Language In Deed Overcomes Presumption Of Tenants By The Entireties Ownership, Allowing Judgment Lien To Attach
Lesson. Indiana law presumes that spouses own real estate as “tenants by the entirety.” In limited instances, however, the presumption can be overcome based upon language in the deed reflecting an intention to establish a different form of ownership.
Legal issue. Whether the language in the subject deed was sufficiently clear to overcome the presumption of ownership of tenants by the entirety.
Vital facts. In 2002, the owner of the subject real estate conveyed the property to the new owners through a warranty deed that contained this clause: “[Grantor] conveys and warrants to [Underwood], of legal age, and [Kinney] and [Fulford], husband and wife, all as Tenants-in-Common.” In June 2014, a six-figure damages judgment was entered against Underwood and Kinney. In November 2014, Kinney passed away but remained married to Fulford until his death.
Procedural history. In 2015, Underwood filed an action for partition to sell the real estate and distribute the proceeds, presumably to satisfy, at least in part, the judgment. Underwood claimed that she, Kinney and Fulford owned the real estate as three tenants in common. Kinney’s Estate claimed that it did not own the property and that Kinney’s interest had instead passed to Fulford, his spouse, based upon tenants by the entirety ownership. The trial court agreed with the Estate and concluded that the Kinney/Fulford marital unit was a single tenant in common with Underwood. As such, the judgment lien did not attach to Fulford’s one-half interest because the judgment was only against Kinney (and Underwood), not Fulford. Underwood appealed all the way to the Indiana Supreme Court, which issued the opinion that is the subject of today’s post.
The following prior post provides context for today’s submission: Execution Upon Indiana Real Estate Owned As “Tenancy By The Entireties.”
Under Indiana common law, “conveyance of real property to spouses presumptively creates an estate by the entireties.” However, the presumption “can be overcome if the instrument of conveyance reflects an intention to create some other form of concurrent ownership.”
These rules have now been codified. The operative statute is Ind. Code 32-17-3-1. The key language related to rebutting the presumption is in subsection (d)(2):
if it appears from the tenor of a contract described in subsection (a) that the contract was intended to create a tenancy in common; the contract shall be construed to create a tenancy in common.
In interpreting subsection (d)(2), the Supreme Court in Underwood articulated the following test: “in giving a fair reading to the whole instrument, we will find the presumption is rebutted if its terms reasonably reflect the parties’ intention to establish a different form of tenancy.”
Holding. The Supreme Court reversed the trial court and the Indiana Court of Appeals, which had affirmed the trial court. The Court concluded that the language in the deed specifying that the three grantees, two of whom were married, shall take the real estate “all as Tenants-in-Common" rebutted the presumption.
The Court felt that the phrase in the deed “all as Tenants-in-Common” showed the parties’ intent to create a tenancy in common among all three grantees. Specifically, the word “all” established that the grantor did not view “Husband and Wife” as a single entity.
Judgment lien. The main reason I’m writing about Underwood is that the case illustrates the impact of a judgment lien in the context of real estate held by tenants by the entireties vs. tenants in common. The Court found that the interest of Kinney, one of the two judgment debtors, passed to his Estate. Thus the Estate’s one-third share of the partition sale proceeds should go to satisfy the judgment because the judgment lien attached to that third. On the other hand, Fulford, the surviving spouse, would not enjoy the tenancy by the entireties spousal exemption for half of the sale proceeds – only a third. Although the Supreme Court did not address the practical impact of the case, I’m guessing that Underwood’s goals included ensuring that two-thirds (instead of one-half) of the sale proceeds were applied to pay down (or off) the judgment and that Kinney, through his Estate, paid his pro rata share of the debt.
I frequently represent judgment creditors and lenders, as well as their mortgage loan servicers, entangled in lien priority and title claim disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at John.Waller@WoodenLawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.