Partitions sales and foreclosure sales are two different ways that a property can be sold. The main difference between the two is the purpose behind the two sales. For partition sales, the purpose is to divide the property and for the owners to get the proceeds in proportion to their ownership. The purpose of foreclosure sales is to pay off a borrower’s loan.
The Partitions Sale Process
Usually, partition sales are ordered by a court. This is because partition lawsuits are often brought before courts by a property owner who wants to force a sale if the parties cannot come to an agreement.
At trial, when a court finds that a plaintiff is entitled to partition, then it will issue an interlocutory (or temporary) judgment ordering a partition. (California Civil Procedure § 872.720) If it is a partition by sale, the court also appoints a referee to oversee the sale. (CCP § 873.510) The court also decides whether the sale will be a private sale or a public auction. (CCP § 873.520) The referee reports to the court and can make recommendations about the sale based on what he or she believes would be most beneficial to the parties, but the court ultimately makes the final call. (Id.) If the sale is a public auction, then it must be held in the county where the lawsuit is pending, though the court can specify a different location. (CCP § 873.670)
Upon ordering the sale, the court must give notice to all parties who appeared in the lawsuit and anyone who wrote to the referee asking for special notice. (CCP § 873.640) The notice of sale must include a description of the property, the time and place of the sale, and a statement of the main terms of the sale. (CCP § 873.650) If the sale is private, it cannot be made before the date specified on the notice, but it must be made within one year of that date. (CCP § 873.680)
After the sale, the proceeds are distributed in the following order of priority: for expenses of the sale, to pay other costs of partition, to pay any liens on the property, and finally distributed among the parties in proportion to their ownership shares as determined by the court. (CCP § 873.820)
The Foreclosure Sale Process
The foreclosure sale process is an aspect of the overall foreclosure process. After the borrower defaults on a loan, the lender will proceed with foreclosure of the property. A foreclosure sale is one option that banks can try and make money back during foreclosure proceedings.
There are two ways a lender can try and force a foreclosure sale. The first is non-judicial foreclosure, which is where the bank can sell the property without a court hearing. This is the most common type of foreclosure sale in California. Non-judicial foreclosures are only available to lenders who have a “power-of-sale” clause in the mortgage note or deed of trust.
In a non-judicial foreclosure, the bank will proceed with what’s called a trustee’s sale. This is a foreclosure sale where a trustee, either the bank or another appointed party, oversees the sale of the property. The lender will send the borrower a Notice Trustee Sale document. (California Civil Code § 2924b.) Afterward, the property is auctioned off to the highest bidder. (California Civil Code § 2924g.) The sales proceeds are first used to pay the costs of the sale, then used to pay off whatever is owed on the loan. (California Civil Code § 2924k.) The borrower has the final priority of the sale proceeds. (Id.)
Lenders without a power-of-sale clause can only rely on judicial foreclosure proceedings, which require court hearings. Even lenders who do have a power-of-sale clause may request judicial proceedings under certain circumstances. Under judicial foreclosure, the lender can petition the court to sell the property.
If a court orders a sale, the court can enforce the judgment by issuing a writ of sale. (California Civil Procedure § 716.010.) The sheriff, or levying officer, then executes the writ of sale by levying the property, and the court must give notice for the sale. (California Civil Procedure § 716.020.) The court can also appoint a receiver to enforce the sale of the property. (California Civil Procedure § 712.060.)
Notice of the sale must be in writing and state the date, time, and place of sale, describe the interest being sold, and give a legal description of the real property. (California Civil Procedure § 701.540.) The levying officer must give notice to the judgment debtor, post the notice of sale in a public place in the city where the property is being sold, and post the notice on a conspicuous place in the real property at least twenty days before the sale date. (Id.) The sale is held by auction, and the property is sold to the highest bidder. (California Civil Procedure § 701.570.)
There is a required minimum bid for the property in a judicial foreclosure sale. The bid amount must exceed the total of all preferred labor claims and any state tax lien superior to the judgment creditor’s lien. (California Civil Procedure § 701.620.) If the purchaser of the property is not the judgment creditor, then the bid amount must also exceed any deposit the creditor made with the levying officer, including interest. (Id.) If a minimum bid is not received, the levying officer will release the property. (Id.)
After the purchaser pays the levying officer in a sale, the levying officer will record a deed of sale. (California Civil Procedure § 701.660.) The sale proceeds are then distributed with the following priority: to anyone with preferred labor claims, to any state tax lien superior to the judgment creditor’s lien, to the judgment creditor if they made a deposit with the levying officer, to the levying officer to reimburse costs, to the judgment creditor to satisfy the judgment, to any other junior judgment creditors with writs on the property, and finally to the judgment creditor for any remaining amount. (California Civil Procedure § 701.810.) The levying officer must distribute the money within thirty days after receiving the sale proceeds. (California Civil Procedure § 701.820.)
If the debtor’s property is a dwelling, then additional steps must be taken. A “dwelling” is defined by the law as a place where a person resides. (California Civil Procedure § 704.710.) After the dwelling is levied, the creditor is given notice and must apply to the court for an order of sale within twenty days. (California Civil Procedure § 704.750.) If the creditor does not file an application in time, then the dwelling is released. (Id.)
For dwellings, in the court hearing to determine whether to sell the property, the court must apply what’s called the homestead exemption and determine if the debtor can be paid the amount of the exemption in the event of a sale. (California Civil Procedure § 704.740.) At the hearing, the court also determines the fair market value of the dwelling, and the court can appoint a qualified appraiser to do so. (California Civil Procedure § 704.780.)
The homestead exemption raises the minimum price for bids at auction on the property. Bids for the sale of a dwelling property must be enough to exceed the amount of the homestead exemption plus any additional amount to satisfy the liens and encumbrances on the property. (California Civil Procedure § 704.800.) Bids must also be at least ninety percent of the home’s fair market value. (Id.)
The amount of the homestead exemption is the greater of the countywide median sale price for a single-family home in the year prior to the year that the debtor claims the exemption, and $300,000. (California Civil Procedure § 704.730.) The median sale price cannot exceed $600,000, so that is the maximum homestead exemption amount. (Id.)
If an adequate bid is not received, the dwelling is released and cannot be sold through a court order by the same judgment creditor for one year. (California Civil Procedure § 704.800.)
If a judgment debtor owns a dwelling as a joint tenant or tenant in common, and the ownership interest is less than a fee interest, then only the judgment debtor’s interest can be sold, not the entire dwelling. (California Civil Procedure § 704.820.)
After the sale of a dwelling, the sale proceeds first go to pay off all liens and encumbrances on the dwelling. (California Civil Procedure § 704.850.) The proceeds are then distributed to the judgment debtor for the homestead exemption amount, to the levying officer for reimbursing costs, to the judgment creditor to satisfy costs and the amount on the judgment, and finally to the judgment debtor for any remaining proceeds. (Id.)
For judicial foreclosures, the judgment debtor may be able to reclaim their property from a foreclosure sale through a process called redemption. The redemption period if the sale proceeds are enough to satisfy the total debt is three months after the sale. (California Civil Procedure § 729.030.) If the sale proceeds are not enough to satisfy the total debt, then the redemption period is one year after the sale. (Id.)
To redeem the property, the debtor has to pay the redemption price to the officer who conducted the foreclosure sale. (California Civil Procedure § 729.060.) The redemption price is the total of the sale purchase price, the amount for taxes, the amount for maintenance and repair, and any amount paid by the purchaser to secure the property. (Id.) The redemption price also includes any interest on those amounts and the purchaser’s liens. (Id.) Rents and profits from the property paid to the purchaser or the value from using the property can be used to offset the amounts in the redemption price. (Id.)
For judicial foreclosures, the bank can also seek a deficiency judgment against the debtor if the sale price is not enough to cover the total debt. (California Civil Procedure 726(b).) To receive a deficiency judgment, the creditor must apply to the court within three months after the date of the foreclosure sale. (Id.) The court holds a hearing to determine the fair value of the property as of the date of sale. (Id.) The debtor must receive notice at least fifteen days before the hearing date. (Id.)
For the deficiency judgment hearing, the court can appoint a probate referee to make a separate appraisal of the property and advise the court. (Id.) After the hearing, the court awards the creditor an amount that is the difference between the debt and the fair value of the property. (Id.) The court cannot award the creditor a deficiency judgment amount that exceeds the difference between the total indebtedness and the foreclosure sale price. (Id.)
Key Differences Between Partition Sales and Foreclosure Sales
There are several key differences between partition and foreclosure sales to keep in mind. One is that foreclosure sales are part of the foreclosure process a lender uses to try and make money back on the defaulted loan. Partition sales are the result of a partition action when one party sues another.
The purposes of a partition sale and foreclosure sale are different. For partition sales, the co-owners are trying to divide the property, and they get proceeds proportional to their ownership. In foreclosure sales, the main purpose is the creditor trying to recoup the money back from a defaulted loan, so the creditor is given priority over the borrower.
Additionally, non-judicial foreclosure sales, or trustee’s sales, do not require court hearings. Partition sales, on the other hand, require a court order. In partition sales, courts are heavily involved in the overall process.
Another difference is the minimum bid requirements for properties in a judicial foreclosure sale. For real properties that are not dwellings, the bids must exceed at least the preferred labor claims and state tax liens on the property. The bids for a dwelling in a foreclosure sale must be enough to overcome the homestead exemption and pay off any liens or encumbrances. Partition sales do not have such statutory minimum bid requirements for real property.
In judicial foreclosure sales, the debtor might also be able to reclaim the property within the redemption period. Additionally, banks can seek a personal judgment against the debtor. This is not something that happens in partition sales.
“Shawn” owns a home in California. Unfortunately, Shawn has fallen behind on his mortgage payments, so the bank initiates foreclosure proceedings. The bank does not have a power-of-sale clause, so it petitions the court to sell the property.
Shawn’s home is classified as a dwelling since he lives at the property. At the court hearing to determine the sale, the court applies the homestead exemption to determine if a minimum bid for the property can be reached. The court also appoints an appraiser to determine the fair market value of the property.
The court determines the homestead exemption amount to be $300,000. The court orders a sale and issues a writ of sale which the sheriff levies against Shawn’s home. The court also gives proper notice of the sale.
Under the sheriff’s supervision, the property is sold off to the highest bidder. First, the court distributes the sale proceeds to pay off all liens and encumbrances on the home. The court then distributes the $300,000 homestead exemption amount to Shawn. Next, the court distributes the sale proceeds to reimburse the sheriff’s costs. After that, the court distributes sales proceeds to the bank. Finally, Shawn receives the leftover proceeds.
Since this is a judicial foreclosure, Shawn has an opportunity to redeem the property from the foreclosure sale. Since the sale proceeds were enough to satisfy the debt, Shawn has a three-month period to try and redeem the property. Shawn manages to beg and scrape together enough money to pay the redemption price on the property. After payment to the sheriff, Shawn successfully redeems and reclaims his home.
How Can the Attorneys at Underwood Law Assist You?
There are many differences between the partition sale process and the foreclosure sale process. In a partition sale, the purpose is to divide the property. In a foreclosure sale, the purpose is for the lender or creditor to make money back on their loan. In both sales, the courts can be heavily involved.
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 cotenants’ 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.
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