In re Evans

• Decision Date: 20 November 2008
• Docket Number: Adversary No. 07-02260-JAD.,Bankruptcy No. 07-20663-JAD.
• Citation: 397 B.R. 744
• Parties: In re David E. EVANS, and Mary Anne Evans, Debtors. David E. Evans, Mary Anne Evans, and Ronda J. Winnecour, Chapter 13 Trustee, Plaintiffs, v. Deutsche Bank National Trust Co., as Trustee for the Certificate Holders of GSAMP, Defendant.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

Page 744

397 B.R. 744

In re David E. EVANS, and Mary Anne Evans, Debtors David E. Evans, Mary Anne Evans, and Ronda J. Winnecour, Chapter 13 Trustee, Plaintiffs, v. Deutsche Bank National Trust Co., as Trustee for the Certificate Holders of GSAMP, Defendant.

Bankruptcy No. 07-20663-JAD.

Adversary No. 07-02260-JAD.

United States Bankruptcy Court, W.D. Pennsylvania.

November 20, 2008.

Daniel R. White, Esq., for the Plaintiffs/Debtors.

Richard J. Bedford, Esq., for the Chapter 13 Trustee.

George M. Cheever, Esq., for Deutsche Bank National Trust Co., as Trustee for the Certificate Holders Of GSAMP.

MEMORANDUM OPINION

JEFFERY A. DELLER, Bankruptcy Judge.

This Memorandum Opinion constitutes the Court's findings of fact and conclusions of law pursuant to Fed.R.Bankr.P. 7052. The Court has jurisdiction pursuant to 28 U.S.C. § 1334(b). This Adversary Proceeding is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(K).

The matter before the Court is an Adversary Proceeding jointly commenced by Ronda J. Winnecour, Chapter 13 Trustee and the Debtors, David and Mary Anne Evans, (collectively "Plaintiffs") against Deutsche Bank National Trust Co., as Trustee for the Certificate Holders of GSAMP (the "Defendant" or "Deutsche Bank"). Pursuant to the Adversary Proceeding, the Plaintiffs contend that Deutsche Bank's mortgage is not enforceable on its face because it was not executed by both of the Plaintiffs, who are husband and wife. Specifically, prior to the petition date, Mr. Evans granted Deutsche Bank a purchase money mortgage on the debtors' marital residence, which is owned by Mr. and Mrs. Evans as tenants by the entireties. The Plaintiffs' contend that Deutsche Bank's mortgage is defective and is void by operation of the Statute of Frauds, given that Mrs. Evans' signature is omitted from the document. For the reasons set forth more fully below, the Court finds that there is a defect in the mortgage instrument which precludes Deutsche Bank from asserting a valid mortgage interest in the property.

I.

The facts of this case are generally not in dispute. Mr. and Mrs. Evans own, as tenants by the entirety, a parcel of real property known as 1179 Crucible Road, Rices Landing, Greene County, Pennsylvania which is used as their primary residence (the "Residence"). (Docket No. 1, ¶ 2).¹ The Residence was acquired on February 2, 2004 by way of conveyance to the Debtors as "Husband and Wife." The deeds reflecting the conveyance were recorded on March 22, 2004, with the Recorder of Deeds for Greene County, Pennsylvania. (Docket No. 11, ¶¶ 2-3; Docket No. 11, Exhibits A & B).

To finance the acquisition of the Residence, the Plaintiffs borrowed a portion of the purchase price from Argent Mortgage Company. (Docket No. 11, ¶ 4). A mortgage was executed by Plaintiff Husband on February 2, 2004 along with a promissory note in the principal amount of $63,000.00. (Docket No. 11, ¶ 4; Docket No. 11, Exhibit C). Mrs. Evans had knowledge of, and consented to her husband's grant of the mortgage to obtain the funds necessary to purchase the Residence. (Docket No. 11, ¶ 5). Despite her knowledge and consent though, Mrs. Evans never signed the mortgage instrument or the promissory note. (Docket No. 11, Exhibit C). She also apparently has never reduced her oral consent to writing, as no such documents have been submitted by the parties.

Two days after the deeds were recorded, on March 24, 2004, the mortgage was recorded in the Office of the Recorder of Deeds of Greene County, Pennsylvania at Record Book Volume 298, pages 1239 through 1258. (Docket No. 11, ¶ 6). The mortgage is indexed with David Evans as the Grantor and Argent Mortgage Company as the Grantee. (Docket No. 11, ¶ 7).

On February 1, 2007, the Debtors filed a joint petition for relief under Chapter 13 of the Bankruptcy Code. On February 20, 2007, Deutsche Bank, as the current holder of the mortgage and the promissory note, filed a secured proof of claim in the amount of $70,195.64 with a per diem interest of $15.88. (Case No. 07-20663, Claim No. 2-1; see also Docket No. 11, ¶ 10).

This adversary action was commenced on June 18, 2007, by the Plaintiffs filing a complaint to determine secured status. (Docket No. 1; see also Docket No. 11, ¶ 11). Pursuant to the complaint the Plaintiffs seek the entry of an order declaring Deutsche Bank's putative interest as being void. Alternatively, the Plaintiffs seek the entry of an order avoiding the putative mortgage pursuant to the trustee's "strong-arm" powers set forth in 11 U.S.C. § 544(a).²

II.

The main issue presented by this matter is whether Deutsche Bank's mortgage is unenforceable and/or void due to a defect in its mortgage instrument. More specifically, the issue is whether Deutsche Bank's mortgage on the debtors' marital residence owned as tenants by entireties is voidable by the Chapter 13 Trustee when the mortgage is only executed by one spouse. To address this issue the Court is required to look at applicable state law. See Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979).

A.

When a husband and wife own real property jointly, the type of ownership which is created is a tenancy by the entireties. Constitution Bank v. Olson, 423 Pa.Super. 134, 620 A.2d 1146, 1150 (1993). Tenancy by the entireties is a "unique form of co-ownership grounded in the common law concept that husband and wife were but one legal entity." Howard Sav. Bank v. Cohen, 414 Pa.Super. 555, 607 A.2d 1077, 1082 (1992) (quoting Clingerman v. Sadowski, 513 Pa. 179, 519 A.2d 378, 380 (1986) (citing Ladner on Conveyancing in Pennsylvania, § 1.08 (4th ed.1979))). The distinguishing factor of this form of co-ownership is that the entire property is owned by the husband and wife individually, and not a one-half or divisible portion as in other types of co-ownership relationships. See Frederick v. Southwick, 165 Pa.Super. 78, 67 A.2d 802, 805 (1949). As such, when property is held by a husband and wife as tenants by the entireties, neither spouse acting independently may appropriate the property to his or her own use, sever the estate or cause the estate to become encumbered. Fascione v. Fascione, 272 Pa.Super. 530, 416 A.2d 1023, 1025 (1979) (citations omitted).

Over the years, Pennsylvania courts have recognized some exceptions to this rule. For example, in Schweitzer v. Evans, the Pennsylvania Supreme Court noted that one spouse may lease property owned as tenants by the entireties so long as the proceeds of the lease inure to the benefit of both spouses, and the other spouse either expressly or tacitly consents to the lease. See Schweitzer v. Evans, 360 Pa. 552, 63 A.2d 39, 41 (1949) (citing O'Malley v. O'Malley, 272 Pa. 528, 116 A. 500 (1922); Gasner v. Pierce, 286 Pa. 529, 134 A. 494 (1926)). This limited exception has been recognized at times because there also is a long standing presumption in Pennsylvania that allows either spouse to act on behalf of both spouses, without the consent of the other, so long as the benefit of the action inures to both spouses. In re Carnes, 331 B.R. 229, 232 (Bankr.W.D.Pa.2005) (citing Aetna Life & Casualty Corp. v. Maravich, 824 F.2d 266, 270 (3d Cir.1987) citing J.R. Christ Construction Co. v. Olevsky, 426 Pa. 343, 232 A.2d 196, 199 (1967)).

This so-called "entireties presumption" of agency only holds true, however, if the transaction does not operate to permanently and voluntarily divest entireties property from the marital estate. See Borrello v. Lauletta, 455 Pa. 350, 317 A.2d 254 (1974). In the lease example described above, courts have held that if the contract contained an option to purchase which would sever the estate if exercised, such a provision is invalid. See Id.

Deutsche Bank, however, argues that the entireties presumption should apply in this case because it is an undisputed fact that Mrs. Evans consented to her husband granting a mortgage on their marital residence; and it is also undisputed that the benefit of the mortgage inured to both Mr. and Mrs Evans because it enabled each spouse to purchase their home.

In support of its argument, Deutsche Bank points out that the entireties presumption has been held applicable to contracts for the improvement of real property. See J.R. Christ Construction Company v. Olevsky, 426 Pa. 343, 232 A.2d 196 (1967); Bradney v. Sakelson, 325 Pa.Super. 519, 473 A.2d 189 (1984); Guistra Development Co., Inc. v. Lee, 428 Pa.Super. 394, 631 A.2d 199 (1993). Deutsche Bank contends that because this presumption has been applied to contracts for improvement of real estate, it should also apply to the granting of mortgages. The basis of this contention is that just as mortgages can cause a foreclosure to occur when there has been a default in payment, a contract for the improvement of real property carries with it a possibility of foreclosure by a proceeding brought on a mechanic's lien. (Docket No. 17, p. 6).

The analogy cited by Deutsche Bank is not persuasive. While it is true that contracts for real estate improvements have been enforced in the limited circumstances cited by Deutsche Bank, the fact remains that those contracts were enforced from the perspective as to whether an in personam debt would be recognized by the Courts. The fact that those in personam debts could give rise to an in rem statutory lien is demonstrably different from whether an exception to the Statute of Frauds can be inferred in instances where the transaction sub judice is the very conveyance at issue.

It is this Court's view that mechanic's liens are different from mortgages, and this distinction warrants fidelity to the Statute of Frauds. The Court reaches this conclusion because mechanic's liens are statutory liens, and are not voluntary conveyances. Mechanic's liens simply do not fall within the ambit of the Statute of Frauds which prohibits voluntary conveyances that are not in writing signed by the person against whom the conveyance is to be enforced. S...