Disclaimer: This article is for informational purposes only and does not constitute legal advice. Always consult a qualified attorney licensed in Colorado for guidance on your specific situation.
Detailed Answer
When co-owners seek to divide real property in Colorado, they may file a partition action under Colorado Revised Statutes (C.R.S.) § 38-30-101 et seq. Existing mortgages and other liens remain attached to the property throughout the process and affect how sale proceeds are distributed. Here’s how it works:
1. Partition Process Overview
A partition action asks the court either to physically divide the property among co-owners or to appoint commissioners to sell the property and distribute the proceeds. Under C.R.S. § 38-30-108, if division in kind is impractical, the court orders sale by public auction or private sale.
2. Treatment of Mortgages and Liens
Mortgages are liens on the property, not on individual owners. In a partition sale, liens continue to encumber the entire property until sale. Under C.R.S. § 38-30-109(3), the commissioners must apply the sale proceeds in the following order:
- Costs of sale (commissions, advertising, court costs).
- Senior liens (first mortgage, second mortgage, judgment liens) in order of priority. Colorado mortgage priority generally follows first in time, first in right. See C.R.S. § 38-35-106.
- Any statutory or special assessments or taxes due at the time of sale.
- Remaining balance to co-owners in proportion to their ownership interests.
3. Hypothetical Example
Suppose Alice and Bob each own 50% of a house in Denver. The house has a first mortgage of $200,000 and a second mortgage of $50,000. They cannot agree on ownership, so they file a partition action and the court orders a sale. The property sells for $300,000. Here’s the distribution:
- Sale costs: $10,000 (sell costs, court fees).
- First mortgage: $200,000 paid in full.
- Second mortgage: $50,000 paid in full.
- Remaining balance: $40,000, divided equally: $20,000 to Alice and $20,000 to Bob.
4. Priority Disputes
Occasionally, co-owners challenge the priority of a lien. Colorado courts will look at the date and manner of recording. Under C.R.S. § 38-35-108, purchase-money mortgages (loans used to buy the property) may have special priority over later liens.
Key statutes:
- Partition procedure: C.R.S. § 38-30-108 (Sale of property) and § 38-30-109 (Report and confirmation of sale) — View C.R.S. § 38-30-109
- Mortgage priority: C.R.S. § 38-35-106 — View C.R.S. § 38-35-106
Helpful Hints
- Review the property’s title report before filing partition to identify all liens and their priority.
- Consult a real estate attorney early to evaluate alternatives like buyout or mediation to avoid sale.
- Be prepared for costs: partition sales involve court fees, commissioner fees, advertising, and potential appraisal costs.
- Confirm recording dates of mortgages and liens to anticipate distribution order and potential disputes.
- If proceeds won’t cover all liens, discuss with counsel how shortfalls between liens may impact each co-owner.