Lien Theory of Mortgages and a Joint Tenancy with the Right of Survivorship

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Cavalier-336

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Lien Theory of Mortgages and a Joint Tenancy with the Right of Survivorship

Postby Cavalier-336 » Fri Jan 27, 2017 9:54 pm

My question applies to a state using the Lien Theory of Mortgages. It also applies to ownership through Joint Tenancy with the Right of Survivorship (JTRSS).

Here are the facts that I have made up for this question.

Facts:

1. There is a JTRSS with parties A, B, and C owning Property X by way of a vesting deed where parties A, B, and C were named as grantees by way of a JTRSS.

2. To obtain the property, party A obtained a mortgage. Only party A is the mortgagor for the mortgage of $100,000. Parties B and C did not sign nor did the bank request their signing.

3. Party A paid $50,000 towards the mortgage over the course of many years, all while parties A, B, and C lived there.

4. Party A stops paying the month prior to party A's death.


Legal Questions:


1. After A's death, since this state follows the Lien Theory of Mortgages, it appears that B and C---through operation of law--- will be vested with A's property interest.

However what interest will this be exactly?

Will B and C take A's interest with or without this encumbrance?

2. If B and C take the interest without the mortgage, is the bank left to making the claim on A's estate? Or will the bank do something else?

Thank you so much.

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cnk1220

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Re: Lien Theory of Mortgages and a Joint Tenancy with the Right of Survivorship

Postby cnk1220 » Fri Jan 27, 2017 10:41 pm

My understanding the way I think of it (I could be wrong) is that when you're in a lien theory state and A goes ahead and secures her interest in parcel "X" with a mortgage it's only on A's interest in the land because the mortgage is conveying whatever interest A owns in the land. So the joint tenancy still remains a joint tenancy with right of survivorship.

I think (and this would make sense)- it's BECAUSE it's a lien theory state so the joint tenancy stays in-tact because in a lien theory state the bank's interest is only a "lien" on the property as opposed to the bank holding "title" to the property in a title theory state where the bank would be a tenant in common with B and C so A's death would have no effect on the bank's share.

So...when A dies, in a lien theory state- B and C are the sole owners and will take free and clear of the mortgage because there's a right of survivorship so A's interest goes to B and C and the bank is out of luck in attempting to enforce the lien to get the $50k A still owes the bank because the bank no longer has an interest in the property- it only belongs to B and C and B and C never owed the bank to begin with (because only A took out a mortgage).

My assumption is that the bank will have to get the $50k owed somehow else (not sure how...I haven't come across what comes next in my studies lol), but I'm 99.9% sure the bank cannot get it through enforcing the lien on what is now ONLY B and C's land because of the right of survivorship that B and C have and because we're in a lien theory state with your hypo.

NonTradHealthLaw

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Re: Lien Theory of Mortgages and a Joint Tenancy with the Right of Survivorship

Postby NonTradHealthLaw » Fri Jan 27, 2017 11:52 pm

cnk's is how I would answer it.

In a lien theory jx the mortgage company assumes the risk (using as a lay term) that it only takes the mortgagee's interest. JTRSS has a condition requiring survivorship in lien theory jxes.

To add a secured creditors' wrinkle, I'm not sure the mortgagor would have a priority secured interest. My guess is that it would fall into the general unsecured creditors' interests since the mortgage is on a non-possessed, non-transferred property so it doesnt meet the PMSI requirements. But I welcome haranguing redirection on my spitballing.

Cavalier-336

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Re: Lien Theory of Mortgages and a Joint Tenancy with the Right of Survivorship

Postby Cavalier-336 » Sat Jan 28, 2017 12:17 am

Thank you both so much for your contributions.

The boiled down argument can be summarized with two points:

1. The non-involved parties to the mortgage (but are parties named on the general warranty deed) have the RIGHT of survivorship after the death of one of the joint co-tenants.

2. Can the RIGHT of survivorship COME WITH a mortgage encumbrance by one of the other joint co-tenants.

One post said the bank assumed the risk of only having 1 party to the mortgage. Absolutely true.

However, it is also somewhat true that the co-tenants assumed the risk of other co-tenants obtaining a mortgage.

While I, of course, believe that the risk assumption issue involves more fault to the bank, there is a bit of a counter argument in that those co-tenants would not have been able to live on that property. So there may even be an argument for an equitable remedy for the bank in terms of a reformation of the mortgage contract or deed of trust (if a particular state utilizes deed of trusts for a mortgage transaction).

NonTradHealthLaw

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Re: Lien Theory of Mortgages and a Joint Tenancy with the Right of Survivorship

Postby NonTradHealthLaw » Sat Jan 28, 2017 1:31 am

Decent equitable argument on a law school exam; not worth a half smile from a bar grader IMHO. Joint tenants don't assume any risk as they are 100% owners of the entirety, albeit shared with another's 100% right of possession. Even in a title theory jx, the joint tenant is not liable for the corpus of the mortgage, they just become tenants in common. The mortgage company's only remedy in a lien jx is the estate. In a title theory it would be a partitioning of the estate. The cotenants should not have any liquid liability.

Cavalier-336

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Re: Lien Theory of Mortgages and a Joint Tenancy with the Right of Survivorship

Postby Cavalier-336 » Sat Jan 28, 2017 11:02 am

I agree 100%.

If anyone else has comments, I would appreciate it as well.

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kellyfrost

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Re: Lien Theory of Mortgages and a Joint Tenancy with the Right of Survivorship

Postby kellyfrost » Sat Jan 28, 2017 1:23 pm

I'm a few years removed from the bar exam and I tried to read through this question and I couldn't even follow it let alone understand it.

Learn what you need to learn and memorize what you need to memorize to pass the exam, but once it is over you are going to forget all this stuff, unless you are currently working on a case regarding lien theory and joint tenants-- them you will have a print out from an internet source in front of you guiding you, or you will have asked your question on Avvo.com and went with the first answer you received.
Last edited by kellyfrost on Sat Jan 27, 2018 3:06 pm, edited 1 time in total.

NonTradHealthLaw

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Re: Lien Theory of Mortgages and a Joint Tenancy with the Right of Survivorship

Postby NonTradHealthLaw » Sat Jan 28, 2017 2:02 pm

Valid but irrelevant point, kellyfrost. I, too, took the Bar a few years ago and passed by 50 points. Though, now I've forgotten 9/10 of this crap so I am starting from scratch(ish). There's no way to know what it is that you need to know or to memorize - so, as you remember, you try to have a semi-coherent grasp of everything. Sometimes that results in obsession, but, it's part of the process.

Cavalier-336

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Re: Lien Theory of Mortgages and a Joint Tenancy with the Right of Survivorship

Postby Cavalier-336 » Sat Jan 28, 2017 7:58 pm

Kellyfrost,

I am a little concerned that you cannot follow my question as laid out in the initial post.

The fact that you turned my quite simple question into an attack of what one will need to know for a bar exam is incredible.

Do you presume to know that a bar taker will not need to know what happens when only one of many joint tenants with a right of survivorship obtains a mortgage on that property?



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