Can I Recover Mortgage, Property Taxes, and Other Carrying Costs from Sale Proceeds?

Short answer: It depends on the context. When real property in Michigan is sold, the lender and taxing authorities are usually paid first at closing. Whether you can obtain an extra credit or reimbursement from the net sale proceeds for mortgage payments, property taxes, insurance, HOA fees, or other carrying costs you personally paid depends on (1) how title is held, (2) whether co‑owners or an ex‑spouse agree, and (3) whether a court must decide the allocation (for example, in a divorce, partition, or probate case).

Detailed answer — how Michigan law and practice typically treat carrying costs

1) Who gets paid at closing

When a house is sold, the closing agent or title company prepares a settlement statement (Closing Disclosure / HUD-1 style figure). From the gross sale price the closing agent usually pays in order of priority:

The mortgage(s) and other recorded liens (these are satisfied from sale proceeds).
Current property taxes and any prorations required by local practice.
Closing costs, real estate commissions, and any agreed escrows.

After liens and closing costs are paid, the remainder is the net sale proceeds to be distributed to whoever holds legal title.

2) Mortgage and taxes paid by one co‑owner before sale

If one co‑owner (or an ex‑spouse) made mortgage payments, paid property taxes, insurance, or HOA dues while the property remained unsold, that person may have a claim against the other owner(s) for contribution or reimbursement. How that claim is handled varies by situation:

Co‑owners (tenants in common or joint tenants): Courts often allow an accounting and require contribution for necessary expenses that preserve the property. The paying co‑owner can usually seek a credit or reimbursement before proceeds are split. The payer should keep records, canceled checks, bank statements, and proof those payments were required to preserve the property.
Divorce / marital property cases: Michigan divides marital property equitably. A spouse who paid mortgage or carrying costs may ask the family court to consider those payments as contributions that affect the property division. Courts may give credit for direct payments that preserved marital assets, but outcomes depend on facts, timing, and whether the payments were for marital or separate property.
Estate / probate: If a decedent owned property and an heir or personal representative paid carrying costs, the estate or other co‑owners might owe reimbursement. Executors should track payments and seek instructions from probate court if needed.

3) Forms of relief a Michigan court may award

The Michigan court handling the dispute can fashion several remedies:

An accounting and credit: the court orders an accounting of each party’s contributions and gives a dollar credit to the paying party against sale proceeds.
An equitable lien or constructive trust: the court can impose a lien on the property in favor of the payer to secure repayment at sale.
An order for contribution: require co‑owners to reimburse the paying party proportionally for necessary and reasonable payments.

4) Practical limits and common outcomes

Several practical points to understand:

Recorded mortgages and tax liens are first to be satisfied from sale proceeds. If the payer was satisfying the recorded mortgage, the lender gets the payoff; the payer’s ability to recover those amounts from a co‑owner depends on their private claim, not on the mortgage payoff itself.
Courts will generally require clear records showing the payments were made, were necessary, and were not voluntary gifts.
Minor or elective expenses (cosmetic repairs, upgrades) are less likely to be reimbursed unless the parties agreed in advance.
If the parties agree before closing, they can allocate proceeds however they like — the cleanest path is a written settlement splitting net proceeds and specifically listing any credits.

5) Tax and closing implications

Keep precise records (settlement statements, receipts, canceled checks). Mortgage and tax payoffs appear on the closing statement; personal reimbursements or credits between owners should also be documented. For tax reporting, consult a tax professional — reimbursements and credits can affect gain/loss reporting on the sale.

6) What you should do now (step‑by‑step)

Collect documentation: all mortgage statements, canceled checks, property tax bills and receipts, insurance and HOA invoices, and repair bills you paid.
Ask the closing agent for a proposed settlement statement early so you can see how liens will be paid and what will remain to distribute.
If co‑owners haven’t agreed, propose a written allocation or ask the buyer/closing agent to hold funds in escrow while you negotiate.
If you cannot agree, consult a Michigan attorney (real estate, family, or probate depending on case type). An attorney can demand an accounting, file a partition or contribution claim, or seek an equitable lien.
If litigation is necessary, be ready to prove necessity and amounts with bank records and invoices.

Hypothetical example

Anna and Ben own a house as tenants in common. Anna paid the monthly mortgage and property taxes for two years after Ben stopped contributing. They sell the house. At closing, the lender receives the mortgage payoff and taxes are prorated and paid. Anna can ask Ben for reimbursement for the payments she made. If Ben refuses, Anna can seek a court accounting in a partition action or file a small claim/contribution case. If Anna can prove she made necessary payments that preserved the property, a judge may give Anna a credit against the net proceeds or impose an equitable lien to ensure repayment at sale.

When to get a lawyer

Talk to a Michigan attorney if any of these apply:

Co‑owner disputes you cannot resolve by agreement.
There’s a recent divorce, death, or probate involving the property.
You want to preserve a lien or file a partition, or you face a tight closing timeline and need escrow protection.
Large sums are involved or the other party disputes your accounting.

Helpful hints

Save everything: mortgages, tax bills, insurance invoices, HOA statements, canceled checks, bank transfers, and proof of payment.
Request a written settlement allocation before closing to avoid surprises.
If you anticipate disputes, ask the buyer or title company to hold funds in escrow while the parties finalize the split or while a court resolves claims.
Get any agreement in writing and signed by all owners before closing.
In divorce cases, raise carrying cost claims early with your lawyer so the judge can consider them in property division.
Small claims or mediation can be faster and cheaper than full litigation for modest sums.

Disclaimer: This article explains general principles under Michigan practice and is for educational purposes only. It is not legal advice. For advice about a specific situation, consult a licensed Michigan attorney.