by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
JOINT TENANCY; SEVERANCE: Alabama adheres to title theory analysis that mortgage by decedent alone on property held in joint tenancy severs joint tenancy and creates tenancy in common, so that mortgage is valid even when mortgaging cotenant dies, but only as to that cotenant's interest. Stewart v. AmSouth Mortgage Company, Inc., 679 So.2d 247 (Ala.Civ.App. 1995).
Mother acquired property and gave a mortgage on it. Daughter lived in the property. The understanding was that when daughter "got on her feet," she would refinance the property to take out mother's mortgage and would obtain a title interest in the property. Later, daughter did arrange for refinancing, and the mother transferred title into a joint tenancy between herself and daughter. Daughter then signed the refinancing mortgage herself. At the closing of the refinancing mortgage, the parties asked the mortgagee's counsel if mother should sign the mortgage, and she told mother that she did not have to sign. The lawyer later testified that she did not have complete title information - that it was common for her company to sign without such information - and that she was unaware of the joint tenancy.
The daughter died about a month later.
The court gave the bank "half a loaf," recognizing the severance. The bank wanted more, arguing for equitable subrogation to the refinancing mortgage that had encumbered the entire title to the property (since mother signed it when she owned 100% of the title.) The trial court acknowledged the bank's argument that mother apparently would have signed the refinancing mortgage anyway had she been so instructed, and granted the subrogation. But the appeals court denied the subrogation, concluding that the bank had been guilty of "culpable neglect."
Comment 1: The holding in this case on severance is not new law, and will not be surprising to practitioners in many "title theory" states. Further, the editor has always been opposed to tinkering with established real estate rules, even when they embody archaic thinking. The harm done by uncertainty generally outweighs the benefit of "policy purity." Anyway, who's to say that today's policy won't be outmoded in one more generation? And so long as the parties can bargain with knowledge of the established law, it rarely poses an obstacle to the workings of the market.
Here, however, the editor would propose that common law courts follow the lead of the new Restatement on Land Security and abandon the archaic "title theory" of mortgages, which really is nonsensical in the modern world, and barely made sense in the world from which it emerged. Treating the mortgage as a "mere lien" or as a whole separate form of real estate interest much more sense.
Even if we were not to move to the lien theory generally, it is further nonsensical to base conclusions about severance of joint tenancies on the title theory analysis. Joint tenancies rarely occur in the commercial context. They are most often a family wealth arrangement, often carried out with little or no competent legal advice. It very often is the case that joint tenants will undertake relatively routine property transactions, such as a refinancing loan, without consulting a lawyer.
In these circumstances, the "standard approach" of the court ought to be to formulate a rule that reflects the probable intentions of the parties in the majority of the situations. It may well be that the court would conclude that in the majority of cases in which a single joint tenant mortgages property, the parties intend a severance. Some courts adopt a "wait and see" approach, and find a severance only if the mortgaging joint tenant dies before the mortgage is satisfied. Some find no severance. The editor's purpose here is not to advocate for a particular rule, but to suggest that the rule, whatever it is, be based upon some concept rather than the absurd notion that the creation of a mortgage is the transfer of ownership to the mortgagee.
Comment 2: The court's second ruling - on subrogation - certainly is correct in this case. The editor is bemused by the many cases that "bail out" banks from their own negligence by granting them subrogation in this and similar cases. As between mortgage borrowers and mortgage lenders, the balance of control of the instruments is hugely in favor of lenders. Courts should assume that the instruments reflect the lender's calculated intent, and should not grant equitable relief from the consequences of the lender's failure to protect itself.
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