1. Explain what happened with the joint tenancy with right of survivorship.
2. Who owns what now?
3. Does Countrywide have a mortgage?
4. Are Troy and Judy liable for the mortgage? Is their property subject to the mortgage

Given Case:

CASE BRIEF: Countrywide Home Loans, Inc. v. Reed

725 S.E.2d 667 (N.C. App. 2012)

FACTS: On March 25, 2001, Margaret D. Smith (Mrs. Smith) and Mrs. Smith's daughter and son-in-law, Judy and Troy Reed (Defendants), executed an offer to purchase and contract to buy a home in Mooresville, North Carolina. Countrywide Home Loans, Inc. (Plaintiff) agreed to finance the purchase of the home with a loan to Mrs. Smith of $117,900.00. The general warranty deed named the grantees as "Margaret D. Smith and Troy D. Reed and wife, Judy C. Reed Joint Tenants with rights of survivorship[.]"

The deed of trust to secure Countrywide's loan and promissory note had Mrs. Smith's name only and was executed on May 1, 2001 by Mrs. Reed, as attorney in fact for Mrs. Smith. Neither Mr. nor Mrs. Reed signed the deed of trust or promissory note as individuals.

The Reeds lived together in the home with Mrs. Smith and cared for Mrs. Smith, so that Mrs. Smith did not have to go to a nursing home.

By October 19, 2001, the three had defaulted on the loan and Countrywide began foreclosure proceedings. The whole process rested in limbo for some time. On February 7, 2004, Mrs. Smith passed away.

After Mrs. Smith's death, the Reeds negotiated a loan modification agreement with Countrywide. The agreement "amend[ed] and supplement[ed] (1) the Mortgage, Deed of Trust, or Deed to Secure Debt (the 'Security Instrument')." The Reeds signed the agreement on July 6, 2004.

The Reeds made payments on the loan to Countrywide until approximately August or September 2004. The Reeds did not make any additional payments after 2004. On November 16, 2004, Countrywide gave the Reeds the opportunity to cure the default by paying or seeking a loan modification.

In 2006, the Reeds requested a loan modification. The modification was denied because Mr. Reed failed to provide proof of income.

On January 22, 2009, Countrywide filed a complaint against the Reeds asking the court to reform the deed of trust to reflect the intent of the parties by making the Reeds liable on the loan (obligors).

The trial court found that Mrs. Smith's portion of the property was subject to the deed of trust, but the Reeds were tenants by entirety whose interest in the property was not subject to the deed of trust. After Mrs. Smith's death, the Reeds owned her portion of the property subject to the deed of trust. The court also held that the loan modification did not encumber the Reeds' share of the property. The Reeds appealed.

ISSUE: What type of interest did Mrs. Smith have and with her death, what type of interest did the Reeds have and what were Countrywide's rights?

DECISION: The court made the following decisions:

The deed of trust severed the joint tenancy.

Troy D. Reed and Judy C. Reed, as Tenants by Entireties, own a one-half undivided interest in the subject real property which is not encumbered by the deed of trust to the benefit of Plaintiff.

The deed of trust executed by Mrs. Smith only encumbered Mrs. Smith's interest in the propertythe portion of the property owned by Mrs. Smith as a tenant in common after the severance of the joint tenancy by the filing of the deed of trust.

Smith's interest in the property converted to a tenancy in common, which has no right of survivorship.

Troy D. Reed and wife, Judy Reed, do not own the real property in fee simple absolute.