When the federal government forfeits a North Carolina house held in tenancy by the entirety because one spouse used it for crime, can the federal court use the North Carolina RICO Act's automatic conversion provision to forfeit only that spouse's half?

Plain-English summary

The U.S. Attorney for the Western District of North Carolina had at least three pending federal forfeiture actions where the targeted real property was owned by a husband and wife as tenants by the entirety, but only one spouse appeared to have used the property in violation of federal law. The federal forfeiture statutes would let the government reach the offending spouse's interest, but North Carolina common law made that difficult. The U.S. Attorney asked the AG's office how the North Carolina RICO Act's entirety-conversion provision interacted with federal forfeiture.

Senior Deputy AG Edwin M. Speas, Jr. and Special Deputy AG W. Dale Talbert started with the common-law background. Tenancy by the entirety is a peculiar form of co-ownership that exists only between husband and wife, with right of survivorship. The fiction is that the husband and wife are one legal entity, with each spouse seized of the entire estate and neither spouse having a separate or undivided interest. North Carolina applies the entirety only to real property, not to personal property (Turlington v. Lucas, Lovel v. Insurance Co., Bowling v. Bowling). When entirety property is voluntarily sold or transferred, the resulting cash proceeds become personalty held in tenancy in common (Shores v. Rabon, Honeycutt v. Citizens National Bank, Wilson v. Ervin). But when entirety property is sold or transferred involuntarily (foreclosure, condemnation), the cash proceeds retain the characteristics of entirety property (In re Foreclosure of Deed of Trust, Highway Commission v. Myers).

The legal consequence of those rules was that, at common law, entirety property could not be charged with debts or judgments incurred by only one spouse. A creditor of just the husband or just the wife was stuck: until one spouse died, the other spouse's protection of the entirety blocked any execution against the property (North Carolina National Bank v. Corbett, Air Conditioning Company v. Douglas, Davis v. Bass). That common-law rule was a problem for forfeiture prosecutors when one spouse was an innocent party.

The North Carolina General Assembly addressed the problem in the RICO Act. G.S. § 75D-5(a) made all property "used or intended to be used in the course of, derived from or realized through" racketeering activity subject to forfeiture. "Racketeering activity" under § 75D-3(c)(2) incorporated by reference 18 U.S.C. § 1961(1)'s federal definition, so the state RICO Act captured violations of federal racketeering predicates.

The key innocent-spouse fix was in § 75D-8(a)(1): when entirety property was being forfeited and one spouse was innocent, "upon entry of a final judgement of forfeiture of entirety property, the judgement operates to convert the entirety to a tenancy in common, and only the one-half undivided interest of the offending spouse shall be forfeited." That language did three things at once. It abrogated the common-law rule against charging entirety property with one-spouse debts. It made the conversion automatic on entry of judgment, with no separate action needed. And it preserved the innocent spouse's half-interest.

Speas and Talbert read the statute's effect as substituting "a statutory requirement that property forfeited under the RICO Act or the proceeds from its sale automatically be converted to a tenancy in common from which the forfeiture judgment may be satisfied" for the prior common-law rule that involuntarily transferred entirety property kept its entirety character. The supplanted rule covered both the property itself and any sale proceeds.

The opinion's substantive holding was that the state-law conversion provision was available for any forfeiture grounded in conduct that constituted a RICO Act violation under the NC RICO Act, including federal-law violations incorporated through § 75D-3(c)(2). The AG's caveat was important: whether a federal court has the duty or authority to follow this modification of state property law in federal forfeiture proceedings was a question the office "cannot and should not render an opinion." That deference to federal court jurisdiction was a sensible limit on the AG's reach.

If the U.S. Attorney chose not to use the NC RICO conversion provision (or if a federal court refused to apply it), the AG offered an alternative. The state could "evaluate the investigations upon which the prosecutions are based and, in appropriate cases, consider initiating state RICO forfeiture actions against the property." Either federal court would apply the NC conversion rule, or NC state court would do so directly in a parallel state RICO action.

Currency note

This opinion was issued in 1993. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. Federal forfeiture law has changed substantially since 1993, including the Civil Asset Forfeiture Reform Act of 2000, which added an "innocent owner" defense at the federal level. The NC RICO Act has also been amended. Anyone advising a current entirety-forfeiture question should verify the present state and federal statutes and the case law on federal courts' application of state property-law rules.

Background and statutory framework

Tenancy by the entirety is a relic of the common law's treatment of husband and wife as a single legal entity. The doctrine survived modern reforms in many states, including North Carolina, primarily as a creditor-protection device: if a husband incurs business debt and a creditor sues, the creditor cannot reach the home that he owns jointly with his wife. The wife's interest is the wall. The same rule applies in reverse if the wife incurs debt.

When forfeiture became a significant law-enforcement tool in the 1980s, the entirety doctrine produced an awkward outcome. A drug dealer husband who used the marital home as a stash house was at common law not subject to forfeiture of the home, because the wife's entirety interest blocked it, even if she had no involvement in the drug activity. Several states with the entirety doctrine, including North Carolina, enacted statutory fixes that converted forfeited entirety property to a tenancy in common, allowing the government to take the wrongdoer's half while protecting the innocent spouse.

The NC RICO Act's § 75D-8(a)(1) was that fix. The provision was carefully drafted to do its work automatically on entry of judgment, not as a separate proceeding requiring separate notice, hearings, and findings. The drafting choice expedited prosecution while still preserving the innocent spouse's interest. A separate § 75D-8 framework gave the innocent spouse procedural protections to assert innocence in the forfeiture proceeding itself.

The AG's caveat on federal court application was rooted in a long-running debate about whether federal forfeiture proceedings should apply state property law to define what interests are held by whom. The dominant view in federal practice is that federal forfeiture statutes provide their own framework, and state property-law conversion rules do not automatically displace federal procedure. But where the state law operates on the property itself (rather than on the federal procedure), federal courts have sometimes given effect to the state-law conversion. The AG sensibly left that hard federal question for the federal judges to work out.

The alternative the AG offered (parallel state RICO forfeiture) was the safe path. If a federal court declined to apply § 75D-8(a)(1), the state could file its own RICO forfeiture action against the same property based on the same conduct, and § 75D-8(a)(1) would unambiguously apply in state court. That two-track strategy meant the conversion was guaranteed regardless of which court ultimately ruled.

Common questions

What is tenancy by the entirety in North Carolina?

It is a form of co-ownership between husband and wife with right of survivorship, where each spouse is considered to hold the entire estate. The protection is that neither spouse's individual debts can be charged against the property during the marriage.

What does the RICO Act's automatic conversion do?

When a judge enters a final judgment of forfeiture against entirety property where one spouse is innocent, the entirety automatically becomes a tenancy in common. Only the offending spouse's undivided one-half interest is forfeited.

Did the AG say federal courts must follow this rule?

No. The AG answered only the state-law question of what § 75D-8(a)(1) does. Whether a federal court has the duty or authority to apply that state-law conversion in federal forfeiture proceedings was a question the AG declined to answer.

What if both spouses are guilty?

The conversion provision applies only "where property is held by the entirety and one spouse is an innocent person." If both spouses are involved in the racketeering activity, the conversion provision does not apply and the whole property can be forfeited.

Did the same rule apply to personal property?

Tenancy by the entirety in North Carolina exists only in realty, so the conversion provision applies to real property forfeitures. Personal property held jointly by spouses follows different rules.

Citations

• N.C. Gen. Stat. §§ 75D-1, 75D-3(c)(2), 75D-5(a), 75D-8(a)(1)
• Davis v. Bass, 188 N.C. 200 (1924)
• Combs v. Combs, 273 N.C. 462 (1968)
• Turlington v. Lucas, 186 N.C. 283 (1923)
• In re Foreclosure of Deed of Trust, 303 N.C. 514 (1981)
• Highway Commission v. Myers, 270 N.C. 258 (1967)
• North Carolina National Bank v. Corbett, 271 N.C. 444 (1967)

Source

• Landing page: https://ncdoj.gov/opinions/federal-forfeiture-of-property-held-through-an-estate-by-the-entirety/

Original opinion text

June 28, 1993

B. Frederic Williams Jr.
Assistant United States Attorney
Room 221, Charles R. Jones Federal Building
401 West Trade Street
Charlotte, North Carolina 28202

Re: Advisory Opinion: Federal Forfeiture of Property held Through an Estate by the Entirety; Use of the State RICO Act to Convert Entirety Property to a Tenancy in Common.

Dear Mr. Williams:

You state the United States Attorney for the Western District of North Carolina has initiated at least three forfeiture actions against real property held in tenancy by the entirety in which it is possible only one spouse has used the property in manner prohibited by federal law. You note that in each case the legal basis for federal forfeiture also is cognizable under the North Carolina Racketeer Influenced and Corrupt Organizations (RICO) Act, G.S. 75D-1 et seq., and would justify the property's forfeiture under state law. You ask whether the United States, in prosecuting the federal forfeiture actions, may utilize a provision of the North Carolina RICO Act which operates automatically upon judgement of forfeiture to convert property held in an estate by the entirety to a tenancy in common or, whether the United States must initiate an independent action to convert the property and forfeit the offending spouse's interest.

Under North Carolina common law, an estate by the entirety is a form of co-ownership held by husband and wife with right of survivorship. Davis v. Bass, 188 N.C. 200, 124 S.E. 566 (1924). It arises by virtue of title acquired by husband and wife jointly after their marriage. Jernigan v. Stokley, 34 N.C. App. 358, 238 S.E. 2d 318 (1977). An estate by the entirety is based on the fiction that upon marriage the husband and wife constitute a legal entity separate and distinct from each's individual status. Combs v. Combs, 273 N.C. 462, 160 S.E. 2d 308 (1968). Each spouse is deemed to be seized of the entire estate, with neither spouse having a separate or undivided interest therein. Boyce v. Boyce, 60 N.C. App. 685, 299 S.E. 2d 805 (1983), review denied 308 N.C. 190, 302 S.E. 2d 242 (1983).

In North Carolina, the estate by the entirety generally exists only in realty. Turlington v. Lucas, 186 N.C. 283, 119 S.E. 366 (1923). It is not recognized in personal property. Lovel v. Insurance Co., 302 N.C. 150, 274 S.E. 2d 170 (1981); Bowling v. Bowling, 243 N.C. 515, 91 S.E. 2d 176 (1956). Therefore, nothing else appearing, cash proceeds from a voluntary sale or transfer of real property owned by husband and wife by the entirety become personalty held in tenancy in common. Shores v. Rabon, 251 N.C. 790, 112 S.E. 2d 556 (1960); Honeycutt v. Citizens National Bank, 242 N.C. 734, 89 S.E. 2d 598 (1955); Wilson v. Ervin, 227 N.C. 396, 42 S.E. 2d 468 (1947). However, where entirety property is sold or transferred involuntarily, the resulting cash proceeds retain the characteristics of entirety property. In re Foreclosure of Deed of Trust, 303 N.C. 514, 279 S.E. 2d 566 (1981), Highway Commission v. Myers, 270 N.C. 258, 154 S.E. 2d 87 (1967). The significance of these principles to the question posed is that under the common law entirety property may not be charged with debts or judgments incurred as the result of the acts of only one spouse while property held by spouses as tenants in common may be charged with individual debts or judgements. North Carolina National Bank v. Corbett, 271 N.C. 444, 156 S.E. 2d 835 (1967); Air Conditioning Company v. Douglas, 241 N.C. 170, 84 S.E. 2d 828 (1954); Davis v. Bass, supra.

The North Carolina RICO Act authorizes forfeiture of "[a]ll property of every kind used or intended to be used in the course of, derived from or realized through a racketeering activity or pattern of racketeering activity...." G.S. 75D-5(a). "Racketeering activity'...includes the description in Title 18, United States Code, Section 1961(1)" (defining "racketeering activity" under federal law). G.S. 75D-3(c)(2). The RICO Act further provides:

[w]here property is held by the entirety and one spouse is an innocent person..., upon entry of a final judgement of forfeiture of entirety property, the judgement operates to convert the entirety to a tenancy in common, and only the one-half undivided interest of the offending spouse shall be forfeited according to the provisions of this Chapter.

G.S. 75D-8(a)(1). Clearly, forfeiture of entirety property based upon its use by only one spouse in violation of the RICO Act is, at least for the innocent spouse, an involuntary transfer. Therefore, the provisions of G.S. 75D-8(a)(1), providing for automatic conversion of forfeited property held by the entirety to a tenancy in common are in derogation of the common law.

The clear legislative intent of G.S. 75D-8(a)(1) is to authorize and facilitate the forfeiture of an offending spouse's interest in entirety property while protecting the innocent spouse's interest. To the extent the General Assembly's will to treat forfeited entirety property in the manner expressed in G.S. 75D-8(a)(1) conflicts with the common law principles explained above, the common law is abrogated. Therefore, we conclude that where entirety property is subject to forfeiture based upon its use by one spouse in a manner prohibited by the North Carolina RICO Act, including violations of federal law incorporated into the Act, G.S. 75D-8(a)(1) supplants the State's common law rule prohibiting entirety property from being charged with debts or judgments resulting from the actions of only one spouse. It is the Attorney General's further opinion that the State's common law rule which maintains and continues the entirety status of involuntarily transferred property is abrogated and replaced with a statutory requirement that property forfeited under the RICO Act or the proceeds from its sale automatically be converted to a tenancy in common from which the forfeiture judgment may be satisfied. Whether a federal court has the duty or authority to follow this modification of state property law in federal forfeiture proceedings is a question upon which this office cannot and should not render an opinion.

Should the United States Attorney decide not to utilize the North Carolina RICO Act's conversion provision in the pending forfeiture actions or, should the federal court determine it is not bound to accept the modifications to the common law made therein, the North Carolina Attorney General stands ready to evaluate the investigations upon which the prosecutions are based and, in appropriate cases, consider initiating state RICO forfeiture actions against the property.

Edwin M. Speas, Jr.
Senior Deputy Attorney General

W. Dale Talbert
Special Deputy Attorney General