CitiMortgage, Inc. v. Brown

[Cite as CitiMortgage, Inc. v. Brown, 2015-Ohio-5347.]
IN THE COURT OF APPEALS
FIRST APPELLATE DISTRICT OF OHIO
HAMILTON COUNTY, OHIO

CITIMORTGAGE, INC., : APPEAL NO. C-140694
TRIAL NO. A-1203655
Plaintiff-Appellant, :
O P I N I O N.
vs. :

VERNON BROWN, :

Defendant-Appellee, :

and :

NATIONAL CHECK BUREAU, INC., et :
al.,

Defendants. :

Civil Appeal From: Hamilton County Court of Common Pleas

Judgment Appealed From Is: Affirmed

Date of Judgment Entry on Appeal: December 23, 2015

Tracye T. Hill and Brittany Griggs, for Plaintiff-Appellant,

Noel M. Morgan, Elizabeth A. Tull and Elizabeth A. Zak, for Defendant-Appellee.

Please note: this case has been removed from the accelerated calendar.
 OHIO FIRST DISTRICT COURT OF APPEALS

D E W INE , Judge.

{¶1} If a mortgage is granted by only one of two joint tenants, and the

mortgaging joint tenant dies, may the bank enforce the mortgage against the surviving

joint tenant? This question is at the center of this appeal by a bank in a foreclosure case.

We agree with the trial court that the death of the mortgaging joint tenant extinguishes

the mortgage. Thus, we affirm the trial court’s judgment that the surviving joint tenant

owns the property free of the mortgage.

I. Background

{¶2} Vernon and Theresa Brown purchased a home in 2000. The purchase

contract conveyed the property to the Browns in a joint tenancy with the right of

survivorship. Theresa, however, was the sole borrower on the note. The mortgage

identified the mortgagor as only Theresa, and just Theresa signed the signature line of

the mortgage. Theresa’s typewritten name on the mortgage is followed by a hand

written notation “married to Vernon Brown who signs with the sole intent of releasing

dower.” Theresa’s signature is on the signature line of the mortgage above her

typewritten name. Vernon’s signature appears only at the bottom of the mortgage.

{¶3} CitiMortgage assumed the mortgage when it merged with the originating

lender. In 2005, CitiMortgage entered into a loan modification with Theresa. Although

both Theresa and Vernon signed the new note, the note identified only Theresa as

“borrower.”

{¶4} In May 2012, CitiMortgage filed a suit for foreclosure. The suit sought

payment of the unpaid amounts due on the note and to foreclose on the mortgage. The

complaint also sought reformation of the mortgage, asserting “that due to an inadvertent

mutual mistake, the mortgage deed was executed to release dower only.” In addition to

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arguing mutual mistake, the bank claimed that it was entitled to reformation of the

mortgage to avoid unjust enrichment to Vernon. Vernon filed a counterclaim seeking a

declaratory judgment that his interest in the property was not encumbered by the

mortgage.

{¶5} Theresa died in November 2012, while the action was still pending.

Both parties filed cross-motions for summary judgment, and a decision was issued by a

magistrate of the common pleas court. The magistrate found that upon Theresa’s death,

Vernon took the property subject to the mortgage but that the mortgage encumbered

only Theresa’s half-interest. The magistrate found that CitiMortgage could order the

sale of the entire property “but must preserve Vernon Brown’s one-half interest by

accordingly paying the sale proceeds to him before judgment creditors.”

{¶6} Both parties filed objections to the magistrate’s decision. The common

pleas court reversed the magistrate and found that the death of Theresa extinguished the

mortgage. As a result, the court found that Vernon owned the property free of the

mortgage.

II. The Mortgage was Extinguished Upon Theresa’s Death

{¶7} In its first assignment of error, CitiMortgage argues the trial court erred

when it rejected the magistrate’s finding that it held a mortgage lien against Theresa’s

one-half interest in the property and granted summary judgment in favor of Vernon.

CitiMortgage contends that Theresa’s interest was not extinguished upon her death, but

instead was transferred to Vernon subject to the mortgage.

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A. Under the Plain Terms of R.C. 5302.20(C)(2), CitiMortgage’s
Interest Terminated Upon Theresa’s Death

{¶8} The Browns held the property as joint tenants with a right of

survivorship. By statute in Ohio, such a tenancy is a “survivorship tenancy.” R.C.

5302.20(A). In such an estate, both tenants hold an “equal share of the title during their

joint lives.” R.C. 5302.20(B). Upon the death of one of two joint tenants, the other

tenant becomes fully vested with title to the property as the sole title holder. Id.

{¶9} At common law, a conveyance by less than all of the joint tenants would

sever the joint tenancy. See 4 Thompson on Real Property, Section 31.08(b) (2d

Thomas Ed.2004). Upon severance, the tenants would no longer hold undivided

interest as joint tenants, but would hold separate interests as tenants in common. Id.

But under Ohio’s statutory scheme, a conveyance by less than all of the joint tenants

does not sever the joint tenancy. Rather,

a conveyance from any survivorship tenant, or from any number of

survivorship tenants that is less than all of them, to a person who is not a

survivorship tenant vests the title of the grantor or grantors in the

grantee, conditioned upon the survivorship of the grantor or grantors of

the conveyance and does not alter the interest or the title of any of the

other survivorship tenants who do not join in the conveyance.

R.C. 5302.20(C)(2). Thus, Theresa’s conveyance of the mortgage did not sever the

survivorship tenancy. But the only interest that CitiMortgage held was one that was

“conditioned” upon her survival. Because the conveyance was conditional upon

Theresa’s survival, CitiMortgage’s mortgage interest was terminated upon her death.

Vernon took the property free of the mortgage.

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{¶10} We dealt with a similar problem in Murphy v. Murphy, 77 Ohio App.3d

573, 602 N.E.2d 1216 (1st Dist.1991). There, one joint tenant executed a deed

purporting to transfer his undivided one-half interest in the joint tenancy. Murphy at

574. When the transferring joint tenant died, the person who ultimately acquired the

interest sought to partition the property. We held that the death of the transferring joint

tenant extinguished the transferee’s interest, and the surviving joint tenant held full title

to the property. “A survivorship tenant,” we explained, “can only alienate his interest to

a third party subject to the right of survivorship.” Id. at 577. Thus, because the inter

vivos transfer was subject to the right of survivorship, the transfer failed upon the death

of the transferor. The surviving joint tenant became the sole owner of the property in fee

simple absolute. Id. Murphy was decided after the enactment of R.C. 5302.20 but the

conveyance took place before the effective date of the statute. We did not reach the

question of whether the statute had retroactive application because we determined the

result would be the same under both the statute and prior Ohio law. Id. at 576.

{¶11} Indeed, while R.C. 5302.20(C)(2) applies to interests in real property,

the result reached under the section is consistent with generally applicable principles of

a joint tenancy with right of survivorship in Ohio. In Certificates of Deposit Issued by

Hocking Valley Bank, 58 Ohio St.3d 172, 174, 569 N.E.2d 484 (1991), a bank issued

certificates of deposit to joint tenants with the right of survivorship. One of the joint

tenants granted the bank a security interest in the certificates of deposit. Certificates

of Deposit at 173. When the joint tenant who granted the security interest died, the

bank sought to enforce its security interest against the surviving joint tenant. Id.

The court ruled that the bank’s security interest did not survive the death of the joint

tenant. Id. at 174. The joint tenant could convey no more of an interest than he

possessed. Id. Because he possessed “no more than a lifetime interest” in the

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certificates of deposit, the bank’s interest terminated at his death. Id. Upon the

death of the other joint tenant, the surviving joint tenant became “full owner of the

certificates free from the bank’s security interests.” Id. at 173; see 20 American

Jurisprudence 2d, Cotenancy and Joint Ownership, Section 8 (2015) (The “surviving

joint tenant becomes the absolute owner of the property held in joint tenancy, upon

the death of the cotenant, free of the claims of the heirs or creditors of the

deceased.”).

{¶12} Thus, under both the plain terms of R.C. 5302.20(C)(2) and general

principles of Ohio law, the trial correct correctly found that CitiMortgage’s interest

was extinguished upon Theresa’s death.

B. We Disagree with the Twelfth Appellate District’s Decision in
Fannie Mae v. Winding

{¶13} CitiMortgage’s argument that the mortgage survived Theresa’s death is

premised almost exclusively on the Twelfth Appellate District’s decision in Fannie Mae

v. Winding, 2014-Ohio-1698, 10 N.E.3d 799 (12th Dist.). To fully understand why

we disagree with the result reached in Winding, it is helpful to take a step back and

examine the common law notion of a tenancy in common.

{¶14} At common law, as Blackstone explained, joint tenants have one and the

same interest, accruing by one and the same conveyance, commencing at one and the

same time, and held by the same undivided possession (the “four unities”). 2

Blackstone, Commentaries on the Law of England, 180-82 (1766). A conveyance by one

joint tenant disrupts the unity of interest and thus severs the joint tenancy creating a

tenancy in common. See 4 Thompson on Real Property, Section 31.08(b) (2d Thomas

Ed.2004).

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{¶15} A mortgage was considered a conveyance of title at common law. Under

this title theory, the conveyance of a mortgage severs the joint tenancy, because it

disrupts the unity of interest. Id. Because the joint tenancy has been severed, the

mortgage is enforceable against the mortgagee’s half-interest even after death. See, e.g.,

Land Am. Commonwealth Title Ins. Co. v. Kolozetski, 159 N.H. 689, 992 A.2d 681

(2010); Schaefer v. Peoples Heritage Sav. Bank, 669 A.2d 185 (Me.1996). In contrast,

in jurisdictions where a mortgage has been held to operate as merely a lien, the

mortgage does not sever the joint tenancy. See, e.g., Harms v. Sprague, 105 Ill.2d 215,

224, 473 N.E.2d 930 (1984); Smith v. Bank of Am., 103 A.D.3d 21, 957 N.Y.S.2d 705,

709 (2d Dept.2012). If the mortgagor dies before the other joint tenant, the mortgage is

extinguished and the surviving tenant takes free of the mortgage. Harms at 224; Smith

at 709. This is because the surviving joint tenant takes the property by virtue of the

conveyance that created the joint tenancy, not as the successor of the deceased. Harms

at 224.

{¶16} In Winding, the Twelfth District was confronted with a situation

remarkably similar to the one before us. Only one joint tenant had granted a

mortgage, the mortgagee joint tenant died and the bank sought to enforce the

mortgage against the surviving joint tenant. Winding, 2014-Ohio-1698, 10 N.E.3d

799. The court reasoned that R.C. 5302.20(C)(2) does not apply to mortgages,

because a mortgage constitutes a security interest (or a lien), rather than a

conveyance of title. Id. at ¶ 23. The court then concluded that the mortgage was not

extinguished by the cotenant’s death, but rather would continue to be enforceable

against one-half of the estate. Id. at ¶ 30.

{¶17} As an initial matter, the Winding court’s conclusion that R.C.

5302.20(C)(2) does not apply because a mortgage is a security interest is difficult to

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reconcile with the statute. Ohio has been characterized as neither a pure lien-theory nor

a pure title-theory state. 1-17 Curry and Durham, Ohio Real Property Law and Practice,

Section 17.01[1] (Matthew Bender Rev.Ed.). The Ohio Supreme Court has “explained

that while a mortgage is a lien for a debt, it also is a conveyance of property that passes

the property conditionally to the mortgagee as well as a transfer of property as security

for the debt.” FirstMerit Bank, N.A. v. Inks, 138 Ohio St.3d 384, 2014-Ohio-789, 7

N.E.3d 1150, ¶ 23. Thus, under its plain terms, R.C. 5302.20(C)(2) applies to a

mortgage. The granting of the mortgage by Theresa was a “conveyance” that vested the

mortgage interest in the bank “conditioned upon the survivorship” of Theresa. See R.C.

5302.20(C)(2). When Theresa did not survive, the conditional mortgage interest held by

CitiMortgage disappeared under the terms of the statute.

{¶18} Furthermore, while the Winding court characterizes Ohio as a lien-

theory state, the result it reaches is directly contrary to a lien theory of mortgages. As

explained above, under the lien theory, the mortgage does not survive the death of the

joint tenant. See Harms, 105 Ill.2d at 224, 473 N.E.2d 930; Smith, 103 A.D.3d 21, 957

N.Y.S.2d at 709.

{¶19} Not only is the Winding result contrary to the vast line of authority

applying a lien theory of mortgages, it is also directly contrary to the Ohio Supreme

Court’s decision in Certificates of Deposit Issued by Hocking Valley Bank, 58 Ohio

St.3d 172, 569 N.E.2d 484. As that case makes clear, a security interest granted by

only one joint tenant terminates upon the death of the joint tenant.

{¶20} We are not alone in our disagreement with the result reached in

Winding. As a leading treatise on Ohio property law explains, the result in Winding

“appears to be inconsistent with the terms and intent of the statute.” 1-4 Curry and

Durham, Section 4.01. The treatise goes on to quote a national commentator who notes

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“there is nothing in the Ohio joint survivorship tenancy statute that requires (or justifies)

the court’s conclusion. * * * The fact that a mortgage creates only a lien does not mean

that the grant of a mortgage is not a conveyance.” Id., quoting Posting of R. Wilson

Freyermuth, freyermuthr@missouri.edu, to DIRT Periodic Developments (Concurrent

Ownership Edition), https://groups.google.com/forum/#!msg/nyclarealprop/

C8ANXDtpyg8/jWJ1VzipPnMJ (July 31, 2014).

C. R.C. 5302.20(C)(4) has No Application in this Case

{¶21} As we have seen, Ohio has modified the common law rule, that a

conveyance by one joint tenant severs the joint tenancy. Ohio does, however, have a

statutory vehicle to protect creditors of one joint tenant. R.C. 5302.20(C)(4) provides:

A creditor of a survivorship tenant may enforce a lien against the interest

of one or more survivorship tenants by an action to marshall liens against

the interest of the debtor or debtors. Every person with an interest in or

lien against the interest of the debtor or debtors shall be made a party to

the action. Upon a determination by the court that a party or cross-

claimant has a valid lien against the interest of a survivorship tenant, the

title to the real property ceases to be a survivorship tenancy and becomes

a tenancy in common.

CitiMortgage maintains that because it filed a foreclosure suit this section applies, and

that it may enforce its mortgage against the half interest in the property that was held by

Theresa before her death.

{¶22} CitiMortgage’s argument is defeated by the plain language of the statute.

The statute allows a creditor to enforce a lien by transforming the estate to a tenancy in

common only “upon a determination by the court” that the party has a valid lien. R.C.

5302.20(C)(4). In this case, CitiMortgage filed a foreclosure action, but Theresa died

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before any “determination by the court.” See R.C. 5302.20(C)(4). Thus, the estate

remained a joint tenancy at Theresa’s death and Vernon took the property free of the

mortgage. See Brown v. Brown, 95 Ohio Misc.2d 38, 41, 706 N.E.2d 872 (C.P.1998).

D. The Outcome We Reach Does Not Create Commercial
Uncertainty

{¶23} CitiMortgage also asks that we rule in its favor because to do otherwise

would create commercial uncertainty and be unfair to banks that have received a

mortgage from only one joint tenant. We are not persuaded.

{¶24} We note the commentator who analogized the question of a mortgage by

one joint tenant to a “comet in our law,” “an intriguing academic question of little

practical significance” because “[i]t is a rare (or negligent) commercial lender who would

accept a mortgage from a joint tenant without first seeing that the joint tenancy was

severed or that all the joint tenants had signed.” See 4 Thompson on Real Property,

Section 31.08(b). This strikes us as about right.

{¶25} Courts do not create uncertainty when they follow basic principles of

property law; they create uncertainty when they fail to follow such principles. To ignore

a clear Ohio statute simply because the bank perceives the result to be unfair in this case,

would create the very uncertainty that the CitiMortgage warns against. If banks want to

avoid situations like this one, they simply need to ensure that every joint tenant has

signed the mortgage. The first assignment of error is overruled.

III. No Reformation or Equitable Lien

{¶26} In its second assignment of error, CitiMortgage contends that the trial

court erred when it held that CitiMortgage was not entitled to reformation of the

mortgage and an equitable lien on Vernon’s one-half interest in the property. First,

CitiMortgage claims it is entitled to reformation, because the mortgage includes a

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handwritten note indicating that Vernon was signing with the sole intent to release

dower. Second, CitiMortgage contends it is entitled to an equitable lien on Vernon’s

interest, because he would be unjustly enriched if he received full, unencumbered title to

the property.

A. Reformation

{¶27} CitiMortgage argues the handwritten note releasing dower entitles it to

reformation, because Vernon had no dower interest to release. Dower does not apply to

spouses who own property as joint tenants, because dower is only provided to nontitle-

holding spouses. Std. Fed. Bank v. Staff, 168 Ohio App.3d 14, 2006-Ohio-3601, 857

N.E.2d 1245 ¶ 16 (1st Dist.). Therefore, CitiMortgage contends, we should disregard this

superfluous language leaving only Vernon’s name and signature.

{¶28} A court’s role in examining a contract is to determine the intent of the

parties. See Hodesh v. Korelitz, 123 Ohio St.3d 72, 2009-Ohio-4220, 914 N.E.2d

186, ¶ 10. Where a contract’s terms are unambiguous, a court must apply the plain

language of the contract. Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm, 73

Ohio St.3d 107, 108, 652 N.E.2d 684 (1995). Mortgages are subject to the same rules

of interpretation and analysis as contracts generally. First Fed. S. & L. Assn. of

Toledo v. Perry's Landing Inc., 11 Ohio App.3d 135, 143, 463 N.E.2d 636 (6th

Dist.1983). The purpose of an equitable reformation is to apply a valid instrument

in the way the parties intended. Campbell v. Krupp, 195 Ohio App.3d 573, 2011-

Ohio-2694, 961 N.E.2d 205, ¶ 55 (6th Dist.), citing Delfino v. Paul Davies Chevrolet,

Inc., 2 Ohio St.2d 282, 286, 209 N.E.2d 194 (1965).

{¶29} Here, there is simply no evidence that the parties intended Vernon’s

notation to indicate that he was granting a mortgage. Absent some indication that

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that was what the parties intended, we will not grant the equitable remedy of

reformation.

B. Equitable Lien

{¶30} CitiMortgage also claims it is entitled to an equitable lien. An

equitable lien is “a charge on property for the purpose of security and is ancillary to

and separate from the debt itself.” 66 Ohio Jurisprudence 3d, Liens, Section 16

(2015). It is “a right, not acknowledged in law, to have a fund, or specific property, or

its proceeds, applied, in whole or in part to the payment of a particular debt or class

of debts.” Id. An equitable lien may arise from either (1) a written agreement that

evidences the intent to make a particular property a security for a debt or obligation,

or (2) through implication by a court of equity after consideration of right and justice

as applied to the relationships of the parties and the surrounding circumstances.

Katz v. Banning, 84 Ohio App.3d 543, 551, 617 N.E.2d 729 (10th Dist.1992), citing

Syring v. Sartorious, 28 Ohio App.2d 308, 311, 277 N.E.2d 457 (4th Dist.1971). The

denial of an equitable lien is within the sound discretion of the trial court, and so, we

review for abuse of discretion. In re Estate of Ring, 10th Dist Franklin No. 06AP-

801, 2007-Ohio-500, ¶ 9.

{¶31} As the assignee of the mortgage, CitiMortgage stands in the shoes of

its predecessor. See Wells Fargo Bank v. Mowery, 187 Ohio App.3d 268, 2010-

Ohio-1650, 931 N.E.2d 1121, ¶ 39 (4th Dist.2010). The failure to obtain a mortgage

from Vernon was evidently the result of the negligence of CitiMortgage’s

predecessor. While equity may sometimes relieve a party of the result of negligence

that is excusable, it will not relieve a party from inexcusable negligence. Id. Here,

the mortgage document was prepared by the bank and the omission of Vernon from

the mortgage is evident from a simple examination of the mortgage. CitiMortgage

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even entered into a loan modification without attempting to rectify the situation. As

the Fourth District noted in Mowery in denying the equitable remedy of

reformation, “a mortgage company’s failure to learn the most basic facts about a

mortgaged property cannot be excusable negligence.” Id. at ¶ 38. The negligence of

the banks in this case was not excusable. The trial court did not abuse its discretion

in failing to impose an equitable lien. CitiMortgage’s second assignment of error is

overruled.

IV. Conclusion

{¶32} The judgment of the trial court is affirmed.

Judgment affirmed.

F ISCHER , P.J., concurs.
S TAUTBERG , J., concurs in judgment only.

Please note:

The court has recorded its own entry on the date of the release of this opinion.

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