How Do Existing Mortgage Obligations Affect the Sale and Division of Proceeds in a Partition under Louisiana Law?
Disclaimer: This article provides general information about Louisiana law and does not constitute legal advice. Consult a qualified attorney for advice about your specific situation.
Detailed Answer
1. Right to Partition and Survival of Mortgages
Under Louisiana Civil Code art. 777 (La. Civ. Code art. 777), any co-owner may compel partition of co-owned property. A partition action divides either in kind (physical division) or by licitation (public sale). Mortgage obligations attach to the property regardless of partition. Per Civil Code art. 804 (La. Civ. Code art. 804), partition does not extinguish existing mortgages, privileges, or other encumbrances. Creditors retain their rights and may intervene to protect their security interests.
2. Partition by Licitation and Creditor Intervention
If the court orders licitation under Louisiana Code of Civil Procedure art. 2831–2846 (La. C.C.P. art. 2831), the property sells at public auction. Mortgage creditors have the right to bid and to ensure satisfaction of their liens from the sale proceeds before any distribution to co-owners.
3. Order of Distribution of Sale Proceeds
After a licitation sale, the clerk of court or commissioner pays out proceeds in this order:
- Administrative costs and court-approved fees;
- Mortgage and other secured liens, paid in order of priority;
- Unsecured claims approved by the court;
- Balance distributed to co-owners according to their ownership shares (La. Civ. Code art. 811).
Each co-owner’s net share reflects the deduction of mortgage debt against the value of the property sold.
4. Partition in Kind and Assumption of Mortgage
When the court orders partition in kind, it allocates physical portions of the property. Each allocated portion remains subject to the original mortgage. A co-owner who receives a portion may need to assume the mortgage entirely or reimburse others for their shares net of the encumbrance. The court may adjust allocations to achieve equity among co-owners (La. Civ. Code art. 780).
Helpful Hints
- Review your deed and mortgage documents to confirm lien priority.
- Discuss with a court-appointed commissioner how lien amounts will be verified.
- Consider mediation if co-owners wish to avoid a public auction.
- Plan ahead for potential tax consequences on your net proceeds.
- Keep records of any payments you make toward the mortgage before or during partition.