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Capital Finance Company of Delaware Valley, Inc. v. Asterbadi

A-0950-08T1 (N.J. Super. App. Div. 2009) (Unpublished)

TENANCIES BY THE ENTIRETY; LIENS — Even though a property does not name a married couple as husband and wife, they still acquire the subject property as tenants by the entireties and a creditor of one party alone, upon foreclosure of that party’s interest, becomes a tenant in common with the rights of survivorship where survivorship is measured against the respective lives of the wife and husband.

A husband and wife obtained title to property, but their deed did not name them as husband and wife. Many years later, a judgment was entered against the husband only. At a sheriff’s sale, the husband’s interest in the property was foreclosed upon. The holder of this interest then assigned its interest to another party. Thereafter, the two “tenants” who held title to the single family residence – the wife, and the holder of the husband’s interest after the foreclosure of the husband’s interest at the sheriff’s sale – had a dispute. The debtor’s wife retained possession of the property and excluded the other party. The excluded party sued seeking the right to inspect the property and for an accounting of the property’s income and expenses.

The Chancery Division ruled that the husband and wife had acquired title as tenants by the entirety, and that the subsequent acquisition of the husband’s interest by a third party did not impair her right of survivorship. It also ruled that the two “tenants,” the debtor’s wife and the ousted party, possessed the property as tenants in common with a right of survivorship, measured against the respective lives of the wife and her husband. Because of the survivorship rights, the Court refused to partition the property. However, the Court, recognizing the ousted party did not have use or possession of the property, granted the ousted party the right to an accounting from the date it acquired its interest in the property. In so doing, it directed the parties to establish a fair rental value for the property to determine the basis for the wife’s financial responsibilities to the ousted party. It further directed the wife to account for payments of real estate taxes, municipal assessments (if any) and insurance premiums on the property. It also granted the ousted party the right to inspect the premises on reasonable notice to the wife. The Court also denied the wife’s request that the ousted party be responsible for a first mortgage on the property since she and her husband were individual obligors and she could seek contribution for one half of those payments from her husband. It did not view the mortgage as a purchase money mortgage because it concluded that the husband and wife had used the mortgage proceeds for their personal use and not to protect their equity in the property. Both parties appealed.

The Appellate Division agreed with the lower court that the wife had effectively ousted the creditor, but it reversed the lower court’s finding that the ousted party was not responsible for payment of the first mortgage. It determined that newly submitted evidence, if considered by the lower court, would have led it to conclude that the husband and wife used the money from that loan to preserve the property, rather than to take equity out of the proeprty. The Court ruled that since an ouster occurred this mortgage should have been an appropriate credit to the wife in calculating any amounts due to the ousted party. Thus, it held that the party in possession (here, the wfie) was accountable to the ousted party (here, the creditor) for “one-half of the imputed rental value of the [p]roperty, subject, however, to an offset for any payments made to preserve the property, including payments made on both mortgages, as well as taxes, insurance, and repairs.” The Court remanded to the lower court to permit a new determination in conformity with its decision.

On remand, the lower court held that each party had to confer with the other upon request, but not more frequently than once every twenty-four months. The court also held that, if possible, the parties had to agree from time to time on the establishment of an appropriate imputed rental value associated with the exclusive occupancy of the party in possession of the premises. Without further explanation, it ruled that if the parties could not agree on an appropriate imputed rental value, they would have to submit the issue to binding arbitration, with the cost to be shared equally by the parties. If the parties could not resolve disputes over credits for principal and interest or other expenses, they were also required to submit these issues to binding arbitration, with the costs to be borne by the non-prevailing party. The wife appealed, claiming that the lower court did not have authority to compel the parties, who had no agreement to arbitrate, to submit their disputes to binding arbitration.

The Appellate Division reversed, agreeing with the wife that a court may not order arbitration sua sponte or on the request of one party absent a statute or agreement of the parties compelling resolution of the dispute in that matter. Accordingly, it ruled that the lower court exceeded its authority when it ordered arbitration in this case. It found that unresolved disputes between the co-tenants could be presented to the Chancery Division by appropriate application of either party.

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