Code of Civil Procedure (CCP) Section 873.630 – Credit Sales of Property

Code of Civil Procedure section 873.630 allows the court to direct the terms of a credit sale for the property. This statue is important because it outlines the court’s authority in the situation of credit sales.

Code of Civil Procedure section 873.630 states

The court may:

(a) Direct a sale on credit for the property or any part thereof.

(b) Prescribe such terms of credit as may be appropriate.

(c) Approve or prescribe the terms of security to be taken upon the sale, including the manner in which title to the security is to be taken, whether in a single instrument or several instruments, according to the interests of the parties.

(Amended by Stats. 1976, c. 73, p. 110, § 6.)

“Shawn” and “Julie” are an unmarried couple who want to start a life together. They find a nice home in Los Angeles and buy it as joint tenants. Shawn and Julie then move into the home and begin their new life together.

Unfortunately, Shawn and Julie’s relationship doesn’t work out, and they break up. They cannot agree on what to do with the property. Shawn wants to sell all the property and move on with his life, so he sues for partition by sale.

Eventually, the court orders the property sold and the sale proceeds distributed. Later on, a potential buyer wants to purchase the property. The buyer, however, wants to purchase the property on credit.

Pursuant to CCP § 873.630, the court prescribes the terms of credit the buyer must follow. The court also approves the title of the security the buyer will take. With this, the buyer can purchase the property on credit.

1976 Addition

Section 873.630 states the court's authority over purchase money security in general terms. The subject was covered in former Sections 773 and 776, which appeared to divide the authority between the court and referee. The portion of former Section 776 that referred to “unknown owners, infants, or parties out of the state” is deleted as obsolete. Where there are minors or unknown owners, the court may direct that a trustee or other fiduciary hold the security for them and act on their behalf. See Section 873.810.

Under Section 873.630, if the court fails to prescribe the terms of credit, the referee may accept offers which propose varying terms.

As is the case with almost all of the partition statutes, section 873.630 does not include a an “official” Assembly Committee Comment from the California Legislature. But this is not unusual. That’s because the Legislature endorsed an overall adoption of the Law Revision Commission suggestions when it passed the new partition statutes in 1976.

In fact, the introduction to Assembly Bill 1671 (the bill that contained the new partition laws) states that the Revision Commission’s recommendations “reflect the intent of the Assembly Committee… in approving the various provisions of Assembly Bill 1671.” This demonstrates that the intent of the Legislature was substantially in line with that of the Revision Commission.

As to the comment, it makes mention of former section 773, which stated:

“The proceeds of sale and the securities taken by the referees, or any part thereof, must be distributed by them to the persons entitled thereto, whenever the Court so directs. But in case no direction be given, all of such proceeds and securities must be paid into Court, or deposited therein, or as directed by the Court.”

Section 873.630 also superseded section 776, which stated:

“The Court must, in the order for sale, direct the terms of credit which may be allowed for the purchase money of any portion of the premises of which it may direct a sale on credit, and for that portion of which the purchase money is required, by the provisions hereinafter contained, to be invested for the benefit of unknown owners, infants, or parties out of the State.”

Commenting on section 776, the Commission wrote, in relevant part:

“The portion of former Section 776 authorizing the court to direct the terms of credit for a sale is continued in Section 873.630.”

Between section 773 and section 775, it was unclear in the previous provisions whether the court had the authority to direct credit sales or if the referee had that authority. The Commission recommended repealing these provisions and providing clearer guidance on the court’s authority over credit sales.

As to how this statute plays out, a sale “on credit” is somewhat misleading. Naturally, many buyers will use credit in the form of a loan to make the purchase of the property at issue. Credit bids actually refer to purchases by one of the parties themselves.

In other words, when a party buys the property with credit, they are being credited with equity they already have in the property so that the actual amount of cash flowing is substantially smaller, and going in one direction to the other party. This is particularly advisable when the property is worth a substantial sum. It would make little sense to pay the entire purchase price when half of the funds would be coming immediately back to the purchasing party.