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

[RebeccaWiess]

I'm a little late on this thread, but that's what retirement will do for
you.  

No, partition doesn't give you the ability to sell free and clear of liens,
receivership or bankruptcy can. Underwater property presents a nice
challenge. Evaluate whether 1) your client is at risk of owing a deficiency
to a lender, 2) your client could get hit with the tax bill for phantom
income, and 3) whether your client could actually collect anything from
co-owner after getting judgment on an accounting. For 1 - letting the
property go to non-judicial foreclosure may be preferable. For 2 -  again,
non-judicial foreclosure is a better option. If the answer to 3 is yes, then
the rest of it may be worth the expense of litigation through to a judgment
on an accounting. 

I dealt with several under-water properties in partitions. In one case one
side was not at risk on the mortgage, so I deeded 100% of the property to
the other party. On another, where the circumstances made it reasonable that
the party who wanted to keep the house would be able to enhance the value
and refinance, I deeded to that party on an Order which gave them 18 months
to refinance or we would be back to square one. 

 

Rebecca Wiess

Retired

 

  _____  

From: wsbarp-bounces at lists.wsbarppt.com
[mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Eric Nelsen
Sent: Monday, January 05, 2015 4:37 PM
To: WSBA Real Property Listserv
Subject: Re: [WSBARP] Partition of upside-down property - 3 questions

 

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 <http://app.leg.wa.gov/rcw/default.aspx?cite=7.52&full=true#7.52.440>
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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