin (1931) 114 Cal.App. 32, 35.) There are still ways that joint tenants can be negatively affected by this foreclosure. 

Even if only one joint tenant’s interest is sold, joint tenants are not totally insulated from the property sale. This is illustrated in Kane, where the couple was found to be tenants in common, and the court ruled that Huntley could only sell Stephen’s one-half interest. (Kane, 146 Cal.App.3d at 1098.) Upon the sale of the interest, the court held that the buyer of that interest would be a tenant in common with Rosemary. (Id.) The court held that the buyer of that interest could then force a partition or sale of the entire property. (Id.)

As seen in Kane, a joint tenant may be able to prevent a complete sale of the property up to a certain point if a junior lien forecloses, but it is still a possibility if the new purchaser requests a sale. This is because the lienholder-requested foreclosure sale severs joint tenancy, which removes all the protections joint tenancies can provide. 

If a tenant in common dies and the lienholder forecloses the property, the lien can still be enforced against the remaining tenant in common. (Dieden v. Schmidt (2002) 104 Cal.App.4th 645, 651.) Even if the tenants in common transfer ownership become joint tenants, the lienholder can still enforce the judgment as if the transfer never occurred. (Id., at 652.) 

An Example

“Shawn” and “Julie” are a couple who co-own a home. They are tenants in common who each have a half-ownership interest in the home. To finance their purchase, they take out a mortgage for the home from a local bank.   

After several months, Shawn amasses a huge amount of credit card debt due to his gambling problem, which he hides from Julie. He takes out a loan on their home to assist with his credit card debt, but he does not inform Julie. 

Eventually, Shawn’s gambling debts catch up to him, and the credit card company requests a court order to foreclose the home. At that point, Julie is in the completely unfair position of paying the loan or having her home foreclosed on through no fault of her own. Since Shawn and Julie are co-owners, the credit card company can request the court to sell the entire property. 

In this case, Shawn’s loan on the house that he hid from Julie results in the sale of the entire property when not paid. Instead, when Shawn’s gambling habits began to get out of control, Julie would have been better off if she had sold the property, either with Shawn’s agreement or through a partition action if he would not agree. 

How Can the Attorneys at Underwood Law Assist You?

Co-owners have many rights and responsibilities afforded to them by the law. When taking action on a property, it is important to know whether that action is appropriate and how it affects the other co-owners legal rights. In the case of taking out a mortgage without telling another co-owner, it is allowed though, that lien only attaches to the interest of the co-owner who took the mortgage. 

As each case is unique, litigants would be well-served to seek experienced counsel familiar with the ins and outs of property taxes and the law surrounding them. At the Underwood Law Firm, our knowledgeable attorneys are here to help. If you are seeking to buy out your cotenant’s interest in your property, are worried about whether you are subject to a tax reassessment, or if you just have questions, please do not hesitate to contact our office.

Learn more here.

Contact Information