Legal Question in Real Estate Law in California

Threatened partition suit by business partner
In Aug 2006, I offered a friend co-ownership of a SFR which we purchased as tenants in common both having a 50% interest. I put down the entire 20% down payment. We were to use his stellar credit as I had just come off a divorce. He ended up finding an investor or private party financing to give us a loan. Only he & his wife are on the loan. House has been rented since purchase, I have always paid the mortgage and continue to do so. He now wants out of property since we have no equity in the house and he wants out of the monthly shortfall that we both pay. Cant get a loan in my name for him to sign over title via Quit Claim Deed. He has threatened a Partition suit. If the court forces us to sell and there is no profit to split, will I lose my entire DP? If so, can I guard against this? What are my options? I can well afford to continue making the current mortgage alone. I am negotiating with the current mortgage holder for a reduction of loan balance to write a new loan in my name. We are $10K apart. I have asked my partner to makeup that difference, I get a new loan, he gives me complete title via the QQD. End of story. Haven't heard back from him. Condition is at best average. private lender says no improvements for 12 months?

Asked on 7/16/08, 10:29 pm

2 Answers from Attorneys

Robert Mccoy Law Office Of Robert McCoy

0 users found helpful

0 attorneys agreed

Re: Threatened partition suit by business partner

If a partition action is filed, your friend will be in exactly the same position he is now. The bank controls what the property is sold for, whether a partition action is filed or not. Your friend could pay the difference and obtain a judgment against you for the balance. This course of action would, of course, not make any sense for you friend as it would put him into the position he is already in. I would assume he wants out of the loan because he does not want to pay it. But the only way he can get out of it is by paying the balance the bank is requiring, unless he can get you to pay part of it.

So, your friend will be pursuing a lawsuit which will cause him to pay money if he wins. He can get a judgment for money against you, but he would have to collect it from you, and it does not sound like you have a lot of money available for someone to collect.

In the alternative, he could just stop paying his 1/2 of the shortfall in which case you would have to pay the difference or let the house go. It appears, however, that he is not willing to allow this damage to happen to his credit report.

You cannot force your friend to pay you a $10,000 difference as he cannot force you to pay it.

So, it appears to me that we have here what is called a situation. Neither one of you wants the consequences of letting the house go. But neither of you wants to assume the full obligation it is going to take to keep the house from going into foreclosure (or at least that is what you keep telling each other).

So, you and you friend are going to have to decide whether to keep making payments on a house that is worth nothing, or let the house go. Either way, you are both going to lose. I would recommend you try to keep your losses to a minimum.

You are probably going to lose your entire downpayment because it appears you made the $6k downpayment in exchange for you 's friend's good credit. So the law would consider that you have already been paid back.

Your friend wants good credit, you want the home. So, as long as your friend's credit remains safe, you have nothing to negotiate with. If your friend were to believe his good credit were in jeopardy, and believe that you no longer care to keep the home, you would have what is called negotiation leverage and might get your friend to agree to pay the bank that $6,000 you put down.

Sounds like you and your friend could benefit from a mediation, which will happen if a partition action is filed. But to keep costs to a minimum, you and your friend could agree to attend a mediation before filing a partition action. An attorney can prepare such an agreement for you and set you up with a professional mediator (usually a retired judge).

Answered on 7/16/08, 11:32 pm

Mark as helpful