Ethridge v. TierOne Bank, 2007 Westlaw 1816853 (6/26/07)
You can get an idea as to how this opinion will go from the opening lines:
“When David Ethridge refinanced the home that he and his wife, Mary, held as tenants by the entirety, the lender prepared loan documents that slighted the wife. As the wife later said, her husband was "head of the household." That legally quaint assumption appears embodied in the lender-drafted refinancing papers that list David Ethridge, a married man, as the sole owner and the sole borrower. The law, as set forth in precedent cases dating to 1887, is harsh and unforgiving of such slights.
TierOne Bank, successor to the refinancing lender, seeks to impose the obligations of borrower on Mary Ethridge now that her husband is dead. To allow Mary Ethridge to retain the home free of the refinancing lien, the bank says, is unjust. The law, however, is unforgiving of the injustice of slighting the wife's interests at the time of refinancing – that injustice produces an enrichment of the wife who has no obligation to pay her late husband's loan. Equitable doctrines will not help. The bank loses.”
It appears that the bulk of the money borrowed in this financing went to retire an earlier mortgage loan on which, presumably, both spouses were liable. The balance was used to pay for improvements to the premises that the wife now owns outright (her husband was killed in a traffic accident.)
Apparently David Ethridge, who, as the court admits, handled the couples financial affairs with Mary’s acquiesence and consent, negotiated this loan and likely executed the application by himself, showing his own assets and income, other than the home. The closer at the loan closing therefore listed the “borrower” in the blank provided as David alone. Other parts of the standard form mortgage indicated that the borrower warranted that he owned the property given as security. Mary, however, appeared at the closing and executed the deed of trust under David’s signature and also executed a closing statement.
There can be no doubt that Mary intended by these acts to authorize that the tenancy by entireties property would stand as security. Unlike a joint tenancy in Missouri, a tenant by the entireties has no separate interest in the entireties property. A deed of trust cannot attach to a partial interest or an expectancy. If the deed of trust is not executed by both parties, giving the entire interest as security, nothing would be given. Consequently, Mary’s execution of the deed of trust had no meaning other than the commit the property to the deed of trust. And, of course, she acquiesced in the security arrangement and the distribution of the proceeds.
Nevertheless, the court held that Nineteenth Century Missouri authority was to the effect that a conveyancing instrument that does not properly recite the owner’s granting intent in the granting clause does not convey that interest, even if the owner executes the instrument: "The party in whom the title is vested, [sic] must use appropriate words to convey the estate. Signing, sealing, and acknowledging a deed by the wife in which her husband is the only grantor, [sic] will not convey her estate."
But the lender argued that the deed of trust should be reformed because it was evident that Mary intended that it convey her interest. The court rejected this argument, holding that reformation doctrine does not support that outcome here:
“. . . Reformation presupposes a valid prior agreement evidencing a meeting of the minds," which is simply not present here. . . . [T]here is no evidence that there was a scrivener's error. The evidence reflects that David Ethridge and the lender had a prior agreement that was, in fact, accurately reflected in the deed of trust. David Ethridge intended to grant the lender a lien on the property and the lender intended to hold the lien.
. . . [T]here was no mistake as to the parties' intent. There is no clear, cogent, and convincing evidence that it was Mary Ethridge's intent to grant a lien to the lender or that there was a mistake in drafting the deed of trust. The doctrine of reformation cannot be applied.”
There was a strong dissent from two of the seven members of the court.
Comment 1: This opinion is ridiculous. It goes beyond being simply a careful reading of the conveyancing laws. The tenancy by the entirety in Missouri is indivisible. The husband had no interest to give as security except the entirety interest - belonging to both him and his wife. If she hadn't signed, no loan would have been possible. How could the court conclude that the parties apparently intended a null act?
The court makes the absurd claim that the wife was somehow being treated "unjustly" when only her husband signed the note, with both of them signing the deed of trust. In fact, this is not an uncommon event. One party commonly might assume personal responsibility for a debt but other parties may agree that property that they own jointly with the debtor will stand as security for that debt. In fact, if the bank had insisted that, even though the husband qualified for the loan on his own merits, the wife would have to sign the note, this would have violated the Federal Equal Credit Opportunity Act. Here, the wife not only was not the victim of injustice, but got a significant economic benefit. The money was actually used to refinance a debt to which the wife was a signatory and to carry out improvements to the home that the wife came to own outright when her husband died.
Equally absurd is the court's proposition that the wife had no intent to give her home as security for the loan. She showed up at the closing office and executed a closing statement and a deed of trust. It is wholly illogical to argue that she had no notion that she was agreeing that the home should stand as security for the loan. Although the husband had negotiated to that point with the lender, the court indicates that he had done so with the authority of the wife - that he was responsible for all the couples financial affairs.
The case for reformation was easy. What the scrivener got wrong was the identification of a single party as the "borrower." The "borrower," for purposes of the deed of trust, consisted of the entireties estate, and that should have been set forth at the beginning of the deed of trust. There certainly was a form for this, and the scrivener just used the wrong form, and thus there was a common technical mess up.
Comment 2: It is true that lenders frequently botch up the paperwork for borrowings by an individual spouse. I typically execute deeds of trust securing my wife's borrowings in order to release my marital interest in her separate farm property securing the loan. The signature lines on these documents always show me as the 'borrower," and I always cross that out and put "executed for purposes of waiver of marital interest." I don’t wish to be liable on the title warranties or other covenants in the mortgage when it’s not my property or my loan. Of course, if the property was entireties property, I wouldn’t object to be liable on those warranties, and therefore should be listed as “trustor.” Still, if only one spouse signs the note, the deed of trust ought not to list both as the “borrower” on the deed of trust. It’s likely to cause trouble down the road.
But how much can you expect of low paid paper pushers in these closing offices? The court’s decision here ignores the fact that the wife attended the closing, got the money, and had all along acquiesced in her husband’s management. It’s an unjust result, and one that might occasion some difficult new closing practices in Missouri, and perhaps in other tenancy by entireties states.
Readers are encouraged to respond to or criticize this posting.
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