Understanding Whether You Can Recover Mortgage, Property Tax, and Carrying Costs From Sale Proceeds

This article explains, under Indiana law, when and how mortgage payments, property taxes, and other carrying costs you paid can be included in your share of money from the sale of real estate. It uses short hypothetical facts to show how accounting typically works. This content is educational only and is not legal advice. For legal decisions, consult a licensed Indiana attorney.

Quick answer — the short version

When real estate is sold, the lender(s) and closing costs are paid first from the sale proceeds. Any claim that one co-owner should be reimbursed for mortgage payments, taxes, insurance, or other carrying costs depends on (1) who legally owns the property and in what shares, (2) whether the payments were for a separate interest or for jointly owned (marital or co-owned) property, (3) whether the parties agreed in writing how to allocate payments, and (4) whether a court would order an equitable adjustment or reimbursement. In Indiana divorce cases the court divides marital property equitably and may consider contributions. For co-owners who are not married, equitable accounting or a partition action can produce reimbursement remedies, but you typically must prove what you paid with documentation.

How sale proceeds are handled at closing (typical sequence)

1. Pay off existing mortgages and liens owed to lenders. Lenders have priority and are paid from sale proceeds.
2. Pay closing costs (agent commissions, title fees, closing agent fees) and prorated items (property taxes, HOA dues) according to the closing statements.
3. Any statutory or agreed escrow or tax prorations are applied.
4. After all secured debts and closing items are paid, the remaining net proceeds are available to distribute to owners according to title ownership, divorce orders, or settlement terms.

Common scenarios and how reimbursements usually work

1) Married couple divorcing (marital property division)

In an Indiana divorce, the court divides marital property in a just and reasonable manner. The statute that governs distribution of marital property is Indiana Code Title 31, Article 15, Chapter 7. See: Ind. Code § 31-15-7-5. The court looks at many factors, including each spouse’s contributions and any agreements between them.

If you paid mortgage, taxes, or insurance on the marital home before a sale, the court can consider those payments when making an equitable division. The court may order reimbursement to the spouse who paid more out-of-pocket, or it can adjust the division percentage to reflect contributions. Reimbursement is not automatic — it depends on the facts, ownership classification (marital vs. separate), and the judge’s balancing of factors.

2) Co-owners who are not married (friends, relatives, investors)

For co-owners, title and any written agreement control first. If title lists two people as tenants in common, each owner is entitled to proceeds according to their ownership share unless they agree otherwise. If one co-owner paid mortgage and carrying costs, that owner can demand an accounting and may claim reimbursement for amounts paid on behalf of the property before splitting the net. If the co-owners disagree, one owner can file a partition action asking the court to sell the property and settle accounts. Courts can order equitable adjustments or liens to reimburse contributions, but the owner claiming reimbursement must prove payments with documentation.

3) Lender and tax priorities

Whether in divorce or a co-owner sale, mortgage lenders and lienholders get paid from sale proceeds before owners receive money. Also, property tax proration at closing is standard: taxes are prorated to the closing date, and the closing statement will show how those amounts were allocated. This means you cannot keep sale proceeds until mortgage and tax obligations are resolved.

Hypothetical example — how an accounting might look

Hypothetical facts: You and a co-owner sell a house for $300,000. Mortgage payoff is $200,000. Closing costs (commissions, title) are $21,000 total. Property taxes prorated at closing: $2,000. You paid $8,000 in mortgage payments, $1,200 in insurance, and $800 in HOA dues over the last year. You want to know if you can recover those $10,000 before the proceeds are split.

Typical closing math:

• Sale price: $300,000
• Less mortgage payoff: -$200,000
• Less closing costs: -$21,000
• Less prorated taxes: -$2,000
• Net available at closing: $77,000

If title shows you and the co-owner split 50/50, each is entitled to $38,500 in principle. Your $10,000 of carrying costs are not automatically deducted from that $38,500 unless you can show an agreement or a court orders reimbursement. If you do obtain an agreed credit or court-ordered reimbursement, the closing statement (or a later accounting) would reflect that and reduce the other owner’s share accordingly.

What you must prove to get reimbursement

• Clear documentation: canceled checks, bank statements, mortgage statements showing you made the payments, insurance invoices, receipts for repairs or HOA dues.
• Proof those payments were made for the property in question and benefited the other owner(s).
• Evidence of any written agreement that promised reimbursement or allocated payments.
• If no agreement exists, a factual showing that requiring the paying party to absorb all costs would be inequitable.

Practical steps to protect your position

1. Keep records for every mortgage, tax, insurance, HOA, and repair payment you make on the property.
2. Ask for a written agreement with co-owners or your spouse that explains who pays what and how reimbursements will be handled.
3. At sale time, review the closing statement closely and ask the closing agent to show how prorations and payoffs were applied.
4. If the other owner disputes reimbursement, consider mediation or hire an Indiana attorney to seek an equitable accounting or raise the issue in a divorce or partition case.

Where Indiana law plays a direct role

For divorces, the court’s authority to divide marital property and consider contributions is in Indiana Code § 31-15-7-5: https://iga.in.gov/laws/2023/ic/titles/31/articles/15/chapters/7/sections/5. That provision sets out the court’s power to distribute property and the factors it may consider. For non-marital co-owner disputes, remedies arise under general principles of property and equity (accounting, partition, and equitable lien doctrines). A local attorney can identify the best statutory or case-law basis for reimbursement in your situation.

When to talk to an Indiana attorney

Consult an attorney if any of the following apply:

• You and the other owner disagree about the ownership percentage or reimbursement.
• The sale involved complex liens, tax issues, or unclear title.
• One party paid significantly more carrying costs and you want to seek or defend a reimbursement claim.
• You are going through a divorce and want the court to consider your payments in the equitable division.

Helpful hints

• Document everything: maintain a folder with payment records and statements related to the property.
• Review title and mortgage payoff statements before closing to confirm liabilities are correct.
• Ask for a written settlement agreement if you negotiate a reimbursement outside court.
• Remember lenders and valid liens are paid first — you cannot get more than the net proceeds after those payoffs unless the buyer or lender agrees otherwise.
• In a divorce, request your attorney explain how the court typically treats contributions and reimbursements under Ind. Code § 31-15-7-5.

Disclaimer: This article explains general principles under Indiana law and uses hypothetical facts for illustration. It is not legal advice and does not create an attorney–client relationship. For advice about your specific situation and to protect your rights, contact a licensed Indiana attorney.