An Ironic Twist on Community Property
Gloria J. Lezine never got in over her head when it came to family finances. She worked hard, paid her bills on time and tried to avoid credit, aside from the mortgage on her Ladera Heights home. Her prudence is of little help to her now. Lezine was an unwitting victim of her ex-husband, who seven years ago mortgaged their home without her consent and then defaulted on nearly $400,000 in loans.
The villainy was clear. California even has a law specifically designed to protect innocent spouses from losing their homes when the homes are mortgaged without their consent.
Nonetheless, in a unanimous decision two months ago, the state Supreme Court ruled that the law Lezine was counting on does not safeguard her house--despite the fact that her husband forged her name to get the loans.
The case of Lezine vs. Security Pacific Financial Services is a lesson in how California’s vaunted “community property” laws sometimes collide with a common sense understanding of right and wrong. In this case, the court decided, the creditor’s rights easily overrode those of the betrayed wife.
That leaves Lezine panicked about where she will live, the legal community arguing about the court’s verdict and a state legislator scrambling to pass a new law before the same fate can befall somebody else.
“I thought that we had a statute that protected spouses against such overwhelming situations,” said Lawrence D. Levine, the Encino attorney who fought Lezine’s case long after his client’s ability to pay him ran out. “I found out that wasn’t true; the creditor still prevails. I don’t think most spouses understand the baggage they inherit.”
Lezine, a veteran Los Angeles school district teacher whose plans to retire in a couple of years have been scuttled, says: “It isn’t right. This just isn’t right.”
The way Lezine tells it, this should never have happened to her: A woman who spent her life living frugally, often working two jobs, should not wind up worrying about whether two banks are going to force her to sell her home.
“My father taught us to always work for what you want,” she said. “Stick to it and you will accomplish. I didn’t know anything else to do. I worked at the marriage and I worked to make a living.”
She and Henry Lezine took out a mortgage in 1974 on a beige stucco, four-bedroom, four-bath house on South Halm Avenue in Ladera Heights, an upper-middle-class community east of Culver City.
In 1989, Henry Lezine wanted to expand his automotive repair business and needed cash, his ex-wife said. Together, they decided to take out a $27,000 mortgage on their home so her husband could buy a lot adjacent to the USC-area garage, she said.
Within two months, Henry wanted more money, Gloria said. She said she refused to even discuss the matter, afraid of incurring more debt.
Henry Lezine declined to be interviewed.
His ex-wife said she never learned why her husband of more than 30 years wanted the money. She said he quit talking about his financial needs, and she assumed he had finally seen the error of his borrowing ways.
But according to court documents, Henry simply found a way to go behind his wife’s back and still get the cash.
Since 1975, California law has decreed that both spouses must agree on any transaction involving their real estate. Henry Lezine evaded that requirement, the Supreme Court would find, by forging his wife’s signature on a document stating that she had given up her interest in the house. (Such a declaration is commonly made when a home is awarded to one spouse following a divorce.) Henry then had the document falsely notarized, court documents show.
On the same day the new deed was recorded in January 1990, Henry borrowed an additional $240,000 against his home.
Then, in April, he went to Security Pacific in Costa Mesa and obtained a $100,000 line of credit, again using the house as security. He eventually ran up a tab of almost $88,000 on that loan.
The Supreme Court eventually found that within the state’s Family Code, the law dealing with a couple’s real estate protected Gloria Lezine’s house from being used as security for those loans, because she did not consent to them. But the court also ruled that another part of the Family Code, regarding a couple’s responsibility to creditors, allowed the lenders to go after her home in a different way.
Grace Blumberg, a professor at UCLA Law School and an expert in California marital and family law, said that although the high court’s decision was technically accurate, its reasoning failed to reconcile the contradictory effect the two laws had in this case.
The ruling “makes sense if you don’t look at the facts and think about it,” she said. “I would call it a troubling case.”
A bolder court, Blumberg said, could have decided that the lenders’ actions--while seemingly legitimate--were nothing more than an end run around a law that seems to offer an innocent spouse some protection from losing a home.
The court might also have found that the lenders shared part of the responsibility for Gloria Lezine’s predicament because of their own lack of oversight, Blumberg suggested. She worried that the court’s ruling might indirectly encourage more carelessness, sending a signal to lenders that they could attach a home regardless of whether a borrower had any right to offer it as collateral in the first place.
Security Pacific’s lawyer, Woodland Hills attorney Francis J. “Skip” Cunningham III, said the ruling was proper under laws created to safeguard the business environment. Lawmakers recognized that loans are a boon to both individuals and companies, he said. To encourage lenders to offer their funds to as many people as possible, the Legislature wanted to grant creditors every reasonable assurance that they would be repaid, he said.
Cunningham contends that Security Pacific was as much a dupe of Henry Lezine as Gloria was.
“The court had to deal with how we apply the law, in effect, to two victims,” he said. “The law was absolutely correctly applied.”
A Devastating Delay
Gloria Lezine found out about her husband’s betrayal when she got to the daily mail before he did one late spring day in 1990 and found documents from one of the lenders.
She ordered her husband to move out of the house almost immediately, she said, and filed two lawsuits--one for divorce, the other to revoke the fraudulent deed and cancel the claims on her house.
A family court dissolved the Lezine marriage 13 months later, but it waited a year to divide the couple’s community property.
That delay would prove to be devastating. Had the court immediately awarded the house to Gloria, Security Pacific would have had no way to take her home, the Supreme Court later said.
Gloria received another favorable ruling in March 1992, when a trial court ruled that because Henry had forged his wife’s name to obtain the two loans, state law allowed Gloria to remove the house as security for those loans.
But that did not stave off the lenders.
Determined to collect the money Henry owed them, they filed judgment liens against the home that he and Gloria Lezine still jointly owned.
Only later would the family court handling the Lezines’ divorce award the house to Gloria and the loan debts to Henry. But the liens awarded to Security Pacific in the trial court stayed on the house.
Gloria Lezine discovered her newest dilemma in December 1992, when she tried to refinance her home. Attorney Levine returned to court, arguing that the creditors should not be able to attach a house for nonpayment from a woman who had been defrauded.
The trial court agreed, but an appellate court sided with the creditors. When Gloria Lezine won ownership of the house in her divorce, it said, she also inherited the judgment liens.
The appellate court cited one of the foundations for California’s rules of community property: All of a couple’s marital assets can be used to pay the debts of either spouse, regardless of consent.
“It means you’re very much subject to your spouse’s behavior,” UCLA’s Blumberg said.
The Supreme Court agreed.
“We recognize that the result we reach may appear inequitable in some respects,” wrote Chief Justice Ronald M. George. “The result we reach nevertheless is dictated by existing legislation protecting the rights of creditors.”
The best Gloria Lezine could do, the high court said, was ask a divorce court to reexamine the allocation of the couple’s community property and award her more of the couple’s assets. Unfortunately, she said later, the house was most of what they had.
“The court makes a distinction which is rational and logical, but it is not a distinction that takes into account the reality of lending practices,” Blumberg said. “In the real world, this guy never would have been able to borrow all this money but for the improper security.”
Alison Grey Anderson, a professor of both community property and business law at UCLA, added: “Creditors have quite good protection because they have good, organized lobbyists--unlike husbands and wives.”
With the Supreme Court ruling, the legal fight was over for Gloria Lezine and her 17-year-old granddaughter, who shares her house.
The contest for a legal legacy, however, was just beginning.
New Law Sought
Assemblywoman Martha M. Escutia (D-Huntington Park), a Georgetown University-trained attorney and the newly appointed chairwoman of the Assembly’s Judiciary Committee, vowed to draft legislation strengthening spousal protection against creditors in cases like Lezine’s.
“You don’t need to be a lawyer to realize that what happened to Mrs. Lezine is unfair,” Escutia said. “The justices should have realized that the law should never be used to shield fraudulent transactions. I don’t think that’s the purpose of community property law.”
Herma Hill Kay, a professor of marital law and the dean of UC Berkeley’s law school, is among several influential members of the state’s legal community who are urging caution in changing the law.
Kay noted that the same laws that allow Security Pacific to go after the Lezines’ jointly owned money and property were originally drafted to give women the same financial standing as their husbands. Before 1975, only husbands were recognized as managers of a couple’s finances; only a husband could obtain a home loan for a married couple.
By granting women the right to make decisions regarding community property, the Legislature for the first time gave women the ability to secure a loan with family holdings--allowing women the same access to credit as men and opening up the business world to wives as well as husbands.
But with management comes liability. If either partner in a marriage makes decisions, both partners pay for them.
“The power to manage needs to be upheld and vindicated,” Kay said. “The only way you can do that is to say the creditor is going to get repaid.”
In the aftermath of the court’s ruling, professor Anderson envisions an exception in cases such as Lezine’s.
If a court determined that both spouses did not consent to a financial transaction involving a home, the lender would be barred from placing a judgment lien on that same piece of property, the exemption might say.
Banks would protect themselves from such losses the same way they already guard against other frauds, Anderson said. They could examine home loans with the same care they give to cashing a large check, since if a check is forged, it is the banks who must absorb the loss, she said.
“The cost of doing an additional check [on mortgage loans] would not be very great, whereas the loss of a family home has a pretty significant impact on somebody,” she said.
Assemblywoman Escutia said through a spokeswoman that she will have a proposal for a new law ready by the end of the month.
That is of little comfort to Gloria Lezine, who said she could not pay back anything close to the hundreds of thousands of dollars she owes, even if she spent every hour outside school on her only other money-making proposition, private tutoring.
When she prays now, she said, it is often for strength. God will help her find a way to keep her home no matter how unlikely that prospect seems, she believes.
“I’ve never lost nothing,” Gloria Lezine said. “I will overcome. That’s the way I think about it.”
