Deutsche Bank National Trust Co. v. Evans
2009 U.S. Dist. LEXIS 71555, 2009 WL 2496926, 421 B.R. 193 (2009)
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Rule of Law:
Under Pennsylvania law, a mortgage on a property held as tenants by the entirety is valid and enforceable even if signed by only one spouse, provided the non-signing spouse consented to the transaction and the proceeds inured to the benefit of both spouses. Such a mortgage does not violate the Statute of Frauds and cannot be avoided by a bankruptcy trustee exercising 'strong arm' powers.
Facts:
- On February 2, 2004, David E. Evans and Mary Anne Evans purchased a home, taking title as 'tenants by the entireties.'
- To finance the purchase, David Evans alone executed a mortgage and a promissory note for $63,000.00.
- Mary Anne Evans did not sign either the mortgage or the promissory note.
- It was stipulated that Mary Anne Evans had knowledge of, and consented to, the granting of the mortgage.
- The mortgage funds were used to purchase the family home, providing a benefit to both David and Mary Anne Evans.
- Deutsche Bank National Trust Company is the current holder of the mortgage.
Procedural Posture:
- David and Mary Anne Evans filed a joint petition for Chapter 13 bankruptcy in the U.S. Bankruptcy Court for the Western District of Pennsylvania.
- The Evanses and the Chapter 13 Trustee brought an adversary proceeding in the Bankruptcy Court against Deutsche Bank.
- The complaint sought a declaration that the mortgage held by Deutsche Bank was unenforceable and subject to avoidance under the trustee's 'strong arm' powers in 11 U.S.C. § 544(a).
- The Bankruptcy Court held that the mortgage was invalid, avoided the mortgage lien, and declared Deutsche Bank's claim to be wholly unsecured.
- Deutsche Bank, as appellant, appealed the Bankruptcy Court's final order to the U.S. District Court for the Western District of Pennsylvania; the Evanses are the appellees.
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Issue:
Does a mortgage on a property held as tenants by the entirety, signed by only one spouse, violate the Pennsylvania Statute of Frauds and thus become avoidable by a bankruptcy trustee under 11 U.S.C. § 544(a) when the non-signing spouse consented to the transaction and both spouses benefited from it?
Opinions:
Majority - David Stewart Cercone
No. A mortgage on property held as tenants by the entirety is valid and cannot be avoided by a bankruptcy trustee when it was signed by only one spouse, but the non-signing spouse consented to and benefited from the transaction. The court's reasoning is based on Pennsylvania's 'entireties presumption,' which allows one spouse to act for both in matters concerning the entireties property, so long as the action benefits both spouses and does not sever the estate. Here, the mortgage proceeds were used to purchase the couple's home, a clear benefit to both, and Mary Anne Evans admitted her consent. The Statute of Frauds, intended to prevent fraud and perjury, cannot be used as a 'sword' to invalidate a transaction where there is no evidence of fraud and the non-signing party admits to the agreement. Because the mortgage is valid under state law, a hypothetical bona fide purchaser, the status held by the bankruptcy trustee under § 544(a), would have constructive notice of the duly recorded mortgage and therefore cannot avoid the lien.
Analysis:
This decision clarifies the interplay between the common law doctrine of tenancy by the entirety and the Pennsylvania Statute of Frauds, particularly in the context of bankruptcy. The court elevates the 'entireties presumption' over a rigid, formalistic application of the Statute of Frauds, focusing on the statute's underlying purpose of preventing fraud. This ruling protects lenders by validating mortgages that might otherwise be technically deficient, thereby preventing debtors from using a missing signature as a 'sword' to escape a legitimate debt in bankruptcy. The case establishes that substance—consent and mutual benefit—can overcome a formal defect in conveyances of entireties property in Pennsylvania.
