Disclaimer: This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney to discuss your specific situation.
Detailed Answer
Under Oregon law, a partition action lets co-owners ask the court to divide—or sell—real property when they cannot agree on physical division. When the court orders a sale (ORS 105.260), existing mortgage liens remain attached to the property and influence how proceeds get divided under ORS 105.265.
1. Mortgage Liens Survive Partition
Mortgages are liens that run with the land. A mortgage recorded against the property binds all co-owners’ interests in proportion to what they signed. The court must pay off liened debts from sale proceeds before distributing any remaining funds to co-owners.
2. Order of Distribution Under ORS 105.265
The statute sets the following priority when distributing sale proceeds:
- First, court costs and expenses of the partition action (e.g., filing fees, commissioner fees, reasonable attorneys’ fees).
- Second, debts secured by liens on the property that existed before the partition (including mortgages, in order of their recording date).
- Finally, the net proceeds are divided among the co-owners according to their ownership shares.
3. Priority Among Multiple Liens
If more than one lien exists, senior liens (earlier recorded) get paid before junior liens. Each lienholder may file a proof of claim. The court then orders payment by priority.
4. Insufficient Proceeds and Deficiency Rights
If sale proceeds cannot fully satisfy a mortgage, the lender may pursue a deficiency judgment against the borrower for any unpaid balance, subject to Oregon’s deficiency-judgment rules.
5. Two Common Scenarios
Scenario A: Mortgage Encumbering the Entire Property
If both co-owners signed the loan documents, the lien covers the entire property. Example:
- Sale price: $200,000
- Less court costs: $10,000 → Remaining: $190,000
- Less mortgage payoff: $50,000 → Net distributable: $140,000
- Co-owners’ shares (50% each): $70,000 each
Scenario B: Mortgage Encumbering One Co-Owner’s Interest
If only one co-owner signed the mortgage, the lien attaches solely to that owner’s undivided interest. Example:
- Sale price: $200,000
- Less court costs: $10,000 → Remaining: $190,000
- Divide by share (50% each): $95,000 to Owner A; $95,000 to Owner B
- Pay Owner A’s mortgage from Owner A’s share: $95,000 − $50,000 = $45,000 to Owner A
- Owner B receives full $95,000
Helpful Hints
- Obtain a title report to identify all recorded liens before filing for partition.
- Review lien recording dates to estimate how each lienholder will be paid.
- Consult an attorney to understand potential deficiency-judgment exposure.
- Consider mediation or buy-out arrangements to avoid a forced sale.
- Document each co-owner’s contributions to support fair division arguments.