California: Including Mortgage, Property Taxes, and Carrying Costs in Your Share of Sale Proceeds | California Partition Actions

Detailed Answer

Short answer: sometimes — but not automatically. Under California law, whether you can deduct the mortgage, property taxes, insurance, HOA fees, and other carrying costs you paid from your share of sale proceeds depends on (1) who holds title (co-owners vs. sole owner), (2) whether the lender is paid off at closing, (3) any written agreements among owners, and (4) whether a court later orders an accounting (for example, in a partition action or divorce).

Key rules and how they apply:

Mortgage payoff at closing is separate from allocation among owners. When real property is sold, the lender holding the mortgage has a lien that is satisfied from the sale proceeds at closing. The title company or closing agent pays off the mortgage from the gross sale proceeds before owners receive their net distributions. That payoff reduces the pool of distributable proceeds, but it does not by itself determine how remaining cash is divided among co-owners.
Ownership percentage governs distribution unless there is an agreement or court order. After liens and closing costs are paid, the remaining funds are typically distributed according to ownership shares (e.g., tenants in common or joint tenants split by their percentage interests). If you and your co-owner agreed in writing that one person would be credited for certain payments, that agreement controls.
Contribution claims between co-owners. If one co-owner paid mortgage installments, taxes, insurance, or other carrying costs that benefited the property, that owner may have a right to seek contribution from the other co-owner(s). In practice that means the payer can ask for reimbursement equal to the co-owner’s fair share of those payments (for example, half if ownership is 50/50). If co-owners cannot agree, the payer can ask a court for an accounting (for example, in a partition action), and the court can adjust the distribution to reflect payments and improvements. California’s partition laws set out the court’s power to account for contributions, rents, and improvements; see the partition statute starting at California Code of Civil Procedure section 872.010 for the statutory framework: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=872.010&lawCode=CCP.
Prorations at closing. Property taxes and special assessments are normally prorated at closing. The seller typically pays taxes up to the closing date and receives or pays a prorated credit on the settlement statement. That proration happens before proceeds are distributed to owners; it is a standard closing adjustment rather than an ad hoc deduction from any single owner’s share.
Effect of payments already made vs. mortgage lien. Consider two different payments: (A) the mortgage balance itself — the lender must be paid, and the mortgage payoff reduces the gross proceeds; (B) periodic carrying costs you paid (monthly mortgage payments, taxes, HOA dues, insurance) — those can form the basis of a contribution/reimbursement claim against co-owners, but they are not automatically deducted from your nominal ownership share without agreement or court accounting. In other words, paying the mortgage does not automatically increase your take-home distribution unless you assert (and prove) a right to contribution.

Hypothetical example

Facts: Two tenants in common (A and B) each own 50%. The property sells for $500,000. There is a mortgage balance of $200,000. Owner A made all mortgage payments and all property tax payments during the ownership period, totaling $30,000 in carrying costs; Owner B paid nothing.

At closing the lender is paid the $200,000 payoff from sale proceeds. Closing costs and prorations are handled next.
The distributable net proceeds might be, say, $280,000 (after paying the mortgage and closing costs). Under title, the starting point is 50/50, so $140,000 each.
If Owner A wants credit for the $30,000 of carrying costs, A can demand contribution from B for B’s 50% share of those payments (i.e., $15,000). If B agrees, A gets $140,000 + $15,000 = $155,000 and B gets $125,000. If B refuses, A may have to file a lawsuit (or assert the claim in a partition action) and ask the court to order an accounting and require B to reimburse his 50% share.

This example shows the ordering: payoff liens and prorations are handled at closing; claims for reimbursement between co-owners are an internal accounting that normally requires agreement or a court decision.

When courts step in

If co-owners cannot agree about reimbursements, a partition action or a lawsuit for accounting is the typical remedy. In partition, the court may (1) order sale and distribution of proceeds, and (2) account for rents, profits, payments, and improvements so that contributions are fairly allocated among owners. See California’s partition code sections beginning at CCP § 872.010 for the statutory scheme and relief a court can grant: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=872.010&lawCode=CCP.

Helpful Hints

Keep meticulous records: save cancelled checks, bank statements, receipts, tax bills, HOA statements, and insurance invoices showing what you paid and when.
Get written agreements: before paying large amounts, ask co-owners to sign a simple written agreement that spells out how payments will be credited at sale.
Ask for an accounting at closing: request that the closing agent list mortgage payoff, prorations, and any credits so you have a clear, dated closing statement.
Know the difference between lien payoff and internal claims: mortgage payoff is paid to the lender first; reimbursement claims among owners are resolved by agreement or by court.
Consider mediation early: disagreements about money between co-owners are often cheaper and faster to resolve by mediation than by litigation.
If you are married or in a domestic partnership, family/property rules may alter reimbursement rights — consult a family law attorney for marriage/partnership-specific questions.

Practical next steps

Before listing: if you expect disputes, discuss allocation and credits with co-owners and get a written memo or agreement.
At listing and escrow: inform your agent and closing officer of any claimed credits so they appear on the closing statement.
If dispute arises: gather documentation and consider demand letter, mediation, or filing for accounting/partition. A lawyer can advise whether your facts support a reimbursement claim and the likely remedies.

Resources: For California partition law and the court’s powers to account and distribute proceeds, see California Code of Civil Procedure (partition statutes) starting at CCP § 872.010: https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=872.010&lawCode=CCP.

Disclaimer: This article is for general informational purposes only and does not constitute legal advice. I am not a lawyer. Laws change and every case depends on its facts. Consult a licensed California attorney to get advice tailored to your situation.