Deutsche Bank Nat. Trust Co. v. Evans

• Decision Date: 13 August 2009
• Docket Number: No. 2:09cv11.,2:09cv11.
• Citation: 421 B.R. 193
• Parties: DEUTSCHE BANK NATIONAL TRUST COMPANY, Defendant-Appellant v. David E. EVANS, Mary Anne Evans, and Ronda J. Winnecour, Chapter 13 Trustee, Plaintiffs-Appellees.
• Court: U.S. District Court — Western District of Pennsylvania

421 B.R. 193

DEUTSCHE BANK NATIONAL TRUST COMPANY, Defendant-Appellant v. David E. EVANS, Mary Anne Evans, and Ronda J. Winnecour, Chapter 13 Trustee, Plaintiffs-Appellees.

No. 2:09cv11.

United States District Court, W.D. Pennsylvania.

August 13, 2009.

COPYRIGHT MATERIAL OMITTED

MEMORANDUM OPINION

DAVID STEWART CERCONE, District Judge.

I. INTRODUCTION

Before the Court is an appeal by Deutsche Bank National Trust Company ("Deutsche Bank") from an order of the United States Bankruptcy for the Western District of Pennsylvania avoiding the lien of a mortgage held by Deutsche Bank on the residence of appellees, David E. Evans ("David") and Mary Anne Evans ("Mary Anne" together the "Evans"), husband and wife. This Court has jurisdiction of the appeal from the final order of the Bankruptcy Court pursuant to 28 U.S.C. § 158(a).

II. STATEMENT OF THE CASE

On February 2, 2004, the Evans purchased a home in Greene County, Pennsylvania, taking title to the property as tenants by the entireties by two (2) deeds which identified the grantees as "David E. Evans and Mary Anne Evans, husband and wife." The deeds were recorded with the Recorder of Deeds for Greene County on March 22, 2004. To finance the purchase, David executed a mortgage to Argent Mortgage Company on February 2, 2004, together with a promissory note in the principal amount of $63,000.00. Deutsche Bank is the current holder of the mortgage.

The parties agree that Mary Anne had knowledge of, and consented to, the granting of the mortgage, however, she never signed either the mortgage or the promissory note. Only David signed the mortgage as mortgagor. The mortgage was recorded with the Greene County Recorder of Deeds on February 24, 2004.

On February 1, 2007, the Evans filed a joint petition for relief under Chapter 13 of the Bankruptcy Code, in the United States Bankruptcy Court for the Western District of Pennsylvania (the "Bankruptcy Court"). Deutsche Bank, as holder of the mortgage and promissory note, filed a secured proof with the Bankruptcy Court on February 20, 2007. The Evans and the Chapter 13 Trustee, Ronda J. Winnecour (the "Trustee"), brought an adversary proceeding with the Bankruptcy Court seeking a declaration that the mortgage was unenforceable and subject to avoidance pursuant to the Trustee's "strong arm" powers set forth in 11 U.S.C. § 544(a). The Bankruptcy Court held that the mortgage was invalid, thus making the lien interest and claim held by Deutsche Bank wholly unsecured, and effectively avoiding the mortgage lien.

III. STANDARD OF REVIEW

This Court has jurisdiction to hear an appeal from the Bankruptcy Court pursuant to 28 U.S.C. § 158(a). In undertaking a review of the issues on appeal, a district court applies a clearly erroneous standard to a bankruptcy court's findings of fact — "[f]indings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous...." See Federal Rule of Bankruptcy Procedure 8013. In this instance, the Bankruptcy Court did not hold an evidentiary hearing, the parties agreed, instead, to submit the case upon a stipulation of facts. Therefore, the only issues presented in this appeal are questions of law. The legal conclusions of a bankruptcy court are subject to plenary review. In re Continental Airlines, 125 F.3d 120, 128 (3d Cir.1997); see also In re Hechinger, 298 F.3d 219, 224 (3d Cir.2002); In re Telegroup, 281 F.3d 133, 136 (3d Cir.2002).

IV. DISCUSSION

A. Pennsylvania Entireties Law and the "Entireties Presumption"

The Trustee, and the Evans, argue that Deutsche Bank's mortgage is not enforceable on its face because, though the Evans held title to the property as tenants by the entirety, only David Evans executed the mortgage. The Trustee contends that the mortgage is defective and is void by operation of the Statute of Frauds. The Bankruptcy Court, like several Pennsylvania Bankruptcy Courts¹ previous, held that the lien of Deutsche Bank's mortgage was unenforceable, and the Bank's interest was wholly unsecured. Based on the reasons that follow, this Court disagrees with the ruling of the Bankruptcy Court, will reverse, and find the mortgage at issue is fully enforceable and cannot be avoided by the Trustee.

The Court of Appeals for the Third Circuit reviewed two Chapter 7 bankruptcy cases in which the appellant debtors sought exemptions under 11 U.S.C. § 522(d)(5) for property held in tenancy by the entireties, and in so doing reviewed the basic principles of Pennsylvania's entireties laws that are relevant to the issues herein. See In re Brannon, 476 F.3d 170 (3d Cir.2007).

In Pennsylvania, a tenancy by the entireties is a form of co-ownership of real or personal property by husband and wife. In re Brannon, 476 F.3d at 173. It is a venerable common law doctrine of ancient vintage, based on the legal fiction that husband and wife are one person. Id. The essential characteristic is that "each spouse is seised per tout et non per my, i.e., of the whole or the entirety and not of a share, moiety or divisible part." Id. quoting In re Gallagher's Estate, 352 Pa. 476, 43 A.2d 132, 133 (1945). The Court further quoted a Pennsylvania treatise on conveyances:

[H]usband and wife are looked upon, together, as a single entity, like a corporation. The single entity is the owner of the whole estate. When the husband or wife dies, the entity continues, although it is now composed of only one natural person rather than two.

In re Brannon, 476 F.3d at 173 quoting LADNER ON CONVEYANCING IN PENNSYLVANIA, § 1.08 at 16 (John Makdisi, ed., rev. 4th ed.1979). The treatise further explains, "neither tenant by the entirety owns any undivided share at all; both together, as a single entity, own the whole, or entire, estate." Id.

In Madden v. Gosztonyi Savings & Trust Co., 331 Pa. 476, 200 A. 624 (1938), Chief Justice Kephart of the Supreme Court of Pennsylvania recognized that "either spouse presumptively has the power to act for both, so long as the marriage subsists, in matters of entireties, without any specific authorization, provided the fruits or proceeds of such action inures to the benefit of both and the estate is not terminated." Madden v. Gosztonyi Savings & Trust Co., 200 A. at 630-31. A spouse, therefore, may act on behalf of both spouses with respect to entireties property as long as the tenancy remains intact. See In re Brannon, 476 F.3d at 173. A tenancy remains intact unless severed only by the death of one of the spouses, or by "joint conveyance of the estate, divorce, or mutual agreement, either express or implied." Id. at 173-174 quoting Clingerman v. Sadowski, 513 Pa. 179, 519 A.2d 378, 381 (1986) (internal citations omitted). This presumption that either tenant by the entirety may, without specific consent, act on behalf of both tenants in certain instances shall be referred to as the "entireties presumption."

In this instance, Mary Anne had knowledge of, and consented to, the granting of the mortgage executed only by her husband, David. The purchase money mortgage was used to complete the purchase of the family home. The benefit of the mortgage, therefore, inured to both David and Mary Anne, and the transaction did not divest the entireties property from the marital estate. It certainly appears to this Court that the entireties presumption should apply in this instance. The Bankruptcy Court, however, held that the mortgage was unenforceable because it failed to satisfy the Statute of Frauds.

B. The Statute of Frauds and its Application

The Statute of Frauds, in relevant part, provides:

[N]o leases, estates or interests, either of freehold or terms of years, or any uncertain interest, of, in, to or out of any messuages, manors, lands, tenements or hereditaments, shall, at any time after the said April 10, 1772, be assigned, granted or surrendered, unless it be by deed or note, in writing, signed by the party so assigning, granting or surrendering the same, or their agents, thereto lawfully authorized by writing, or by act and operation of law.

33 PA. CONS.STAT. § 1. As argued by Deutsche Bank, the Statute of Frauds does not expressly mention mortgages as a conveyance covered by the Statute, while leases are the first conveyance mentioned in the text of the Statute. Notwithstanding the express protection of leases under the Statute, Pennsylvania courts have expressly found that one spouse alone may execute a lease of entireties property "for the benefit of both." See O'Malley v. O'Malley, 272 Pa. 528, 533, 116 A. 500 (1922); Gasner v. Pierce, 286 Pa. 529, 533, 535, 134 A. 494 (1926); Schweitzer v. Evans, 360 Pa. 552, 63 A.2d 39 (1949); Wallaesa v. Wallaesa, 174 Pa.Super. 192, 197, 100 A.2d 149 (1953); Wakefield v. Wakefield, 149 Pa.Super. 9, 13, 25 A.2d 841 (1942); Lohmiller v. Gotwals, 150 Pa.Super. 539, 29 A.2d 206 (1942).

This validation of the entireties presumption was further enforced by the Supreme Court of Pennsylvania in Zlotziver v. Zlotziver, 355 Pa. 299, 49 A.2d 779, 781 (1946). In enforcing an oral separation agreement to convey real estate, despite an argument that the agreement was unenforceable under the Statute of Frauds, the Court stated:

The statute of frauds ... does not absolutely invalidate an oral contract relating to land but is intended merely to guard against perjury on the part of one claiming under the alleged agreement. Accordingly, if the title holder admits, either in his pleadings or his testimony, that he did in fact enter into the contract, the purpose of the statute of frauds is served and the oral agreement will be enforced by the court.

Zlotziver v. Zlotziver, 49 A.2d at 781 (citing Sferra v. Urling, 328 Pa. 161, 195 A. 422, 425-426 (1937); Williams v. Moodhard, 341 Pa. 273, 19 A.2d 101, 104-105 (1941); Shaffer v. Shaffer, 344 Pa. 158, 23 A.2d 883, 885 (1942)). The Bankruptcy Court agreed that, based upon Zlotziver, Mary Anne's acknowledgment of consent to the mortgage would be sufficient to...