Vermont: Recovering Mortgage, Property Tax, and Carrying Costs from Sale Proceeds

Short answer: Under Vermont law, you may be able to recover mortgage payments, property taxes, insurance, and other carrying costs you paid before a sale, but whether and how much you recover depends on the legal context (for example, divorce or co‑ownership), the nature of the payments (principal vs. interest vs. improvements), any written agreements between owners, and the quality of your documentation. Vermont courts divide property equitably in divorces and can order reimbursements or credits; co‑owner disputes are resolved by accounting principles or partition actions where courts may also order credits.

If the property is part of a divorce

When spouses divide property in Vermont, the court uses an equitable division standard. The statute that governs equitable division in divorce is 15 V.S.A. § 751. The court considers a range of factors, including each spouse’s contributions (financial and nonfinancial), the length of the marriage, each spouse’s economic circumstances, and any other factor the court deems relevant. See: 15 V.S.A. § 751.

In practice, the court can credit one spouse for mortgage principal payments that increased the parties’ equity. It may also consider payments of property tax, insurance, and reasonable maintenance when calculating an equitable result. Whether a court awards a dollar‑for‑dollar reimbursement for carrying costs (like interest, routine repairs, and utilities) depends on the overall equities of the case and whether those payments benefited the family as a whole.

If the property has multiple owners (not divorce)

For co‑owners (tenants in common or joint owners who are not spouses), recovery is typically decided either by agreement between the owners or by a court accounting/partition action. Courts will usually:

• credit a co‑owner for payments that reduced the mortgage principal, because those payments increased that owner’s equity;
• treat payments for taxes, insurance, and necessary repairs as advances that may be reimbursed or charged against sale proceeds, depending on whether they were paid for the benefit of the property as a whole or for one owner’s personal benefit;
• look at any express agreement between the owners (written agreements carry the most weight).

If owners cannot agree, a partition or accounting action in Vermont court can force a sale and an allocation of proceeds. The court may order an accounting of contributions and adjust each owner’s share accordingly.

What payments usually count — and why it matters

• Mortgage principal payments: Generally treated as increasing your equity in the property. Courts commonly credit the payer for principal reductions.
• Mortgage interest: Often treated as a carrying cost. Courts do not always award a full dollar‑for‑dollar credit for interest, although they may consider it in reaching an equitable result.
• Property taxes and insurance: These are regular carrying costs. Courts may treat them as reimbursable advances, especially if one owner paid most or all of them to protect the property’s value.
• Repairs and improvements: Routine repairs that preserve the property’s condition are more likely to be treated as reimbursable. Capital improvements that increase value can affect the sale price and may entitle the payer to a larger share, but the court will distinguish between maintenance and improvements.

Documentation the court or a buyer will want to see

Maintain clear records. The stronger your proof, the more likely you will receive a credit or reimbursement. Useful documents include:

• mortgage statements showing principal vs. interest paid, canceled checks or bank transfers for payments, and escrow statements;
• property tax bills and payment receipts;
• insurance premium invoices and proof of payment;
• receipts, invoices, and before/after photos for repairs and improvements;
• any written agreements (co‑owner agreements, separation agreements, promissory notes) establishing payment responsibilities or promises of reimbursement.

Tax and practical consequences

Reimbursements can have tax consequences. For example, paying mortgage interest is potentially deductible for federal income tax purposes while a reimbursement you receive might not adjust your federal cost basis the same way an original purchase would. Capital improvements that you paid for and that increased basis can affect capital gains on sale. Consult a tax professional about how reimbursements and credits affect tax reporting.

Practical path: negotiate first, litigate last

Parties often get better and faster results by negotiating a settlement that allocates credits for mortgage principal, taxes, insurance, and repairs. Use a neutral appraisal or settlement statement to calculate net proceeds. If you can’t agree, consider mediation. If negotiation fails, you can seek a court accounting or partition action and ask the court to award credits based on documented payments and equitable principles.

When to consult an attorney

Talk with a Vermont attorney if any of the following apply:

• you and the other owner(s) disagree about who paid what or how to divide proceeds;
• you are in a divorce and property division is contested;
• significant sums are at stake or the accounting is complex (multiple loans, renovations, or tax issues);
• you need help enforcing or documenting a reimbursement claim in court.

Statutory reference: For divorce property division in Vermont, see 15 V.S.A. § 751.

Disclaimer: This article provides general information about Vermont law and does not create an attorney‑client relationship. It is not legal advice. For advice tailored to your situation, consult a Vermont attorney.