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Real Property Law
Joint Tenancy
Smith v. Bank of America
NYLJ 1/2/13, p. 17, col. 1
AppDiv, Second Dept.
(Opinion by Chambers, J.)
In an action by a former joint tenant for a judgment declaring that a mortgage executed by a deceased joint tenant is void, mortgagee bank appealed from Supreme Court's grant of summary judgment to the former joint tenant. The Appellate Division affirmed, holding that one joint tenant's grant of a mortgage does not sever the joint tenancy.
In 1999, Smith, then the owner of the subject property, conveyed the property to herself and her boyfriend Hassid as joint tenants with right of survivorship. The deed was properly recorded. In 2006, Hassid borrowed $300,000 from mortgagee bank and, without Smith's knowledge, executed a mortgage to secure the loan. The mortgage was properly recorded. In 2009, after Hassid died, mortgagee bank declared the mortgage in default, and Smith brought this action to declare the mortgage void. Supreme Court granted summary judgment to Smith, and the bank appealed.
In affirming, the Appellate Division held that execution of a mortgage by one joint tenant does not sever the joint tenancy. As a result, until Hassid's death, he was still a joint tenant with Smith, and when Hassid died, his interest in the property automatically passed to Smith. The court emphasized that New York is a “lien theory” state, not a “title theory” state, and concluded that Hassid's grant of a lien to the bank did not sever any of the four unities. As a result, the mortgage ceased to exist at Hassid's death.
COMMENT
Although no prior case has decided the issue directly, a number of New York cases have treated as established law the principle that when only one tenant by the entirety has signed a mortgage, the mortgagee loses its security interest when mortgagor predeceases the non-mortgaging spouse. Thus, in
V.R.W., Inc. v. Klein, where the issue was whether a mortgagor's rights are affected by a divorce between tenants by the entirety, the court indicated that if mortgagor predeceases the non-mortgaging spouse, the mortgagee is left with no interest in the property at all. 68 N.Y.2d 560, 566-67 (1986). However, if mortgagor survives the non-mortgaging spouse, mortgagee's interest becomes an “unconditional mortgage on the entire fee” of the property, and mortgagee can recover its interest. Id. at 567.
Though a mortgagee may foreclose on a living tenant by the entirety's interest upon his or her default, the mortgagee may be unable to recover the market value of the interest. When only one tenant by the entirety signs a mortgage, and the mortgagor spouse is still alive, the mortgagee can only foreclose on the mortgaging spouse's interest. For example, in
Hiles v. Fisher, the Court of Appeals reversed a Fourth Department judgment that a foreclosure sale purchaser acquired a right to possession of the whole property even though the wife did not sign the mortgage. 144 N.Y. 306 (1895). The court held that a purchaser of a defaulting tenant by the entirety's interest acquires a tenancy in common with the mortgagor's spouse, subject to the non-mortgaging spouse's right of survivorship. Id. at 316. A purchaser of a tenant by the entirety's interest cannot maintain an action of partition against a remaining tenant by the entirety. RPAPL Section 901, which explicitly authorizes partition actions by tenants in common and joint tenants, does not mention tenants by the entirety at all, and case law establishes that in the absence of statutory authorization, a tenant by the entirety may not obtain partition. Vollaro v. Vollaro, 144 AppDiv 242 (affirming dismissal of partition action by tenant by the entirety As a result, bidders are unlikely to bid on a tenancy by the entirety interest in a foreclosure sale, forcing the mortgagee to accept a sale price less than market value of the interest.
By contrast, a mortgagee may be able to recover the market value of a joint tenant's interest upon foreclosure. A foreclosure sale of a joint tenant's interest severs the joint tenancy, creating a tenancy in common between the purchaser and remaining tenant, subject to the remaining tenant's right of survivorship.
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