by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolphp@umkc.edu

JOINT TENANCY; SEVERANCE: Divided Eighth Circuit panel interprets severance rights in Minnesota homestead joint tenancy. Ann H. O'Hagan v. United States 77 AFTR2d Par. 96-895 No. 95-1185, see 96 TNT 117-12 or Doc 96-17549.

Ann O'Hagan and her husband had owned their residence as joint tenants with the right of survivorship. In 1988 the O'Hagans obtained a home equity loan, and both husband and wife signed the mortgage note obligating themselves to repay the full amount of the loan. In 1990 the IRS began making income tax assessments against Mr. O'Hagan separately; his tax debt eventually reached more than $700,000. In 1994, the IRS levied on Mr. O'Hagan's interest in the marital residence and seized the property.

After the IRS advertised the sale of Mr. O'Hagan's interest, Ann O'Hagan filed for a temporary restraining order and a preliminary injunction.

Held: Injunction granted with respect to the sale of the husband's right to use his homestead, but injunction denied with regard to the IRS sale of the husband's right of survivorship. Ann O'Hagan's right in the property during her liftime was superior to any right the government could sell. Because her right would be irreparably injured by the forced sale of the husband's homestead right, that sale should be enjoined.

In reaching its conclusion, the court felt constrained to interpret the nature of the interest that would be sold. It concluded that it was a survivorship interest in the whole property, and not a cotenancy, because the attachment of the government lien could not effect a severance. This is because the joint tenant husband in this case lacked the power to sever the joint tenancy without his wife's acquiesence.

Although, in general, Minnesota follows the rule that a joint tenant unilaterally can sever a joint tenancy by selling an interest to a third party, the court relied upon a 1968 Minnesota Supreme Court case, Hendrickson v. Minneapolis Fed. Sav. & Loan Ass'n, 161 N.W.2d 688, for the proposition that the unilateral severance right is destroyed if the other joint tenant should rely upon the existence of the joint tenancy. Ann had relied on the existence of the joint tenancy when she signed the mortgage note. Therefore, she had a vested remainder interest in her husband's interest. Because Mr. O'Hagan could not sever the joint tenancy, the government also could not do so.

Consequently, the most that the government could sell was Mr. O'Hagan's right of surviviorship.

Of course, both joint tenants have a possessory interest in the property, but the court ruled that the IRS could not sell the husband's homestead interest or his possessory interest in the property. First, it observed that a Minnesota homestead interest could not be alienated in any event without the consent of a spouse, and that the IRS lien law did not preempt this rule. Second, even if the interest were transferrable, the law is clear that a homestead cotenant's right of possession cannot be transferred to a third party. Thus, even if there were a sale, Ann O'Hagan had "the right to exclude all people, other than Mr. O'Hagan, from the homestead property."

Sale of the homestead interest might have conveyed certain other survivorship benefits on the purchaser, but most of these would appear to be subsumed within the court's ruling that the husband's joint tenancy survivorship interest can be sold.

In a fascinating coda, however, the court rules that the purchaser of the joint tenancy survivorship interest will be enjoined from recording that interest, because, under Minnesota statutes, recordation of the transfer of a joint tenancy interest triggers a severance. The consequences of this bizarre ruling are unclear. Is the court holding that the holder of the survivorship interest would not be protected as against a bona fide purchaser of the property (presumably transferred by both spouses)? Or is the entry of the federal court ruling ordering the exection sufficient record notice?

In a sweeping dissent, Judge Morris Sheppard Arnold argued, inter alia, that the Minnesota statutes, which he concluded were amended in response to Henrickson, do give a spouse the right to sever a joint tenancy unilaterally.

Judge Arnold added that it was unlikely that a sale of a tenancy in common interest in the property would injure Mrs. O'Hagan, since the purchaser still would be prohibited under the homestead law from having possession of the property prior to Mrs. O'Hagan's death (so long as she lived there). In fact, Judge Arnold maintained, if the husband's interest were sold, then Mrs. O'Hagan would gain the total possessory interest, rather than a shared interest with the husband, which might make her interest more valuable. (There is some ambiguity in the opinions about the impact of a sale of a non-possessory tenancy in common interest when the possessing cotenant dies with children.) In any event, he argued, if the sale of Mr. O'Hagan's interest diminished his wife's interest in the property, she would have an adequate cause of action for monetary damages and thus an injunction of the sale would be improper. under section 7426(b)(2)(C); Judge Arnold rejected the majority's position that "monetary relief can never provide adequate compensation for the loss of an interest in real property."

Comment: It was difficult enough for the editor even to summarize the arguments in this bizarre decision, let alone critique them. Dirt participant Kevin Dunleavy, a property specialist in Minnesota, thinks that the dissent gives the correct and generally accepted reading of Minnesota law on severance of joint tenancies. There was a rather notorious recent case of a prominent Minneapolis lawyer with a similar last name to the parties here who was accused of misbilling securities law violations, as well as related ethical charges before the state bar. (The editor has omitted other disagreements concerning the preemptive effect of the federal statutes involved and the right of Mrs. O'Hagan to use the Injunction Act at all.)

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last five years, these Reports annually have been collated, updated, indexed and bound into the Annual Survey of Developments in Real Estate Law, volumes 1-5, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Laprica Mims at the ABA. (312) 988 6233.

Items reported here and in the ABA publications are for general information purposes only and should not be relied upon in the course of representation or in the forming of decisions in legal matters. Accuracy of data and opinions expressed are the sole responsibility of the DIRT editor and are in no sense the publication of the ABA.