Joint Mortgage Debt Means No Tenancy By Entirety Protection for Homeowners

The Illinois First District recently affirmed a mortgage foreclosure summary judgment for a plaintiff mortgage lender in a case involving the protection given to tenancy by the entirety (TBE) property.

In Marquette Bank v. Heartland Bank and Trust, 2015 IL App (1st) 142627, the main issue was whether a marital home was protected from foreclosure where it was owned by a land trust, the beneficiaries of which were a husband and wife; each owning beneficial interests TBE.

The defendants argued that since their home was owned by a land trust and they were the TBE beneficial owners of that land trust, the plaintiff could not foreclose its mortgage.

Affirming summary judgment, the appeals court examined the interplay between land trust law and how TBE property impacts judgment creditors’ rights.

The Illinois Joint Tenancy Act (765 ILCS 1005/1c) allows land trust beneficiaries to own their interests TBE and Code Section 12-112 (735 ILCS 5/12-112) provides that a TBE land trust beneficial interest “shall not be liable to be sold upon judgment entered….against only one of the tenants, except if the property was transferred into [TBE] with the sole intent to avoid the payment of debts existing at the time of the transfer beyond the transferor’s ability to pay those debts as they become due.”

TBE ownership protects marital residence property from a foreclosing creditor of only one spouse.  In TBE ownership, a husband and wife are considered a single unit – they each own 100% of the home – and the judgment creditors of one spouse normally can’t enforce a money judgment against the other spouse by forcing the home’s sale.

An exception to this rule is where property is conveyed into TBE solely to evade one spouse’s debt.  Another limitation on TBE protection is where both spouses are jointly liable on a debt.  In the joint debt setting, a judgment against one spouse will attach to the marital home and can be foreclosed on by the judgment creditor.

Code Section 12-112 provides that where property is held in a land trust and the trust’s beneficial owners are husband and wife, a creditor of only one of them can’t sell the other spouse’s beneficial land trust interest. 735 ILCS 5/12-112.

The Court rejected the defendants argument that as TBE land trust beneficiaries of the marital home, the spouse defendants were immune from foreclosure.  It noted that both spouses signed letters of direction authorizing the land trustee (owner) to mortgage the property, the mortgage documents allowed the plaintiff to foreclose in the event of default and empowered the lender to sell all or any part of the property. (¶¶ 16-18)

Summary Quick-Hits:

  • TBE property ownership protects an innocent spouse by saving the marital home from a judgment creditor’s foreclosure suit where only one spouse is liable on a debt;
  • A land trust beneficial interest is considered personal property and can be jointly owned in tenancy by the entirety;
  • Where spouses are jointly (both) liable on an underlying debt, TBE property can be sold to satisfy the joint debt.

 

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.