[WSBARP] Partition of upside-down property - 3 questions

[Robert Ordal]

Eric,

I'm seeing more lawyers use the receivership statute to get a receiver appointed to sell property in order to maximize the sale price.  If you don't fit under one of the many categories in RCW 7.60.025(1), you could always go under

                "(nn) In such other cases as may be provided for by law, or when, in the discretion of the court, it may be necessary to secure ample justice to the parties."

This works for property under water, as the receiver can sell "free and clear" of liens.  See

RCW 7.60.260
Receiver's disposition of property - Sales free and clear.

(1) The receiver, with the court's approval after notice and a hearing, may use, sell, or lease estate property other than in the ordinary course of business. Except in the case of a leasehold estate with a remaining term of less than two years or a vendor's interest in a real estate contract, estate property consisting of real property may not be sold by a custodial receiver other than in the ordinary course of business.

     (2) The court may order that a general receiver's sale of estate property either (a) under subsection (1) of this section, or (b) consisting of real property which the debtor intended to sell in its ordinary course of business be effected free and clear of liens and of all rights of redemption, whether or not the sale will generate proceeds sufficient to fully satisfy all claims secured by the property, unless either:

     (i) The property is real property used principally in the production of crops, livestock, or aquaculture, or the property is a homestead under RCW 6.13.010<http://apps.leg.wa.gov/rcw/default.aspx?cite=6.13.010>(1), and the owner of the property has not consented to the sale following the appointment of the receiver; or

     (ii) The owner of the property or a creditor with an interest in the property serves and files a timely opposition to the receiver's sale, and the court determines that the amount likely to be realized by the objecting person from the receiver's sale is less than the person would realize within a reasonable time in the absence of the receiver's sale.

     Upon any sale free and clear of liens authorized by this section, all security interests and other liens encumbering the property conveyed transfer and attach to the proceeds of the sale, net of reasonable expenses incurred in the disposition of the property, in the same order, priority, and validity as the liens had with respect to the property immediately before the conveyance. The court may authorize the receiver at the time of sale to satisfy, in whole or in part, any allowed claim secured by the property out of the proceeds of its sale if the interest of any other creditor having a lien against the proceeds of the sale would not thereby be impaired.
Bob

From: wsbarp-bounces at lists.wsbarppt.com [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Eric Nelsen
Sent: Monday, December 22, 2014 1:29 PM
To: WSBA Real Property listserve (wsbarp at lists.wsbarppt.com)
Subject: [WSBARP] Partition of upside-down property - 3 questions

Co-tenants have a parcel that probably won't sell for enough to pay off the mortgage. Co-tenants disagree on what to do so the client is contemplating (well, I am contemplating on behalf of client) whether partition could help. Three questions:

1. It seems to me that once the property sells at auction, proceeds will go to pay the mortgage, which won't be fully satisfied. But the buyer will take free and clear of the mortgage, correct? So lender is left with suit for a personal judgment as only recourse on the loan. (I know the practical disadvantages for the client; I'm just thinking about the strict legal effects.)

2. Say the client pays in some amount, to take care of the excess mortgage balance at the time of sale, and avoids that problem. Would that payment be justification for a compensatory judgment against the other co-tenant under RCW 7.52.440<http://app.leg.wa.gov/rcw/default.aspx?cite=7.52&full=true#7.52.440> (the owelty-for-unequal-partition statute)?

3. Client also has paid more on the property expenses in the past, so in an accounting upon the partition, client should receive about $30,000 more than the co-tenant. But there's no equity to divide--so does client get a judgment against the co-tenant under RCW 7.52.440? Or does the accounting action under a partition only allow for adjusting division of net proceeds?

Sincerely,

Eric C. Nelsen
SAYRE LAW OFFICES, PLLC
1320 University St
Seattle WA  98101-2837
phone 206-625-0092
fax 206-625-9040

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