Disclaimer: This article is for educational purposes only and does not constitute legal advice. Always consult a licensed attorney for guidance on your situation.
Detailed Answer
When co-owners ask a court to partition real estate in Indiana, the process must clear any existing mortgages before dividing sale proceeds. Indiana’s partition statutes (Ind. Code § 32-17-10) guide how liens attach and how the court handles sale and distribution.
1. Mortgages Remain Liens on Partitioned Property
Even after a partition action starts, any recorded mortgage stays attached as a lien on the property. The court cannot transfer title free and clear of that mortgage unless the mortgage is paid off or otherwise satisfied.
2. Ordering a Sale and Paying Senior Liens
If the court orders a sale instead of dividing the land physically, the sheriff or commissioner sells the property at public auction. From the gross proceeds, the court will direct payment for:
- Costs of partition (filing fees, publication, commissions)
- Real estate taxes and assessments
- Senior mortgage liens, in order of priority
3. Distribution Under Ind. Code § 32-17-10-17
After satisfying liens and costs, the court applies any remaining funds according to ownership interests. Indiana Code § 32-17-10-17 states:
“After the sale, the court shall apply the proceeds to the payment of costs, taxes, and prior liens, including mortgages, and distribute the surplus to the parties in proportion to their interests.” (IC 32-17-10-17)
Example: Two co-owners each hold a 50% interest. The sale nets $120,000. Mortgage payoff is $90,000 and costs total $5,000. The court pays the lender $90,000, pays costs, then divides the remaining $25,000 equally—$12,500 each.
4. Deficiency Liability and Co-Owner Contributions
If the sale proceeds do not fully satisfy the mortgage, the lender may pursue a deficiency judgment against the mortgagor(s) under Indiana’s mortgage statutes. Co-owners who did not sign the mortgage typically avoid deficiency liability. Co-owners who did sign must address any balance due directly with the lender, not through the partition court.
Helpful Hints
- Obtain a complete title report to identify all mortgages and liens before filing a partition.
- Determine the priority of liens—senior liens are paid first.
- Calculate estimated sale costs, taxes, and lien payoffs to project net proceeds.
- Discuss with a lender or closing agent how a deficiency might affect mortgagors.
- Consider a buyout agreement where one co-owner refinances or pays off the mortgage to avoid an auction.