Code of Civil Procedure (CCP) Section 873.820 – Application of Proceeds of Sale

Code of Civil Procedure section 873.820 concerns what happens with the sales proceeds after the partition sale is complete. Per the code, they must first be used to satisfy the expenses and costs of the partition action, and then used to pay off any outstanding liens, before the residue finally flows to the parties in accordance with their ownership interest.

Code of Civil Procedure section 873.820 states:

The proceeds of sale for any property sold shall be applied in the following order:

(a) Payment of the expenses of sale.

(b) Payment of the other costs of partition in whole or in part or to secure any cost of partition later allowed.

(c) Payment of any liens on the property in their order of priority except liens which under the terms of sale are to remain on the property.

(d) Distribution of the residue among the parties in proportion to their shares as determined by the court.

“Shawn” and “Julie” are an unmarried couple who want to start a life together. They find a nice home in Los Angeles and buy it as joint tenants. As part of this purchase, they take out a mortgage with Mortgage Corp. They move in and start their new life together.

Unfortunately, Shawn and Julie’s relationship doesn’t work out, and they break up. They cannot agree on what to do with the property. Shawn wants to sell all the property and move on with his life, so he sues for partition by sale.

Eventually, the court orders the property sold and the sale proceeds distributed. The court concludes that the property will be sold at a private sale. After the sale occurs, the court confirms the sale on noticed motion by the parties. The sale then goes into closing, and property is transferred via deed to the third party buyer.

Under Section 873.820, the balance of the mortgage from Mortgage Corp. must be paid off before the sales proceeds actually go to Shawn or Julie. In addition, the proceeds must be used to satisfy the costs of partition, which may include attorney’s fees.

1976 Addition.

Section 873.820 continues the substance of former Section 771 and extends it to the sale of unencumbered as well as encumbered property. The provision formerly found in Section 771, requiring payment of liens prior to the lien upon which the owner’s title is based, is not continued since the provision formerly found in Section 752 for partition by a lienholder is not continued. See Comment to Section 872.210.

The preference for payment of the expenses of sale in subdivision (a) is new. For the costs of partition (subdivision (b)), see Chapter 8 (commencing with Section 874.010).

Section 873.820 is one of the rare cases in which the Legislature actually added its own comment, instead of abiding by the comment from the Revision Commission.

As the introduction to Assembly Bill 1671 (the bill that contained the new partition laws) states that the Revision Commission’s recommendations “reflect the intent of the Assembly Committee… in approving the various provisions of Assembly Bill 1671,” for most statutes the Legislature did not bother to issue its own separate comment.

Nonetheless, the Assembly Comment states:

“Section 873.820 continues the substance of former Section 771 and extends it to the sale of unencumbered as well as encumbered property. The provision formerly found in Section 771, requiring payment of liens prior to the lien upon which the owner’s title is based, is not continued since the provision formerly found in Section 752 for partition by a lienholder is not continued. See Comment to Section 872.210.

The preference for payment of the expenses of sale in subdivision (a) is new. For the costs of partition (subdivision (b)), see Chapter 8 (commencing with Section 874.010). Subdivision (c) provides for payment of liens on the property, regardless whether the lienholder is a party, unless the property has been sold subject to the lien. In case of a dispute concerning payment of a lien, the proceeds may be deposited in court pursuant to Section 873.810 pending resolution of the dispute.

As one can see, the comment here is essentially a verbatim repetition of the Revision Commission comment. However, the Legislature did add the last two sentences, which clarify that all liens are to be paid off in a partition sale unless the property is expressly sold subject to the lien.

As to how this statute plays out in practice, for partition litigants, there is hardly a more important provision of law than 873.820. Many litigants will see an appraised price of the subject property and cut it in half for a rough estimate of their cut (at least where there are only two 50% owners).

But parties need to understand that such a formulation is oftentimes incorrect. As subsection (d) implies, the parties only split the residue of the sales proceeds once subsections (a) through (c) are satisfied.

The section on liens is somewhat obvious. It makes sense that the mortgage affecting the property would need to be paid off in full. What litigants often don’t realize, however, is that “costs” need to be paid first as well. And costs are not restricted to filing fees or escrow.

Under the Code of Civil Procedure, “costs” include “reasonable attorney’s fees incurred for the common benefit.” (CCP § 874.010.) While the term “common benefit” can seem difficult to decipher, most of the time, attorney’s fees are fall under the umbrella of “common benefit,” provided the attorneys are acting in good faith.

Even in contested actions, attorneys fees are still usually for the common benefit, as was made clear even under the predecessor statutes.

“Our Supreme Court has spoken on this issue directly, holding that under former section 796, the predecessor to the current partition cost statute, ‘counsel fees may be allowed … for services rendered for the common benefit even in contested partition suits.’” (Orien v. Lutz (2017) 16 Cal.App.5th 957, 966; Capuccio v. Caire (1932) 215 Cal. 518, 528–529.)

As such, while litigants should be aware that attorney’s fees can be recovered from in partition suits, they typically come out of the sales proceeds of the house.

Here at Underwood Law Firm, our knowledgeable attorneys are here to help navigate the complex web of case law and statutes surrounding partitions. If you are thinking of filing a partition, are already in the midst of a partition suit, or just have any questions, please do not hesitate to reach out to our office to learn more about Partition Law.