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

Detailed Answer

When a property is sold, the lender, taxing authorities, and lienholders are paid first. What remains — the sale proceeds — is divided among owners according to ownership rights, agreements, or a court order. Whether you can deduct mortgage payments, property taxes, insurance, and other carrying costs you personally paid out of the sale proceeds depends on three things:

The legal relationship between the payor and the debt or expense. If the mortgage, tax bill, or insurance policy is in your name alone, those creditors have priority over your co‑owner’s claim to proceeds only to the extent those obligations are secured by the property or are liens. If the debt is joint, the lender’s payoff reduces the net equity and you cannot take more than your share of equity unless you can show a right to reimbursement.
Any written agreements between co‑owners or between spouses. A written agreement (sale contract, co‑ownership agreement, marital settlement agreement) that says who is entitled to reimbursement or credits will control. Courts usually enforce clear written allocations of costs and credits.
Whether a court would order reimbursement (equitable accounting). If there is no agreement, Alabama courts (in partition actions or divorce/property division) commonly allow a credit or lien for necessary carrying costs paid by one co‑owner that preserved the property’s value — for example, property taxes, insurance, and reasonable repairs. Payments that reduced mortgage principal can increase the payor’s equity, so those payments often translate into a credit equal to the added equity. Interest, late fees, and convenience payments are treated differently depending on the context.

Common scenarios and how carrying costs are handled

Joint owners (tenants in common or joint tenants) selling together: Mortgage and tax liens are paid out of the sale proceeds first. If one owner paid the mortgage or taxes out of pocket before the sale, that owner can typically ask for an accounting and a credit for those payments in a partition lawsuit or settlement — especially where the payments were necessary to preserve the property. The paying owner should show how the payment affected the property’s equity (e.g., mortgage principal reduction).

Divorcing spouses: In Alabama divorce cases, courts divide marital property equitably. Courts often award reimbursement if one spouse used separate (nonmarital) funds to pay down mortgage principal or to pay carrying costs after separation, provided those funds are traceable. If both spouses benefited, the court may order an offset or credit, not an automatic one‑for‑one return of every payment.

Single owner selling but another person paid costs: Someone who voluntarily paid another owner’s mortgage or taxes (without agreement) may have an equitable claim for reimbursement or a resulting trust only in limited circumstances. A written agreement or clear evidence of intent to create a loan or reimbursement right is strongest support.

What counts as a reimbursable carrying cost?

Property taxes and assessments paid to prevent liens — generally creditable.
Insurance premiums required to protect the property — generally creditable.
Reasonable repairs and maintenance that preserved the property — often creditable.
Mortgage payments that reduced principal — usually increase the payer’s equity and thus are creditable.
Mortgage interest or late fees — courts may treat these differently; interest is an expense of ownership and may be shared unless one owner agreed to pay it alone.
Personal living expenses or improvements that are purely cosmetic may be harder to recover unless they increased sale value.

How courts and lawyers calculate a credit

Typical steps to calculate credits or reimbursements:

Start with gross sale price.
Subtract secured debts and liens (mortgage payoff, tax liens, recorded judgments).
Subtract reasonable selling costs (commissions, closing costs).
Determine net equity.
Adjust net equity for any equitable credits: principal reductions paid by one co‑owner, out‑of‑pocket taxes/insurance, documented repairs that preserved value.
Divide the adjusted equity according to ownership shares or a court’s equitable allocation.

Practical example (hypothetical)

Two tenants in common each own 50%. The house sells for $200,000. Mortgage payoff and liens total $120,000. Net before selling costs is $80,000. Owner A paid $6,000 in property taxes and $4,000 in insurance and made mortgage payments that reduced principal by $10,000. If a court finds those payments were necessary and traceable, Owner A might receive credits totaling $20,000, leaving $60,000 to split — which could give Owner A an effective larger share depending on the court’s ruling or the owners’ agreement.

Helpful Hints

Keep excellent records: canceled checks, bank statements, mortgage escrow statements, receipts for taxes, insurance and repairs. Traceability is crucial.
If you plan to pay carrying costs that another owner will benefit from, get a written agreement specifying reimbursement or credit.
Distinguish principal reduction from interest. Principal reduction increases equity; interest is typically an expense of ownership.
In divorce, identify what funds are separate (premarital, inherited, or gift) because those can support reimbursement claims if used to pay property obligations.
Before sale, request a payoff figure from the lender and obtain a proposed settlement statement so you can see how proceeds will be applied.
If co‑owners disagree, consider mediation or an accounting; a partition action in court can sort ownership, liens, and reimbursement claims but costs time and money.
Consult a local Alabama real estate or family law attorney early: they can review documents, estimate likely credits, and advise whether to seek reimbursement in settlement or court.

Next steps: Gather all payment records (mortgage statements showing principal reduction, tax receipts, insurance invoices, repair bills). If you and the other owner cannot agree, consult an Alabama lawyer who handles real estate or domestic relations matters to evaluate whether you have a strong reimbursement or credit claim.

Disclaimer: This is general information only and is not legal advice. Laws and outcomes vary with facts. Consult a licensed attorney in Alabama to get advice about your specific situation.