Deeds of Trust and Community Property

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A deed of trust beneficiary usually feels pretty confident with the validity of the deed as long as it is signed by an owner of the property.

But when the property constitutes community property of a married couple, is the signature of one spouse enough?

A recently published opinion by California’s Second Appellate District — Trenk v. Soheili — addresses the issue and provides a tough learning lesson.

Facts: deed of trust encumbering community property signed only by husband

Morteza Sohyly sued an attorney, Joseph Trenk, for malpractice.  The case settled in 2003, with Joseph agreeing to pay $100,000.  The obligation was reflected in a note secured by a deed of trust recorded against Joseph’s residence, where he and his wife Dinah had lived for thirty years. Sohyly’s sister, Maryam Soheili, was designated as the beneficiary on the deed of trust.

Critically, only Joseph signed the deed of trust; Dinah did not.  When they acquired the property, Joseph and Dinah took title as “joint tenants.”

After Joseph made a few initial payments on the note, he stopped paying and Morteza and Maryam recorded a notice of default and election to sell under the deed of trust.

Before the foreclosure sale, the Trenks sued to quiet title and cancel the deed of trust.

Trial court: deed of trust cancelled

The trial court cancelled the deed of trust, accepting the Trenks’ argument that enforcement of the deed of trust was barred by the statute of limitations.

Morteza and Maryam appealed.

Court of Appeal: affirmed; deed of trust invalid because not signed by both husband and wife

The Court of Appeal rejected the trial court’s reasoning, but affirmed the judgment on different grounds.  The court held that the Trenks’ property was presumptively community property, and the deed of trust was invalid because it was not signed by Dinah.

Under Family Law Code section 1102,

both spouses, either personally or by a duly authorized agent, are required to join in executing an instrument by which … community real property or an interest therein is … encumbered.

Also, Family Law Code section 760 establishes a presumption that all property acquired by a married person during the marriage while domiciled in California is community property.

Under a recent ruling by the California Supreme Court (In re Brace), taking title as “joint tenants” is not sufficient to show that the spouses intended to convert community property into separate property.

As described by a concurring opinion in the Brace case, “the presumption, … that property acquired during the marriage is community, is perhaps the most fundamental principle of California’s community property law, reflecting the general theory … that the husband and wife form a sort of partnership, and that property acquired during the marriage by the labor or skill of either belongs to both.”

Based on those legal principles, the court held that there was insufficient evidence to rebut the presumption that the Trenks held their residence as community property, and because Dinah did not sign the deed of trust, it was voidable and properly cancelled by the trial court.

Lesson

To be valid, a deed of trust on real property held as community property must be signed by both spouses.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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