Can someone foreclose on a property during a partition action?

Notice of Foreclosure image for Blog Can someone foreclose on a property during a partition action? Underwood Law FirmWhile the brief answer is “yes,” the issue is a bit complicated, like many things in the real estate litigation world. 

Who is a proper party to a partition action? 

Generally, any person claiming an interest in a piece of real estate must be joined in the action in order to fully settle all issues with respect to that property. If a person is not joined, then the court case is not binding, or res judicata, with respect to that person. As such, a partition action includes not only all title owners, but also any companies claiming a mortgage interest. 

What is a Lien?

A lien is a legal right or claim against assets used to satisfy a debt. You can think of a lien as a “safety net” for a mortgage company so that they can have a lien on the physical property so that they can recoup their losses if you do not pay your mortgage payments.

Liens that are left over after a partition action occurs, still remain in place, including the aforementioned mortgage on a foreclosed property.

Additionally, in Wallace v. Daley, the court ruled that every partition action includes a final accounting according to the principles of equity for both charges and credit upon each co-tenant’s interest. Credits that need to be accounted for in a partition action can include interest on mortgages and other liens. 

What is foreclosure?

A foreclosure is a legal process in which a mortgage lender attempt to recover the amount owed on a defaulted (or unpaid) loan for a piece of the property via the avenue of taking ownership of the mortgaged property and selling it. While foreclosures are generally sought by lenders for unpaid monthly mortgage payments, each mortgage agreement has specific terms that must be met, and if these terms are not met, then it could trigger the foreclosure process.

In California, foreclosure is sought through nonjudicial means, also called power of sales. This means that the foreclosure process in California generally does not start from legal action unless specific circumstances occur.

In order for the foreclosure process to start, however, there must be a legal basis on which the lien can be foreclosed. The most common legal basis for foreclosure is a mortgage that ended up in default, which then results in a lien against the property.

What is a partition action?

A partition action is a court-ordered process that anyone with property ownership can petition the court for, regardless of the percentage of ownership. The keywords to recognize in a partition action when discussing foreclosures and mortgages is that co-owners of the property are the only eligible people to start and utilize the court-ordered petition action process. 

In rare cases, people may become a co-owner of the property in question if they have foreclosed or received an interest through creditors. 

This means that creditors or mortgage companies are not allowed to bring a petition action against the current owners to recover any sum of money. Petition actions are only for co-owners who wish to force the sale of the property or in some cases, buy out the other party’s ownership of the property. 

Can a mortgage company foreclose amidst a partition action? 

When a partition action is brought, it is generally geared toward two or more co-owners arguing in court that they are owed either more rights to the land or to their fair share of the purchase price. 

Most people purchase real estate by putting a down payment on part of the house, and financing the rest with the assistance of a loan from a mortgage company. If the buyer uses a mortgage to buy the property, then they agree to pay the remainder to the mortgage company over a period of time, usually for 15 or 30 years, while also paying interest on that loan. In exchange, the mortgage company receives the right to foreclose on the property under a deed of trust, if the owner fails to make the mortgage payments. 

How does the foreclosure process interact with a partition action?

If there is a foreclosure process that has started, then the mortgage company or other creditor would get the “right” to the sales collected from the sale of the property. If the foreclosure sale took place, then the creditors now are re-cooped from their losses and another person owns this property. This is completely different than a partition action forced sale because a court-appointed partition action only seeks to determine each co-owners’ fair share of the equity and they give up their right to the property. 

In partition actions, the priority of the liens is determined by the Code of Civil Procedure. Much like in a foreclosure action, the lien rights of any party are protected by law by the priority that is given to the distribution of money upon the property’s ultimate sale.

It is possible for a mortgage company to foreclose on a property during a partition action, but in doing so, it makes little practical sense. This is because both partition actions and foreclosure actions seek the sale of the house, and the distribution of the equity to the owners. In either event, the outcome of the legal proceeding should result in the sale of the property, and the satisfaction of any lien in the property. Thus, generally, a lien holder has little incentive to foreclose on the property amidst the partition action. 

How can the attorneys at Underwood Law Firm help me during a partition action?

For the best results during a petition action, it is best to seek advice from a knowledgeable attorney with real estate experience. Partition actions and creditors’ legal action’s can be very complex in nature so it is best to utilize the services of a real estate attorney. To save yourself time and frustration you should consult the attorneys at Underwood Law are able to utilize their years of experience in real estate litigation to help you out with your partition action legal case.

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