By Ryan C. Wood

In many large cities like San Francisco the only way to afford purchasing a home is to purchase a property in which you are tenants in common with other owners of the property. Sadly some of the same issues described here can occur with condominium associations also. In San Francisco there many multi-floor homes that have been separated into individual beautiful homes for purchase. The circumstances I will be discussing in this article arise when there is a single mortgage for the entire property and the tenants in common are all responsible for paying the entire mortgage.

Unfortunately this is a long one given how much took place and the litigation is still ongoing. This will last for over a decade most likely.

Hopefully your tenant in common property has separate mortgages for each separate livable part of the property and there are a few small shared expenses. Yes, all tenants in common are usually responsible for the entire mortgage payment each month regardless of who is paying or not by agreement upon purchase if there is only one mortgage for the entire building. That means your agreement to purchase your portion or percentage of the property will include language that the other owners and you are responsible for paying the entire mortgage each month even if one of the other tenant in common does not pay their portion. The following is how thousands of dollars in mortgage payments and attorneys’ fees and costs will result from one tenant in common not paying their percentage of the monthly mortgage payment then arguably following the law to protect their rights. This case is still actually ongoing and the attorneys’ fees and costs are still piling up. At this point the attorneys’ fees and costs are around three times the real world actual damages …… Something you should think about before retaining an attorney.

Tenants In Common Agreements

A tenant in common agreement is like owning a unit in a condominium building and is a great way to get into a real estate market for less than purchasing a free standing single-family home. You must consider that you will never have complete control over your property though and the other owners or tenants in common can always affect your property and mess with your life. Under California law, co-owners of real property holding undivided interests, such as tenants in common, are considered “cotenants.” In re Fazzio, 180 B.R. 263, 268 (Bankr. E.D. Cal. 1995); Harry D. Miller & Marvin B. Starr, California Real Estate § 11.1 (4th ed. 2017) (“Miller & Starr”). While tenants in common generally each have an equal right to occupy the property, tenants in common in multi-unit residential buildings may agree to give each owner an exclusive right of occupancy in particular dwelling units pursuant to which each may respectively exclude the others from their private residential unit. Tom v. City & Cty. of S.F., 120 Cal. App. 4th 674, 676 (2004). The issue is when there is a single mortgage for the entire property and not each undivided interest.

The tenants in common agreement I will be discussing provided that the three tenants in common agreed to pay a certain percentage of the mortgage for the entire property depending upon their portion of the building occupied. The three original cotenants entered into this agreement in 2003. The property was split up into not equal square footage so the mortgage payments were apportioned by percentage occupied. Fair enough. The original tenant in common agreement of 2003 also provided that if one cotenant did not pay their share of the mortgage the other cotenants were required to pay the non-paying cotenant’s share in addition to their own share. In the case I am discussing one of the original three co-tenants sold their share in 2004 and an amended tenant in common agreement was entered into by the two remaining original cotenants and the new 2004 purchasing cotenant with the same terms as the original three cotenants had. Begs the question why one of the original 2003 cotenants decided to sell in a year or less after original purchase and entering into the 2003 tenants in common agreement? Did the original cotenants all know each other? Was there problems brewing already? Did the value increase that much that selling resulted in walking away with a lot of money? Now an unknown third party purchased one of the original cotenants’ interest a year later. That is life though and how it works. To muddy the waters a little more another of the remaining two original cotenants sold their interest in 2007 for cash. Luckily the purchaser paid with cash, so this resulted in the other two cotenants receiving cash distributions from the sale proceeds and that eliminated the new purchaser’s obligation to pay any part of the remaining mortgage. No doubt the value of this San Francisco property increased significantly allowing the selling cotenant to make this happen and walk away with a great profit. What about the remaining two cotenants still responsible for the mortgage? This left one cotenant, the 2004 purchaser responsible for 25.765% of the monthly mortgage payment and the other cotenant, the last remaining original cotenant responsible for 74.23% of the monthly mortgage payment.

A Cotenant Does Not Pay Their Share As Agreed

So finally we get to the problems. The cotenant discussed with the obligation to pay 25.765% of the mortgage stopped making their share payment of the mortgage in 2011, or four years after the other cotenant sold their interest for cash and 7 years after their original purchase.

In 2011 the 2004 purchaser that ended up with the percentage of 25.765% ($1,215.15 a month) after the cash buyout stopped making their monthly payment. The 74.23% ($3,489.50 a month) cotenant was forced to pay the nonpaying cotenants share pursuant to the amended tenants in common agreement and more importantly to avoid potential foreclosure proceedings. It is unclear whether the total monthly mortgage payment of approximately $4,704.65 includes property tax and insurance. It most likely does include property tax and insurance given there is no additional litigation over direct payment of property tax and insurance in the various court filings.

What Do If A Cotenant Stops Paying?

In the case I am discussing the 74.23% cotenant decided to seek arbitration first. By the way, the 25.765% cotenant’s portion of the mortgage payment is $1,215.15 each month if that was not clear above and the 74.23% cotenant has to pay $3,489.50 each month. It is not clear what happened in this case before the paying cotenant took the not paying cotenant to arbitration. It is possible, since they live in the same building; the cotenants spoke directly to resolve this. Maybe a letter was sent first? It is unclear the steps taken in this case leading up to the “lawyering up,” but ultimately arbitration was chosen as the means to enforce the breached amended tenant in common agreement. It is possible the amended tenant in common agreement required arbitration to resolve disputes.

The arbitrator found in favor of the paying 74.23% interest cotenant. What defense did the 25.765% not paying cotenant have? Did you sign the amended tenant in common agreement upon purchase? Yes. Did you stop making your percentage payment as required by the amended tenants in common agreement? Yes. The arbitrator awarded and ordered the nonpaying cotenant to pay the paying 74.23% cotenant $9,136.26 for the payments they made on the mortgage on behalf of the not paying 25.765% cotenant, that the 25.765% cotenant start paying their portion of the mortgage again and awarded the paying 74.23% cotenant attorneys’ fees and costs of $58,369.29. So we have an amended tenant in common agreement and proof of payments made by the 74.23% cotenant to prove there is a problem here and this resulted in $58,369.29 attorneys’ fees and costs to get to, “you are right and have been wronged in the principal sum of $9,136.26.” The point here is that when things go wrong it gets expensive quickly to arbitrate or litigate the problem. As this issue continues it only gets more expensive also.

What Happened After The Arbitration Award?

After an arbitration award the arbitration award can be entered as a judgment by order. The 74.23% now with their arbitration award did in fact request the Superior Court for the State of California to enter judgment. The judgment entered against the not paying 25.765% cotenant was $68,656.07 ($9,136.26 + $58,369.29 + interest) plus the attorneys’ fees and costs totaling $4,214.50 for having the Superior Court for the State of California enter the judgment on the arbitration award. The proper procedure under the law to enforce a judgment when the defendant owns real property is to record the abstract of judgment with the county the defendant owns real property so the judgment attaches as a judgment lien to the property. The 74.23% owner did just that and recorded an “Abstract of Judgment” totaling $72,870.57 with San Francisco County. After the cost of arbitration, entering of the arbitration award as a judgment and then recording the abstract of judgment nothing become simple as you will read below….

The 25.765% Cotenant Fought the Judgment and Sale of the Property in State Court

The not paying 25.765% cotenant spent the next two years fighting the 74.23% cotenants attempts to enforce the judgment and avoid paying the share of the monthly mortgage payment. The 74.23% continued to follow the law and procedure to enforce their rights and eventually obtained a California Superior Court order to sell the nonpaying 25.765% cotenant’s share of the property to satisfy the judgment lien. Of course the continued litigation costs money and the 74.23% cotenant’s attorneys added more missed payments by the not paying 25.765% cotenant and requested the Superior Court of California add an additional $35,074.40 in attorneys’ fees and costs to the judgment. The Superior Court of California said no, the arbitration award and the judgment you drafted and provided the Court to enter does not include a provision for post-judgment attorneys’ fees and costs. The paying 74.23% cotenant’s attorneys now have to amend the judgment to include post-judgment attorneys’ fees and costs…… In the meantime the 74.23% cotenant is still enforcing their rights and a sheriff’s sale of the 25.765% cotenant’s interest was scheduled. The 25.765% owner filed a motion to quash the sale and then appealed the Superior Court for the State of California’s denial of the motion to quash or stop the sale. The California Court of Appeals denied the not paying cotenant’s 25.765% appeal.

In the meantime on June 9, 2014, a day before the June 10, 2014, sheriff’s sale the not paying 25.765% cotenant filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code.

The 25.765% Cotenant’s Bankruptcy Case Under Chapter 7 of the Bankruptcy Code

So at some point the not paying 25.765% cotenant consulted a bankruptcy attorney. To keep the story as short as possible I will summarize the events of the Chapter 7 bankruptcy case as best I can without leaving out important information. The not paying 25.765% cotenant filed their own bankruptcy case, then hired one bankruptcy attorney, then substituted in another bankruptcy attorney and then ended up representing themselves in the Chapter 7 bankruptcy case. The Chapter 7 case progressed and eventually the Chapter 7 Trustee filed the notice of no distribution which provides the trustee does not believe there are any assets to be disbursed to creditors. The not paying 25.765% chapter 7 bankruptcy is therefore progressing as a no asset chapter 7 bankruptcy case. At some point the 74.23% cotenant decided to file a motion for relief from stay to continue to enforce their state court law rights to sell the 25.765% interest in the building to satisfy their judgment/arbitration award. An order was entered by the Bankruptcy Court confirming the automatic stay was terminated was entered on June 5, 2015. More attorneys’ fees and costs are added to the 74.23% cotenant’s enforcement of their rights.

After the Chapter 7 bankruptcy case was discharged and closed on October 3, 2016, the 25.765% cotenant/debtor requested the Chapter 7 case be reopened to seek sanctions against the 74.23% cotenant under Section 524 of the Bankruptcy Code for violating the order of discharge they received. The 25.765% cotenant/debtor also filed an adversary proceeding lawsuit, a bankruptcy court lawsuit, against the 74.23% cotenant alleging the abstract of judgment for their arbitration award/judgment from the California Superior State Court is deficient and therefore the 74.23% cotenant has no secured debt or valid lien that passes through the Chapter 7 bankruptcy case. Now this is extremely interesting given valid liens recorded against real property will survive the order of discharge in a Chapter 7 case. The 25.765% cotenant/debtor is trying to discharge all that took place previously by the 74.23% cotenant to enforce their rights. In the bankruptcy adversary proceeding lawsuit the Bankruptcy Court held that the abstract of judgment did not comply with the requirements of California Civil Procedure Section 674(a) and therefore there is no valid judgment lien securing the arbitration award regarding the unpaid mortgage payments or attorneys’ fees and costs. This is a huge development and could have enormous implications to the 74.23% cotenant’s ability to collect for all that took place previously leading up to the filing of the Chapter 7 bankruptcy case. The 74.23% paying cotenant appealed this decision by the Bankruptcy Court and the appeal is still pending.

So after 7 plus years, over $80,000 is attorneys’ fees and costs incurred by the paying 74.23% cotenant the not paying 25.675% cotenant may erase all that took place previously by obtaining the Chapter 7 bankruptcy discharge. It will be interesting to see what takes place moving forward in this case. What is fascinating if the vigorous enforcement of rights by both sides in this case. Arguably both are merely following the law as it exists under the circumstances. What is unfortunate is how much time and money has been spent as a result of a tenant in common agreement going bad for whatever reason.

This is what can happen when you put your lot it with others and you can never completely control their choices. It is something to consider long and hard before purchasing a condominium or entering into a tenant in common agreement.