Jack Nelson Jones Professional Association
March 20-26, 2017
Farrow v. Fuller, 2017 Ark. App. 144 (March 8, 2017)
This appeal comes from the Carroll County Circuit Court, Western District, honorable Scott Jackson presiding. This case concerns conversion of property held as joint tenants with right of survivorship to a tenancy in common.
Laurie Farrow and Richard Bloch were romantic partners for thirty-five years, but never married. Their relationship ended in 2012, and litigation was initiated regarding the operation of a restaurant the parties owned, Autumn Breeze, and the division of assets. The litigation resulted in a settlement agreement. Bloch married Sheila Fuller on January 1, 2015, and on March 6, 2015, Bloch died intestate. Fuller was appointed as the personal representative of his estate.
The settlement agreement stated that Bloch and Farrow remained joint owners of the house and restaurant property. They agreed that Bloch would be entitled to sole possession of the house. Bloch was to pay Farrow $30,000 as consideration for Farrow’s shares in the restaurant corporation, Autumn Breeze, Inc., and Farrow agreed to vacate the house fifty-six days after receipt of this payment. Bloch was to make the mortgage payments on the house, and the parties were to continue to list the house for sale. Farrow was entitled to one-half of the net profits only if the house sold for an amount greater than $400,000. The agreement provided that Bloch would make yearly attempts to refinance the mortgage in his sole name beginning in May 2014. If Bloch was successful in refinancing the mortgage, Farrow would release her interest in the property via a quitclaim deed and would not be entitled to any profits of a sale.
Regarding the restaurant property, the settlement agreement provided that Bloch would have sole and exclusive use of the real estate in exchange for the payment of one dollar per year as rent. The agreement stated that on or before May 1, 2023, Bloch would list the property for sale for the sum of not less than $335,000. Upon the sale of the property, all profits after costs of the sale were to be equally divided between the parties.
Farrow filed a petition to have the restaurant property and a house removed from the estate, arguing that the two properties were jointly purchased by her and Bloch with the deeds naming them “joint tenants with the right of survivorship.” Farrow claimed that the settlement agreement did not change the ownership of the properties, and thus, they passed to her at Bloch’s death. With respect to the house, the trial court found that based upon the mortgage indebtedness and the estate’s inability to assume any responsibility for the mortgage, Farrow’s petition to remove the real property from the estate should be granted. With respect to the restaurant property, the trial court found that the property was not mortgaged and the intent of the Settlement Agreement was clear that Farrow and Bloch would share an equal interest in the division of this parcel, therefore Farrow’s petition to remove the real property was denied. To carry out the intent of this order, the ownership interest in the warranty deed to the property was converted to a tenancy in common. Farrow appealed from this order.
On appeal, Farrow argued that the trial court erred in converting a joint tenancy to a tenancy in common and in disposing of two identically titled properties in different ways when title to both properties passed to her as the surviving joint tenant. The Court explained that a joint tenancy with right of survivorship may be created in real property by conveyance to two or more persons, regardless of their relationship to each other. Both deeds at issue here conveyed the properties to Bloch and Farrow “as joint tenants with right of survivorship.” When a joint tenant dies and is survived by other joint tenants, title to the real estate passes by operation of law to the survivor or survivors. The Court noted that title to property held in joint tenancy takes precedence over the claim of a devisee, legatee, or heir. The Court also pointed out that it has held before that it was error to reform a deed to reflect ownership of property as tenants in common where the deed unambiguously created a joint tenancy with right of survivorship.
Farrow contended that the settlement agreement did not convert ownership of the properties to a tenancy in common; arguing that the plain language of the agreement did nothing to convert or terminate the joint tenancy with right of survivorship but instead anticipated the joint tenancy remaining in place until the properties were refinanced or sold. Farrow contended that the terms of the agreement and the fact that no new deeds had been executed, despite the fact that both parties were represented by attorneys, strongly indicated that no change in ownership was intended until later.
The Court noted that the issue of whether a settlement agreement changes a joint tenancy with right of survivorship into a tenancy in common turns on the construction of the language in the settlement agreement. The Court compared two different scenarios. First, where parties declare they will sell a piece of property at some future date and divide the proceeds, the Court said is not even a roundabout way of saying they will also become tenants in common at once. The language is perfectly consistent with a desire to leave the estate untouched until a sale should be completed. Second, where a settlement agreement demonstrates an intent to terminate all property rights between the parties immediately with the signing of the agreement, the Court said then it would be appropriate to convert, consistent with the parties’ intentions, the joint tenancy with right of survivorship to a tenancy in common at once.
The language in the agreement between Bloch and Farrow was much more consistent with the first scenario. Bloch and Farrow, who were represented by counsel, agreed to sell their property at some point in the future. Their agreement did not state an intent to dispose of all property rights upon execution of the agreement, and they did not execute deeds to reflect a change in their ownership. Therefore, the Court held that it was clearly erroneous for the trial court to convert Farrow’s interest into a tenancy in common. Title to both properties vested solely in Farrow upon Bloch’s death, and the estate had no interest in the properties. Accordingly, the Court affirmed the trial court’s decision to remove the house from the estate, and reversed the trial court’s decision to convert the restaurant property to a tenancy in common. Affirmed in part and reversed and remanded in part.