From time to time, not all the record owners of a property were a party to the mortgage.  In most situations, one of the parties is deceased, whereby the surviving owner takes out the mortgage.  However, what happens when both parties are alive and only one party executes the mortgage?  If title is held as tenants in common, you could foreclose on a partial interest and then bring a partition action once the foreclosure is complete. Will the same standard be applied to a tenancy by the entirety?  The answer is no.

In Nationstar Mortgage, LLC v. Pajuelo, 203 A.D.3d 1055 (2^nd Dept. 2022), this issue was raised.  Gladys Pajuelo executed a note and mortgage on property she owned with her husband as tenants by the entirety, however, her husband did not sign the note and mortgage.  Plaintiff moved to have its mortgage declared an equitable mortgage on the husband’s interest but the lower court denied Plaintiff’s motion for a default judgment against the husband’s interest.  The Appellate Division affirmed the ruling and specifically stated that, “where spouses own property as tenants by the entirety, a conveyance by one spouse, to which the other has not consented, cannot bind the entire fee”.

Our foreclosure searches direct counsel for the lender to clear the outstanding interest of the missed party through the prior insurer.  In a situation like this, the title insurer will attempt to litigate but will most likely have to tender the sums on their policy depending on the facts.  The insurer could potentially seek equitable subrogation for any amounts paid off at the closing of title and get an equitable lien on said sums in order to reduce liability to the lender.

Should this issue arise, please contact our office for further assistance and guidance.

Please contact David Schwartzberg, Foreclosure Counsel, at
dschwartzberg@advantagegroupny.com or 631.549.7721 with any questions.