The Ohio legal principle of “first in time, first in right” applies to mortgage liens as well as dower interest as indicated in a recent ruling in the Northern District of Ohio(1).  The bankruptcy court states that, “if a couple is married before property is mortgaged, the dower interest has priority over the mortgage lien.”  Usually, dower interest is not an issue when it comes to the creditor holding the mortgage, as the non-title holding spouse signs the mortgage to release dower interest at the same time the title holding spouse is executing the mortgage.  The release of dower interest acts as a subordination document rendering the dower interest secondary to the mortgage lien. 

If the dower interest is acquired before the mortgage lien and there is no signature releasing it, the dower interest will hold priority. Without a dower interest release, the dower interest is entitled to priority in proceeds from the sale of the property.  From a foreclosure perspective, the dower interest will receive payment after taxes are paid and before the creditor holding the mortgage claim is paid.  From a bankruptcy perspective, the trustee will want to object to any motion for relief from the automatic stay and for abandonment in order retain the dower interest on behalf of the bankruptcy estate.

The bankruptcy court in the Northern District of Ohio ruled that the value of the dower interest must be calculated on the full fair market value of the property.  In this particular case, the bankruptcy court noted that the dower interest value was significant and could provide funds for distribution to unsecured creditors.  The bankruptcy court went further to deny the creditor’s request for the trustee to abandon his interest in the property due to the significant dower interest value.

What does this ruling mean for creditors?

1. Trustees will be scrutinizing dower rights to see if there is any value, if applicable.  Such scrutiny and objection will result in a delay from receiving relief from stay and abandonment if you hold a mortgage claim on the property, or a general delay in administration of the estate if you are a general creditor.

2. Motion for relief from stay and abandonment will be denied or only relief from stay will be granted, providing a drastic delay in foreclosure proceedings as certain common pleas courts require both relief from stay and abandonment before a foreclosure can take place.

3. Creditors should review their documentation to make sure procedures are in place to deal with those states that have dower interests.

(1) In re Rosario, Case no. 08-14392 (N.D. Ohio March 9, 2009)