Partition Action With A Lender Involved
Partitions With Lenders And Mortgagors Can Be Complicated Procedures
A partition of real property occurs when there are multiple owners of a piece of land or building, and the owners no longer wish to co-own the property. When this happens, they must seek a partition of real estate. When most people think of “property,” they imagine a piece of land with a home on it. However, there are many different types of property, such as personal property, financial property, and intellectual property. All of these can be owned by multiple individuals, and sometimes they must be divided. Real property, however, only concerns land and buildings. A real property parcel can be a tract of land, a piece of land with a building on it, or a building without the underlying land, such as a condominium. All of these types of real property require a partition action of real estate to divide them.
There are several different ways to seek a real estate partition. Partitioning real estate can occur voluntarily or by court order. When a real estate partition is voluntary, the parties work out a contract for the partition of real estate. When the partition is by court order, it is the result of lengthy litigation for the partition of real estate. When filing a complaint for the partition of real estate, the petitioner must explain the ownership of the property, why the two no longer wish to or are no longer able to co-own the property, and must ask that the court either divide the property or partition the real estate by sale.
The type of interest in the home that the lender has depends on whether the state where the property is located adheres to title theory or lien theory of mortgages. Title theory holds that the lender holds title to the property with the owners in what is called a deed of trust. In a partition action, the trust deed holder must be notified of the ongoing partition action by being named as a party in the partition action lawsuit. Lien theory states that the mortgage holder does not have title to the property, but rather has a lien on the property for the outstanding mortgage amount. In lien theory states, the outstanding mortgage amount must be satisfied before the property can be divided, transferred, or before the parties can profit from proceeds of the sale. While it depends on the state law, in most circumstances, one necessary party is a lender in a partition action.
In a partition action, a lender may be a necessary party. However, that does not mean that a lender has a right to a partition. If a lender and a homeowner co-own a property in a title theory state, the lender cannot force a sale of the home through a partition action. If the homeowner defaults on their mortgage, the lender may have the option of pursuing a foreclosure action against the homeowner, but the remedy of partition is primarily reserved for parties such as spouses, housemates, business partners, or devisees who inherit property jointly. Furthermore, a partition action does not rid the homeowners of their mortgage obligations. Before a property can be partitioned in kind or by sale, the co-owners must make arrangement with the mortgage companies to ensure that the mortgage is continually paid during the process.