Legal Question in Real Estate Law in California

Re: Joint tenancy

You can't sell the house or encumber it if you hold it in joint tenancy with another person. You have to buy that person's share out.

Re: Joint tenancy

First, one of two joint tenants can indeed borrow on his interest in the jointly-owned property. Such a loan encumbers only the borrower's interest, and does not sever the joint tenancy. If the borrower dies before repaying the loan or a foreclosure sale, the lien disappears and the surviving joint tenant holds the entire property free and clear. Also, since the lender's lien is only on the borrower's interest, the person buying at the foreclosure sale gets only a half interest and becomes a tenant in common with the other former joint tenant.

All sound complicated? Well, it is. That's why most lenders won't lend money to one joint tenant without the other joint tenant also being obligated on the note and deed of trust. A half interest is poor collateral with limited appeal in the foreclosure market.

In fact, if I were your attorney, I would obtain and examine the loan documents relating to the loan your son has taken out. A $170,000 loan on a half interest in a house than might sell for $360,000 sounds way too big, and it seems possible to me that misrepresentations may have been made to the lender, or the lender was an amateur and very foolish.

Just as your son can't mortgage your interest, nor could he sell it, you cannot mortgage his half interest or sell it. You could, in theory, borrow against your half interest, or even sell it, but who would lend or buy? In the case of a loan, it's essentially unmarketable collateral. In the event of a purchase, the buyer would become a tenant in common (not a joint tenant) of the other owner -- an unwilling stranger -- and the two, being both entitled to full possession, would become, in legal effect, roommates.

Generally, the "way out" of an uncomfortable co-ownership of property (whether it be a joint tenancy or a tenancy in common) is through a special kind of lawsuit called a partition.

Merely filing a partition lawsuit often causes the other co-owner to negotiate an out-of-court settlement, such as a buy-out or voluntary sale, allowing the suit to be dismissed well before trial and judgment.

If a partition suit goes to trial, the court will arrange for the property to be sold (usually by ordinary commercial means through listing with an agent, not a courthouse-steps auction) and the net proceeds, after paying liens, commissions, costs and expenses, will be divided according to the evidence. Normally, this is 50-50 when there are two owners, AFTER adjustment for things like your son's loan, excess expenditures for mortgage, property taxes, insurance, maintenance, etc. by one owner, and miscellaneous claims of one against the other.

If you are interested in having me review your situation personally, without cost, please contact me at my e-mail address or by phone at (707) 523-4497. I handle cases like this all over Northern California.