Legal Question in Real Estate Law in California
Property Lien Threat
In 2003, my wife and I purchased a home with the help of a friend, who lent us 60K for the down payment, and also co-borrowed. We never signed any kind of agreement or note, and have just gone about paying her in monthly installments as we had verbally agreed. Less than a year after purchasing, my wife and I refinanced just in our names, and our friend signed a grant deed over to us. My wife & I are currently going through a divorce, & part of our agreement is to sell the house (currently on the market) & split any proceeds. We had also taken out an equity loan a few years ago for new windows. Our friend says that if we go through selling the house, she will put a lien on it. Because of our equity loan, there won't be enough after the sale to pay her off. We wrote up & notarized a very generic promissory note indicating our intention to pay her back the full amount, with an attached payment schedule. She says that's not enough, and since she can prove she supplied the down payment, will put a lien on it. I realize she can do this via lawsuit, but I'm not sure on what grounds. We've never missed any payments, & she signed title over to us, to me implying she no longer has any interest in the house. Does she have a case?
3 Answers from Attorneys
Re: Property Lien Threat
Your friend has an unsecured promissory note. If you default she can sue, obtain a judgment and then record the judgment as a lien on your home. If you continue to make the payments on time, there is nothing she can do but be happy and thankful that you are keeping your end of the bargain.
Re: Property Lien Threat
Ms. Ortega is correct, however, if the promissory note you signed contains some sort of pledge of the home as collateral, she might be able to get a lis pendens (a temporary lien on the home) while it gets sorted out in court. You need to review the note you signed. The original agreement, however, as Ms. Ortega correctly points out, is simply an unsecured loan, and the fact that you used it to buy a home is irrelevant.
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Re: Property Lien Threat
The situation may be a bit more complex than the two previous answers suggest. A note that is used to purchase (i.e. directly or indirectly to pay part of the purchase price) may be deemed an "equitable mortgage" and an action on such a note must be a court foreclosure proceeding, rather than a suit to collect the note. As you probably know, foreclosures are not the same as ordinary lawsuits. Owners of residential property have special rights.
On the other hand, someone bringing a judicial foreclosure action can file a lis pendens, which, strictly speaking, is not a lien, but has a similar effect, establishing a successful plaintiff's right to enforce its judgment in priority order as of the date of the lis pendens.
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