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

[Eric Nelsen]

I sent this out shortly before Christmas and got a few helpful answers, but I'm sending it around again hoping that someone might have some insight into #1. I haven't seen case law confirmation that a partition sale at auction sells free and clear of mortgages, and I don't know if it's actually true.

Bob Ordal suggested the revamped receivership statutes as an alternative to partition, and that explicitly provides for sale "free and clear of liens." It's a great idea and I'm looking into that, but I do still wonder if anyone has seen partition used in a similar fashion.

Sincerely,

Eric

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



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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