Occasionally mortgage lenders require only one spouse to sign a deed of trust (or mortgage) and allow the other spouse to sign a separate document consenting to the loan transaction. But, as a Missouri appellate court ruled recently, this practice could leave the lender with an invalid lien if both spouses own the property.
In Federal National Mortgage Association v. Pace, the Missouri Court of Appeals Eastern District recently ruled that Fannie Mae did not have a valid lien on real estate held by a husband and wife as tenants by the entirety because the wife did not sign the deed of trust. The husband purchased the property on his own, arranged for the loan, and was the only grantor and borrower identified in the deed of trust and promissory note. The wife testified that she had no input in buying the property, did not apply for the loan, and did not intend to take an interest in the property. Nevertheless, the seller’s deed conveyed the property to both spouses. Only the husband signed the deed of trust and promissory note for the loan used to buy the property. The wife signed only an “Assent to Execution of Deed,” which indicated her assent to her husband’s execution of the deed of trust and promissory note.
Under these circumstances, the court ruled that the lender had no valid lien. Under Missouri law, a conveyance of real property to spouses is presumed to create a “tenancy by the entirety,” a special form of co-ownership reserved for married couples. Because the husband and the wife owned the property as tenants by the entirety, both had to sign and be named as grantors in the deed of trust in order to convey a valid lien on the property. The court ruled that the wife’s “Assent to Execution of Deed” was insufficient to waive this requirement as to the wife because the wife testified that she did not know that she had an ownership interest by the entireties in the property and, thus, she could not have waived a right that she did not know existed..
In this case, the lender apparently believed that the property would be conveyed by the seller only to the husband and was unaware that the seller’s warranty deed conveyed the property to both spouses. Presumably, the lender would have required the wife to sign the deed of trust if it had known this.
The lesson from this case is that it may be prudent for a lender to require both spouses to sign the deed of trust of mortgage, even if it appears that only one spouse is purchasing the property. Otherwise, the lender may wind up with no collateral for its loan.