V.R.W., Inc. v. Klein

• Decision Date: 19 December 1986
• Citation: 68 N.Y.2d 560,510 N.Y.S.2d 848,503 N.E.2d 496
• Parties: , 503 N.E.2d 496 V.R.W., INC., Respondent, v. Barbara KLEIN, Appellant, et al., Defendants.
• Court: New York Court of Appeals Court of Appeals

Page 848

510 N.Y.S.2d 848

68 N.Y.2d 560, 503 N.E.2d 496

V.R.W., INC., Respondent, v. Barbara KLEIN, Appellant, et al., Defendants.

Court of Appeals of New York.

Dec. 19, 1986.

Abraham Rosten, Yorktown Heights, and Bernard Meyerson, New York City, for appellant.

Donald Tirschwell, New City, and Nan Klein, New York City, for respondent.

OPINION OF THE COURT

TITONE, Judge.

This appeal requires us to consider the nature of the property interest obtained by a mortgagee who has accepted a mortgage which is effective as to only one spouse's interest in a tenancy by the entirety. While we have previously held that upon foreclosure the mortgagee in this situation acquires the rights of a tenant in common subject to the husband and wife's reciprocal rights of survivorship, we have not before had the opportunity to decide whether the mortgagee's rights are affected by a subsequent divorce between the husband and wife, which, by operation of law, dissolves the tenancy by the entirety as between the former spouses. With that question now squarely before us, we conclude that the dissolution of the tenancy by the entirety transforms the mortgagee's interests to the same extent that it transforms the interests of the principals and, more specifically that it extinguishes all previously existing rights of survivorship.

On June 22, 1981, plaintiff gave Richard Klein, defendant's husband, a $50,000 business loan. This loan was secured by a mortgage, purportedly executed by both defendant and her husband, on real property that the couple owned as tenants by the entirety. Klein subsequently defaulted on his loan payments, and in October of 1981, plaintiff commenced this foreclosure action. In December of 1981, while the foreclosure action was pending, Klein executed an instrument conveying his interest in the property to defendant. Thereafter, defendant and Klein were divorced.

At the trial of the foreclosure action, defendant introduced evidence to show that she had not actually signed the mortgage plaintiff held. Crediting her testimony and the testimony of the handwriting experts, the trial court found that her signature on the instrument was a forgery. Consequently, the court held, the mortgage was not effective as a conveyance of defendant's interest in the property and plaintiff was therefore limited to foreclosing on the interest it had received from defendant's husband, which was by that time held in defendant's name. The court's final judgment, which was affirmed by the Appellate Division, 119 A.D.2d 670, 501 N.Y.S.2d 108, dismissed the foreclosure action against defendant and directed the sale of only the husband's former interest in the property. The judgment further stated that the interest received by the purchaser at the foreclosure sale would be that of a tenant in common, with all rights of survivorship extinguished. It is this aspect of the judgment which defendant challenges on this appeal.

The bundle of rights associated with defendant's status as a tenant by the entirety is rooted in ancient common-law principles. Tenancy by the entirety has always been a form of real property ownership available only to those who were actually married at the time of conveyance (see, Armondi v. Dunham, 221 App.Div. 679, 680, 225 N.Y.S. 87, affd. 248 N.Y. 603, 162 N.E. 542; Bell v. Little, 204 App.Div. 235, 197 N.Y.S. 674, affd. 237 N.Y. 519, 143 N.E. 726; Perrin v. Harrington, 146 App.Div. 292, 130 N.Y.S. 944; but cf. Messing v. Messing, 64 App.Div. 125, 71 N.Y.S. 717; see also, EPTL 6-2.2[b] ). At common law, husband and wife were deemed a single legal entity, and a conveyance of property to both created an indivisible interest so that both parties were deemed seized of the whole (see, Matter of Klatzl, 216 N.Y. 83, 85, 110 N.E. 181; Stelz v. Shreck, 128 N.Y. 263, 266, 28 N.E. 510).

The specific rights arising from this unique form of co-ownership are the logical corollary of the legal fiction that husband and wife were but one person. Although that fiction and the related rule prohibiting married women from owning property have long since been discarded, the special status of spouses jointly holding property has been continued into modern real property law (see, Matter of Klatzl, supra, 216 N.Y. at p. 85, 110 N.E. 181; Hiles v. Fisher, 144 N.Y. 306, 39 N.E. 337). Following the enactment of the Married Women's Acts of 1849, both spouses had an equal right to possession of the property, and each had a right to demand that possession, as well as any profits yielded by the property, be shared (Neilitz v. Neilitz, 307 N.Y. 882, 122 N.E.2d 924; Matter of Goodrich v. Village of Otego, 216 N.Y. 112, 116, 110 N.E. 162; Grosser v. City of Rochester, 148 N.Y. 235, 42 N.E. 672; see, Hiles v. Fisher, supra ). While these features of tenancies by the entirety are also characteristic of tenancies in common, the tenancy by the entirety is further distinguished by the fact that it confers on the surviving spouse a right to absolute ownership of the property upon the other spouse's death (Matter of Goodrich v. Village of Otego, supra, 216 N.Y. at p. 116, 110 N.E. 162; Bertles v. Nunan, 92 N.Y. 152).

What makes this right of survivorship unique and differentiates it from the right of survivorship inherent in an ordinary joint tenancy is that it remains fixed and cannot be destroyed without the consent of both spouses (see, Kahn v. Kahn, 43 N.Y.2d 203, 401 N.Y.S.2d 47, 371 N.E.2d 809; compare, Matter of Polizzo, 308 N.Y. 517, 127 N.E.2d 316; Matter of Suter, 258 N.Y. 104, 179 N.E. 310, with Matter of Klatzl, supra, 216 N.Y. at pp. 86-87, 110 N.E. 181; Hiles v. Fisher, supra ). As long as the marriage remains legally intact, both parties continue to be seized of the whole, and the death of one merely results in the defeasance of the deceased spouse's coextensive interest in the property (see, Stelz v. Shreck, supra, 128 N.Y. at p. 266, 28 N.E. 510; Bertles v. Nunan, supra, at p. 156). Similarly, involuntary partition is not available to either cotenant as a means of severing the tenancy by the entirety, since a contrary rule would permit a vindictive or irresponsible spouse to deprive the other of the comforts of the marital home (see, Kahn v. Kahn, supra, 43 N.Y.2d at p. 208, 401 N.Y.S.2d 47, 371 N.E.2d 809; Anello v. Anello, 22 A.D.2d 694, 253 N.Y.S.2d 759; Vollaro v. Vollaro, 144 App.Div. 242, 129 N.Y.S. 43).

These were the rights possessed by defendant both immediately before and immediately after her husband's unilateral execution of a mortgage to plaintiff. It is well established that a conveyance by one tenant, to which the other has not consented, cannot bind the entire fee or impair the nonconsenting spouse's survivorship interest (Hiles v. Fisher, supra; Lawriw v. City of Rochester, 14 A.D.2d 13, 217 N.Y.S.2d 113; affd. 11 N.Y.2d 759, 2266 N.Y.S.2d 695, 181 N.E.2d 631). The affirmed finding of the courts below that defendant's signature on the mortgage instrument executed by her husband was a forgery precludes any conclusion here other than that the mortgage was ineffective to encumber defendant's interest in the property.

On the other hand, there is nothing in New York law that prevents one of the co-owners from mortgaging or making an effective conveyance of his or her own interest in the tenancy. To the contrary, each tenant may sell, mortgage or otherwise encumber his or her rights in the property, subject to the continuing rights of the other (Kline v. Pane, 1 N.Y.2d 15, 150 N.Y.S.2d 10, 133 N.E.2d 447; Matter of Goodrich v. Village of Otego, supra; Hiles v. Fisher, supra). Since the status of a tenant by the entirety is reserved exclusively to those co-owners who are married to each other, the interest acquired by a grantee or mortgagee of such a unilateral conveyance is not denominated a tenancy by the entirety, but rather is labeled a tenancy in common. Nonetheless, the grantee's or mortgagee's rights in the property are essentially the same as those possessed by the grantor or mortgagor: a right to shared possession and ownership subject to the original cotenants' reciprocal rights of survivorship (Hiles v. Fisher, supra, 144 N.Y. at p. 316, 39 N.E. 337; Lawriw v. City of Rochester, supra).

Since the grantee or foreclosing mortgagee, in effect, steps into the shoes of the grantor or mortgagor, his survivorship rights are measured by reference to the lifetimes of the original parties to the tenancy by the entirety. If the grantor or mortgagor predeceases the spouse whose interest in the property has been retained, the grantee or mortgagee is left with no interest in the property at all. Conversely, if the latter predeceases the former, the grantee or mortgagee acquires full rights to the property, unencumbered by the deceased spouse's former interests (see, Lawriw v. City of Rochester, supra).

As applied to the circumstances in this case, these principles lead to a conclusion, which defendant does not dispute, that at the time plaintiff took the mortgage from defendant's husband, plaintiff acquired a contingent interest in all of the rights the husband had in the tenancy, encumbered by all of the limitations on those rights. ^* Moreover, the husband's December 1981 conveyance to defendant of his interest in the property did nothing to alter the respective rights that plaintiff and defendant had in the tenancy. Although a conveyance by one spouse to another of his or her interest in the property is ordinarily sufficient to produce a merger of the parties' rights and dissolve the tenancy by the entirety (see, 5A Warren, Markuson, Zett & Gubala, Warren's Weed New York Real Property Tenancy by Entirety, § 7.02 [1986]; see also, Karp v. Karp, 2 A.D.2d 796, 153 N.Y.S.2d 312), a different conclusion must be drawn when...