Detailed Answer

Disclaimer: This article provides general information under Iowa law. It does not constitute legal advice. Consult an attorney to address your unique situation.

When co-owners ask an Iowa court to partition real property, any existing mortgage on the property remains a lien that the court must satisfy before dividing net proceeds among owners. The process unfolds in three key steps:

1. Mortgage Liens Retain Priority

Under Iowa’s partition statutes, liens such as mortgages continue to encumber the property until sale. Courts honor lien priority based on the dates mortgages were recorded. Senior liens (earlier mortgages) get paid before junior liens.

2. Sale Under Court Supervision

Iowa Code § 648.23 authorizes the court to order a public sale when co-owners cannot agree on partition. A licensed real estate broker auctions the property. The court confirms the sale and orders the purchaser to pay the sale price into the court registry.

3. Payment of Liens and Distribution of Proceeds

After sale, Iowa Code § 648.31 specifies how the court disburses funds:

Taxes: First, unpaid ad valorem property taxes and special assessments.
Mortgage Liens: Next, all mortgage liens as they rank in priority. The court pays each mortgage holder out of the sale proceeds. If proceeds cover only part of a mortgage, the senior lienholder receives full payment before any junior lienholder is paid.
Remaining Proceeds: Finally, the court divides any surplus among the co-owners in proportion to their ownership interests.

Reference: Iowa Code § 648.31.

Illustrative Example

Imagine three owners—Alice, Bob, and Carol—each owns a one-third interest in farmland. The property carries two mortgages: a first mortgage for $150,000 and a second mortgage for $50,000. The court orders a partition sale and nets $180,000 after fees and taxes. It pays the first mortgage in full ($150,000), then applies $30,000 toward the second mortgage (leaving $20,000 unpaid). No funds remain for distribution to the co-owners because mortgage obligations consumed the entire net proceeds. If a shortfall exists on the junior mortgage, that lienholder may pursue a deficiency judgment under Iowa Code Chapter 654.

Helpful Hints

Locate all recorded mortgages by searching the county recorder’s office.
Review mortgage priority: the date of recording determines seniority.
Estimate net proceeds by subtracting taxes, broker fees, court costs, and payoffs.
Consider negotiating a buy-out if lien obligations prevent meaningful distributions.
Consult an attorney to explore options such as refinancing liens before partition.