Severing Joint Tenancy During Dissolution of Marriage Action

In the recent decision in Raney v. Cerkueira, the California Court of Appeal recognized that Civil Code § 683.2(c) provides that a written instrument severing a joint tenancy is not effective to eliminate the other tenant’s right of survivorship unless it is recorded before the death of the severing tenant (with one exception not relevant in that case). 

Family Code § 2040(b)(3) provides that the standard automatic temporary restraining order (ATRO) binding parties in a pending dissolution proceeding does not restrain one party’s elimination of a right of survivorship to property, provided that notice of the change is filed and served on the other party before the change takes effect. 

In Raney, the Appellate Court concluded that a party who is bound by the ATRO must satisfy both the generally-applicable Civil Code requirements and § 2040(b)(3)’s notice requirement before the severance of a joint tenancy with the other party is effective to eliminate the right of survivorship. 

However, these requirements may be satisfied in any order. Therefore, if a party records a joint tenancy severance in compliance with Civil Code § 683.2(c), before providing the notice required by § 2040(b)(3), the elimination of the right of survivorship takes effect when notice of the severance is filed and served on the other party. 

During their marriage, Veronica Cerkueira and appellant Lawrence Cerkueira held certain real property (the Property) as joint tenants. Veronica moved out of the Property in 2003 and Lawrence remained in possession. 

In December 2014, Veronica filed a petition for dissolution of their marriage (the Dissolution Action) and Lawrence was served with the petition and summons. The summons included the standard ATRO. 

The ATRO prohibited the parties from transferring any property, real or personal, whether community, quasi-community, or separate, without the written consent of the other party or an order of the court, with certain narrow exceptions. The ATRO further provided the parties were prohibited from creating a nonprobate transfer or modifying a nonprobate transfer in a manner that affected the disposition of property subject to the transfer, without the written consent of the other party or an order of the court. 

Before revocation of a nonprobate transfer can take effect or a right of survivorship to property can be eliminated, notice of the change must be filed and served on the other party. The summons provided that the ATRO remained in effect until judgment, dismissal, or further order of the court. 

In January 2015, Veronica created the Veronica A. Cerkueira Family Trust (the Trust), and named her son, David Raney, as the trustee. Veronica was the sole beneficiary of the Trust until her death, when Raney would become the sole beneficiary. 

Also in January 2015, Veronica executed a document entitled “Transfer Grant Deed” (the Deed). The Deed stated Veronica severed the existing joint tenancy in the Property pursuant to Civil Code § 683.2, reserving to Veronica a 50% tenant in common interest; the remaining 50% tenant in common interest to remain belonging to Lawrence. The Deed also transferred Veronica’s 50 percent tenant in common interest to Raney, as trustee of the Trust. The Deed was recorded on February 5, 2015. There was no evidence in the record that Lawrence had notice of the Deed before its recordation. 

In April 2015, Raney, acting in his capacity as trustee of the Trust, filed the underlying complaint for partition (the Partition Complaint) requesting the Property be partitioned by sale. The Deed was attached as an exhibit to the Partition Complaint. 

After Lawrence was served with the Partition Complaint, he filed an answer asserting, as an affirmative defense, that Veronica “is subject to and in violation of the Standard Family Law Restraining Order.

In November 2015, Veronica died. In March 2016, the Dissolution Action was dismissed for lack of jurisdiction because the court had not terminated marital status at the time of Veronica’s death. 

Also in March, Veronica’s will was accepted into probate and Raney was appointed personal representative of her estate. Subsequently, in the partition action, Raney filed a motion to amend the Partition Complaint to add himself, in his capacity as personal representative of Veronica’s estate, as a plaintiff. The court granted the motion. 

A trial on partition was held and the court issued a statement of decision finding that Veronica’s severance of the joint tenancy substantially complied with the ATRO's provision that notice be provided before a right to survivorship is eliminated. 

However, the court found that Veronica’s transfer of her interest in the Property to the Trust violated the ATRO's prohibition on transferring property. The court cancelled the transfer and reformed the Deed to one severing the joint tenancy only. The statement of decision concluded that Raney, in his capacity as personal representative of Veronica’s estate, is the owner of an undivided one-half interest in the Property and is entitled to an order of partition by sale. 

On appeal, Lawrence argued the trial court lacked jurisdiction over the partition action following Veronica’s death because the Property was community property and, following Veronica’s death, no court had jurisdiction to divide their community property. However, the Appellate Court ruled that Lawrence’s characterization of the Property as community property was incorrect. 

A husband and wife may co-own property as joint tenants, tenants in common, or community property. Property cannot be held both as community property and in either a joint tenancy or a tenancy in common at the same time.  Accordingly, each spouse’s interest in a joint tenancy or a tenancy in common is his or her own separate property. 

Following dissolution, there is a rebuttable presumption that property acquired during marriage in joint form is community property. However, if one spouse dies during a dissolution proceeding but before there is a judgment of dissolution, this community property presumption does not apply.

Because Veronica died before dissolution, no community property presumption applies to the Property. If, as Lawrence contended, Veronica’s severance of the joint tenancy was ineffective, the Property was held in joint tenancy and passed to Lawrence upon her death by right of survivorship. 

If the severance was effective, as Raney contended, Lawrence and Veronica were tenants in common and Veronica’s 50 percent interest in the Property was her separate property, becoming part of her estate conveyed by her will after her death. 

In either event, the Property was not community property. 

The heart of the parties’ dispute is whether Veronica, in severing the joint tenancy, violated the ATRO's provision that before a right of survivorship to property can be eliminated, notice of the change must be filed and served on the other party. 

Lawrence argued the ATRO and § 2040(b)(3) provide that notice of a joint tenancy severance must be filed and served before the severance is recorded. 

A joint tenancy severance is not effective to eliminate a right of survivorship unless it is recorded before the death of the severing joint tenant (with one exception not relevant).  A distinctive feature of joint tenancy, as opposed to other interests in land, is the right of survivorship. This means that when one joint tenant dies, the entire estate belongs automatically to the surviving joint tenant(s).  The severance of a joint tenancy transforms it into a tenancy in common by extinguishing the right of survivorship.

Civil Code § 683.2 provides a joint tenant may sever a joint tenancy in real property as to the joint tenant’s interest without the joinder or consent of the other joint tenants by, among other means, execution of a written instrument that evidences the intent to sever the joint tenancy, or of a written declaration that, as to the interest of the joint tenant, the joint tenancy is severed.” (Civil Code, § 683.2(a)(2).)

The statute further provides that such a severance is not effective to terminate the right of survivorship of the other joint tenants as to the severing joint tenant’s interest unless one of the following requirements is satisfied: 

(1) Before the death of the severing joint tenant, the deed, written declaration, or other written instrument effecting the severance is recorded in the county where the real property is located; or

(2) The deed, written declaration, or other written instrument effecting the severance is executed and acknowledged before a notary public by the severing joint tenant not earlier than three days before the death of that joint tenant and is recorded in the county where the real property is located not later than seven days after the death of the severing joint tenant.

The purpose of Civil Code § 683.2(c), is to avoid potentially fraudulent behavior by the party who executes a document severing the joint tenancy, because absent the recordation requirement, the joint tenant could execute an undisclosed severance, deposit the severing instrument with a third person, and instruct the third person to produce the instrument if the severing joint tenant dies first so the severed half may pass to his or her heirs or devisees, but could also, if the other joint tenant dies first, suppress the severing instrument and take the other half of the property by survivorship.

Ordinarily, holding community property in joint tenancy form is mutually advantageous, during marriage as well as after dissolution. Once a dissolution proceeding is pending, however, it is illogical that the parties would envision or desire the operation of survivorship. An untimely death results in a windfall to the surviving spouse, a result neither party presumably intends or anticipates. Thus, once a dissolution petition has been filed, a spouse may well wish to sever any joint tenancies with the other spouse. 

Under the ATRO and Family Code § 2040, parties to pending dissolution proceedings are restrained from unilaterally eliminating a right of survivorship unless, in addition to the generally-applicable requirements for effectuating such a change, notice of the elimination is filed and served on the other spouse. 

The requirements to unilaterally eliminate a right of survivorship may be completed in any order. When the last remaining requirement is completed, the elimination of the right of survivorship takes effect.

Accordingly, when the Partition Complaint was filed and served on Lawrence in June 2016, Veronica’s severance of the joint tenancy became effective to eliminate the right of survivorship. When Veronica subsequently died, her 50 percent tenancy in common interest was her separate property and became part of her estate. 

LESSONS:

1.         Married persons need to carefully consider how they take title to real property.

2.         Property cannot be held both as community property and in either a joint tenancy or a tenancy in common at the same time. Accordingly, each spouse’s interest in a joint tenancy or a tenancy in common is his or her own separate property. 

3.         The rebuttable presumption that property acquired during marriage in joint form is community property does not apply if one spouse dies during a dissolution proceeding, but before there is a judgment of dissolution.

4.         Notice of the elimination should be filed and served on the other spouse to allow a spouse to unilaterally eliminate a right of survivorship.

5.         The requirements to unilaterally eliminate a right of survivorship may be completed in any order, and when the last remaining requirement is completed, the elimination of the right of survivorship takes effect.

6.         When in doubt regarding real property in a dissolution action, seek the written consent of the other spouse that is confirmed by court order, or make a request to the court for such an order.

Foreclosure Purchaser Must Perfect Title Before Serving 3-day Notice to Quit

What rights does a tenant have after a foreclosure of the premises?

Some answers were provided in the recent unanimous California Supreme Court decision in Dr. Leevill, LLC v. Westlake Health Care Center, a case that originated in Ventura County.

The Court decided a procedural question related to the timing of the notice that must precede an unlawful detainer action, where the action is not brought by a landlord but rather by a new owner that has acquired title to the property under a power of sale contained in a deed of trust. 

The Court concluded that the new owner must perfect title before serving the three-day written notice to quit, and the perfection of title, which includes recording the trustee's deed, is necessary before the new owner serves a three-day written notice to quit on the possessor of the property (i.e., tenant).  

Westlake Village Property, L.P. (Westlake Village) owned property in Thousand Oaks that it leased in 2002 to defendant Westlake Health Care Center (Westlake Health) so the latter could operate a skilled nursing facility on the property. 

Six years later, Westlake Village obtained a bank loan, executing a promissory note and a deed of trust on the property (the latter to secure the promissory note). After Westlake Village defaulted on the loan, the bank sold the promissory note and the deed of trust to Dr. Leevil, LLC (Dr. Leevil), the plaintiff in the action. Dr. Leevil then instituted a nonjudicial foreclosure and bought the property at a trustee's sale. 

The next day, Dr. Leevil served a three-day written notice to quit upon the property's tenant, Westlake Health, and five days after that, Dr. Leevil recorded title to the property. Westlake Health did not vacate the property, and Dr. Leevil initiated the unlawful detainer (UD) action 40 days after service of the written notice to quit.

Proceedings in the trial court ended in a judgment against Westlake Health, based on stipulated facts, with Westlake Health preserving its right to appeal various legal rulings of the court. On appeal, the Court of Appeal affirmed. 

Among other things, the Court of Appeal concluded that, under Code of Civil Procedure section 1161a, subdivision (b) (section 1161a(b)), an owner that acquires title to property under a power of sale contained in a deed of trust does notneed to perfect title before it serves a three-day written notice to quit on the tenant. Instead, the Court of Appeal concluded that the new owner may serve the notice to quit immediately after acquiring ownership, after which it may perfect title, so long as title is perfected before the new owner files a UD action. 

In reaching that conclusion, the Court of Appeal expressly disagreed with the Appellate Division of the San Diego County Superior Court, which addressed the same issue in U.S. Financial, L.P. v. McLitus.  Because Dr. Leevil perfected title before initiating the UD action, although not before serving the notice to quit, the Court of Appeal concluded that the action complied with section 1161a(b). 

Section 1161a(b) authorizes a summary proceeding to remove the possessor of real property in specified circumstances. It is structured to enumerate five cases  in which its substantive provision applies. Specifically, section 1161a(b) opens with the phrase "[i]n any of the following cases," then it sets forth its substantive provision (authorizing an unlawful detainer action to remove a person who holds over and continues in possession of real property after a three-day written notice to quit the property has been served), and then it enumerates five separate situations in which its substantive provision comes into play. 

Thus, the substantive provision of section 1161a(b) has no operative effect unless one of the five enumerated situations (what the statute calls "cases") is present. Put another way, section 1161a(b) contemplates that a property owner seeking to avail itself of the statute's remedy will begin by looking at the five enumerated "cases," considering whether the conditions of any of them are satisfied. Only when one of the cases is satisfied may the substantive provision of the statute be invoked.

Section 1161a(b)(3) is one of those "cases," and it is the only provision on which Dr. Leevil relied. Therefore, Dr. Leevil was not entitled to the remedy provided by the substantive provision of section 1161a(b) unless it first satisfied the conditions of section 1161a(b)(3). 

Section 1161a(b)(3) describes the following case: Where the property (A) has been sold in accordance with Section 2924 of the Civil Code, (B) under a power of sale contained in a deed of trust executed by the holdover possessor, or a person under whom such person claims, and (C) the title under the sale has been duly perfected.

There are two things to notice about the language of section 1161a(b)(3). First, the provision is in the past tense ("has been sold" and "has been duly perfected"), suggesting completion. 

Second, the sale of the property in question is only one of three distinct conditions set forth in section 1161a(b)(3), and the use of the conjunctive word "and" to connect the three conditions can only mean that all three conditions must be satisfied. In other words, all three conditions of section 1161a(b)(3), including perfection of title, were prerequisites to Dr. Leevil having any right to the remedy section 1161a(b) affords. 

In this context, perfection of title requires that the instrument of conveyance (the trustee's deed) be recorded pursuant to Government Code section 27280. Title is duly perfected when all steps have been taken to make it perfect, i.e., to convey to the purchaser that which he has purchased, valid and good beyond all reasonable doubt, which includes good record title, but is not limited to good record title, as between the parties to the transaction.

The court in a UD action has jurisdiction to determine the validity of such defenses. Because one of the conditions set forth in section 1161a(b)(3) is that title under the sale has been duly perfected, Dr. Leevil was not entitled to a section 1161a(b) remedy until it first perfected title, which required, among other things, that the instrument of sale (the trustee's deed) be recorded. 

The most natural reading of the statute required Dr. Leevil to perfect title before invoking section 1161a(b)  but it is undisputed that Dr. Leevil served the three-day written notice to quit before it perfected title to the property. Dr. Leevil, therefore, took the first step in the removal process authorized by section 1161a(b) before satisfying all of the prerequisite conditions.

The UD statutes are to be strictly construed and that relief not statutorily authorized may not be given due to the summary nature of the proceedings. The remedy of unlawful detainer is a summary proceeding to determine the right to possession of real property. Since it is purely statutory in nature, it is essential that a party seeking the remedy bring himself clearly within the statute. 

Because Dr. Leevil served the three-day notice to quit before it perfected title, it did not bring itself within the scope of section 1161a(b), as that provision is most naturally read, before taking the first step in the removal process that the statute authorizes. Its notice to quit was, therefore, premature and void, and its UD action, improper.

A bidder at a trustee's sale might present a check for the purchase price of the property, but whether the bank account on which the check is drawn contains sufficient funds to cover the amount of the check remains to be seen. Therefore, the trustee is authorized to withhold the deed until the check clears. But withholding the deed prevents the purchaser from recording the sale and perfecting its title. The subdivision, therefore, affords a 15-day period during which the deed may be recorded and the sale deemed perfected as of the original sale date. That way, the original sale date may be memorialized even if the deed is withheld pending confirmation of the purchaser's payment of the purchase price.

Moreover, the apparent policy aims of the statute support an inference that the Legislature intended that a new owner of real property should perfect title before serving a three-day written notice to quit on the possessor of the property. In cases where the possessor of the property is a tenant of the former owner, not the former owner itself, the tenant may not know whether the entity serving the notice to quit is a bona fide owner. Thus, section 1161a(b)'s requirement that the new owner perfect title before serving a notice to quit protects the interests of such a tenant.

LESSONS:

1.  In California, the general purpose of the recording statutes is to permit the recordation of any instrument that affects the title to or possession of real property, and to penalize the person who fails to take advantage of recording.

2.  The foreclosure purchaser (or successor in interest) of a deed of trust must perfect title before serving the three-day written notice to quit required by Code of Civil Procedure section 1161a(b) to support a UD action.