Summary:
Real property was titled as "Margaret D. Smith and D. Reed and wife, Judy C. Reed Joint Tenants with rights of survivorship." Only Ms. Reed signed the Deed of Trust and mortgage note with Countrywide. After Ms. Smith died and the mortgage was in default, Countrywide sought reformation of the Deed of Trust.
The Court of Appeal held that originally Ms. Smith owned a one-half interest in the property with the Reeds as Joint Tenants with the rights of survivorship. The Reeds owned their one-half interest as tenants by the entireties.
Pursuant to N.C.G.S. § 41-2(a) (2011) "[u]pon conveyance to a third party by less than all of three or more joint tenants holding property in joint tenancy with right of survivorship, a tenancy in common is created among the third party and the remaining joint tenants, who remain joint tenants with right of survivorship as between themselves." Because North Carolina is a "title theory state", a "mortgagee does not receive a mere lien on the mortgage real property, but receives legal title to the land for security purposes." Neil Realty Co. v. Medical Care, Inc., 110 N.C. App. 776, 778, (1993) (citations omitted). Accordingly, the Deed of Trust by Ms. Smith severed the joint tenancy, converting her interest to tenants in common. The right of survivorship remained only between Ms. Smith and the Reeds.
This results in Countrywide hold a valid Deed of Trust, but only against Ms. Smith’s one-half interest in the property. The Reeds own, as tenants by the entireties, their "original" one-half interest, unencumbered by any lien, and now, through their right of survivorship, Ms. Smith’s one-half interest, subject to the mortgage of Countrywide.
Commentary:
Now if only the Reeds could file bankruptcy and pay the fair market value of the encumbered half-interest...
For a copy of the opinion, please see:
Countrywide v. Reed- Deed of Trust signed by only one Joint Tenant Effective only Against that Joint Tenant’s Interest. Termination of Right of Survivorship.pdf
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