Goldman v. Goldman — 95 N.Y.2d 120

Majority

p. 120

[733 NE2d 200, 711 NYS2d 128]

Debra Goldman, Respondent, v Scott Goldman, Appellant, and Phyllis Gelman, Intervenor-Respondent.

Argued May 2, 2000;

decided June 13, 2000

p. 121

POINTS OF COUNSEL

Davis and Davis, New City (Alden H. Wolfe of counsel), for appellant.

The mortgage was extinguished as a matter of law and the trial court properly ordered the mortgage discharged as of record. (Kline v Pane, 1 NY2d 15 ; V.R.W., Inc. v Klein, 68 NY2d 560 ; Kahn v Kahn, 43 NY2d 203 ; McRea v McRea, 124 AD2d 400 ; Robins v Robins, 139 AD2d 718 ; Money Store/ Empire State v Lenke, 151 AD2d 256 .)

Gelman & Feinberg, New York City (Lindsay Nicely Feinberg of counsel), for intervenor-respondent.

I. This Court should affirm the order of the Court below because a judgment of divorce does not extinguish a preexisting mortgage. (V.R.W., Inc. v Klein, 68 NY2d 560 ; Schwab v Krauss, 165 AD2d 214 ; Hohenrath v Wallach, 37 AD2d 248 , 30 NY2d 674 ; Money Store/Empire State v Lenke, 151 AD2d 256 .) II. This Court should affirm the judgment below because the trial court lacked power to discharge the mortgage on a postjudgment motion and appellant’s motion was barred by res judicata. (People v Carter, 63 NY2d 530 ; Corr v Hoffman, 256 NY 254 ; Herpe v Herpe, 225 NY 323 ; Pignatelli v Pignatelli, 139 AD2d 448 ; Shamsee v Shamsee, 77 AD2d 618 ; Reinfurt v Reinfurt, 67 AD2d 968 ; Weichold v Weichold, 54 AD2d 1015 ; Baum v Baum, 40 AD2d 1000 ; Roth v Roth, 45 Misc 2d 150 ; Foster v Foster, 99 AD2d 284 .)

OPINION OF THE COURT

At issue on this appeal is whether a mortgage taken on one spouse’s interest in a tenancy by the entirety while a divorce action was pending survived after entry of a judgment of divorce and award of the property to the other spouse. We hold that it did.

On October 24, 1985, plaintiff Debra Goldman and her husband defendant Scott Goldman acquired a house as tenants by the entirety. In December 1990, plaintiff commenced an action for divorce. After commencement of the action, but before entry of judgment, plaintiff gave her attorney, Phyllis Gelman, a $50,000 mortgage on the marital property as security for Gelman’s legal services, without defendant’s knowledge or consent. Gelman duly recorded the mortgage on August 13, 1991.

The Goldmans were ultimately divorced by a judgment entered in October 1994, which awarded defendant exclusive

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title to the marital home. Although defendant had learned of Gelman’s mortgage shortly after it was recorded in 1991, he failed to notify the trial court of its existence while the divorce action was pending, and the court made no special provision for it when equitably distributing the marital property.

Defendant subsequently moved to discharge Gelman’s mortgage on the property, and Gelman moved for leave to intervene and in opposition to defendant’s motion to discharge her mortgage. Supreme Court granted defendant’s motion to discharge Gelman’s mortgage, concluding that the mortgage interest had been extinguished by the judgment of divorce. The court also granted Gelman’s motion for leave to intervene and stayed the discharge of the mortgage pending appeal. The Appellate Division reversed, over the dissent of two Justices. Defendant now appeals to this Court as of right. We affirm.

A tenancy by the entirety is a form of real property ownership available only to parties married at the time of the conveyance (Kahn v Kahn, 43 NY2d 203 , 207). As tenants by the entirety, both spouses enjoy an equal right to possession of and profits yielded by the property (Neilitz v Neilitz, 307 NY 882 ). Additionally, “each tenant may sell, mortgage or otherwise encumber his or her rights in the property, subject to the continuing rights of the other” (V.R.W., Inc. v Klein, 68 NY2d 560 , 565). Once the legal relationship between husband and wife is judicially altered through divorce, annulment or legal separation, the tenancy by the entirety converts to a tenancy in common (Kahn v Kahn, 43 NY2d, supra, at 207).

Although plaintiff here conveyed the mortgage after filing for divorce, she nevertheless continued to hold an interest in the property as a tenant by the entirety until the final divorce decree (id., at 207). Thus, plaintiff was legally entitled to mortgage her interest in the tenancy during the pending divorce action. In turn, Gelman acquired a contingent interest in all the rights plaintiff possessed at the time of conveyance (V.R.W., Inc. v Klein, 68 NY2d, supra, at 566; Kline v Pane, 1 NY2d 15 , 19). Once the trial court rendered a final judgment of divorce and plaintiff’s interest in the premises transmuted into a tenancy in common, Gelman retained an interest in the tenancy in common (V.R.W., Inc. v Klein, supra, at 566 ). Accordingly, while the distributive award divested plaintiff of her interest in the property, Gelman’s bundle of rights, acquired before the final judgment of divorce, was not impaired.

We reject defendant’s argument that reinstating Gelman’s mortgage is inequitable and would frustrate the distributive

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award of the trial court. Defendant concedes that he knew of the mortgage shortly after it was recorded in 1991 but failed to call it to the trial court’s attention. Had defendant done so, the trial court could have considered the mortgage in fashioning an equitable distribution award. However, the trial court is not authorized under the Domestic Relations Law to defeat the secured interest of a third-party mortgagee in marital property conveyed before a final judgment of divorce (see, Domestic Relations Law § 234; Kahn v Kahn, 43 NY2d, supra, at 210 [“section 234 was intended only as a procedural device to permit a court in a marital action to determine questions of possession and title * * * and was not intended to alter existing substantive property law principles”]; see also, Stewart v Stewart, 118 AD2d 455 , 458).

Finally, we note that 22 NYCRR 1400.5, effective November 1993, now requires attorneys to seek court approval and to notify the other spouse before obtaining a security interest in marital property (Procedure for Attorneys in Domestic Relations Matters [22 NYCRR] 1400.5).

Accordingly, the order of the Appellate Division should be affirmed, with costs.

Chief Judge Kaye and Judges Bellacosa, Levine, Ciparick, Wesley and Rosenblatt concur.

Order affirmed, with costs.

Cases cited

Kline v. Pane 1 NY2d 15 N.Y. 1956-03-15 at 19 p. 121, p. 122
V.R.W., Inc. v. Klein 68 NY2d 560 N.Y. 1986-12-19 at 565 p. 121, p. 122
Kahn v. Kahn 43 NY2d 203 N.Y. 1977-11-22 at 207 p. 121, p. 122
McCrea v. McCrea 124 AD2d 400 N.Y. App. Div. 1986-10-30 p. 121
Money Store/Empire State, Inc. v. Lenke 151 AD2d 256 N.Y. App. Div. 1989-06-06 p. 121
Schwab v. Krauss 165 AD2d 214 N.Y. App. Div. 1991-03-07 p. 121
Hohenrath v. Wallach 37 AD2d 248 N.Y. App. Div. 1971-07-23 p. 121
People v. Carter 63 NY2d 530 N.Y. 1984-11-27 p. 121
Corr v. Hoffman 256 NY 254 N.Y. 1931-05-12 p. 121
Herpe v. Herpe 225 NY 323 N.Y. 1919-01-14 p. 121
Pignatelli v. Pignatelli 139 AD2d 448 N.Y. App. Div. 1988-04-21 p. 121
Reinfurt v. Reinfurt 67 AD2d 968 N.Y. App. Div. 1979-02-20 p. 121
Roth v. Roth 45 Misc 2d 150 N.Y. Sup. Ct. 1964-12-16 p. 121
Foster v. Foster 99 AD2d 284 N.Y. App. Div. 1984-02-14 p. 121
Neilitz v. Neilitz 307 NY 882 N.Y. 1954-11-18 p. 122
Stewart v. Stewart 118 AD2d 455 N.Y. App. Div. 1986-03-13 at 458 p. 123

Statutes and regulations cited

Domestic Relations Law p. 123