Michael A. Fagone, United States Bankruptcy Judge, District of Maine
In this adversary proceeding, the chapter 7 trustee seeks to avoid a mortgage on real estate owned by the Debtor and her husband, as joint tenants, and then to sell their interests in the real estate. The Debtor and her husband object. The mortgagee, TD Bank, N.A., also objects.
The trustee has moved for summary judgment on all counts of his complaint. TD Bank has also moved for summary judgment. The competing motions present two questions: first, whether the trustee is entitled to avoid the mortgage because of an incomplete certificate of acknowledgment and second, whether the trustee may sell the Debtor's interest in the property and the interest of the co-owner, with both interests being sold free and clear of TD Bank's mortgage. The trustee and TD Bank agree that there is no genuine issue of material fact necessitating a trial; each contends that it is entitled to judgment as a matter of law based on the undisputed facts.
This is a difficult case. The Court is required to predict the answer to a complex question under Maine real estate law. There are statutes and cases bearing on the question, but none of them provide a clear answer, and the parties have raised plausible arguments in support of their respective positions. Ultimately, for the reasons set forth below, the Court agrees that the Trustee is entitled to the relief he seeks.
The following facts are taken from the parties' statements of undisputed material fact. For purposes of the competing motions, the Court accepts them as true.
On August 5, 2015 (the "Petition Date"), Betty Bishop (the "Debtor") filed a voluntary petition under chapter 7 of the Bankruptcy Code. On the Petition Date, Nathaniel Hull (the "Trustee") was duly appointed as the chapter 7 trustee. The Debtor owns a one-half interest in property located at 1 Ridgeway Court, Houlton, Maine (the "Property"). As of the Petition Date, the Debtor's husband, Peter Bishop, owned the other one-half interest in the Property as a joint tenant with Debtor. Neither the Debtor nor Mr. Bishop is residing in the Property, and the Debtor is not claiming any exemption in the Property.
The Property was conveyed to the Debtor and Mr. Bishop by deed dated November 13, 2012. Two days later, Mr. Bishop executed a promissory note in the original principal amount of $123,400 (the "Note"). TD Bank is the holder of the Note. On the same day, the Debtor and Mr. Bishop granted a mortgage to TD Bank to secure the repayment of the Note (the "Mortgage"). The Mortgage identifies the Debtor and Mr. Bishop as the borrowers, but does not identify them as citizens of Maine, nor does it reveal their address. The Mortgage was recorded in the Southern Aroostook County Registry of Deeds. The Bishops acknowledged the Mortgage in front of Philip Jordan in Houlton, Maine. The certificate of acknowledgement reads as follows:
The Property is a single-family home on approximately 0.34 acres, and physical partition of the Property is impracticable. The Property is not used in the production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power. As of the Petition Date, there were no encumbrances of record on the Property other than the Mortgage. A sale of the Debtor's interest in the Property as a tenant in common to a stranger would result in less money for the bankruptcy estate than selling the entire Property free and clear of all encumbrances and keeping half of the net proceeds.
As of the Petition Date, the Trustee acquired rights and powers of "a bona fide purchaser of real property ... from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists." 11 U.S.C. § 544(a)(3). Similarly, the Trustee may avoid transfer of property of the debtor that is voidable by the type of bona
On the surface, the first question is one of federal bankruptcy law. However, the question cannot be answered without looking to applicable nonbankruptcy law. Here, the parties agree that Maine real estate law is the right place to look. As a result, the Court is required to predict how the Maine Supreme Judicial Court would answer this question: would a bona fide purchaser of the Property from the Debtor on the Petition Date have acquired an interest in the Property senior to the Mortgage? This brings into focus the problem with the certificate of acknowledgment, which does not state where Mr. Jordan was located when the Bishops acknowledged the deed.
Maine's recording statute provides, in pertinent part:
33 M.R.S.A. § 201. As to the grantor, the grantor's heirs and devisees, and persons having "actual notice" of the conveyance, acknowledgment and recordation are not required; as to all others, the deed must be acknowledged and recorded.
Obviously, the Trustee is neither the grantor nor one of her heirs and devisees. The parties do not squabble over whether the Trustee is a person having "actual notice" as that term is used in section 201.
The requirement of an acknowledgement of a deed has existed in Maine for nearly two hundred years. See Pub. Laws
33 M.R.S.A. § 203. Section 203 requires the acknowledgment to be made before a particular official based on where the acknowledgment is taken: (i) within the State of Maine; (ii) within the United States (but presumably outside the State of Maine); or (iii) in any foreign country.
The Court agrees with the Trustee. In many areas of the law, technical distinctions are important, and the parties' rights can frequently turn on those distinctions. This is particularly true in the area of real estate law. See, e.g., Stern v. Continental Assurance Co. (In re Ryan), 851 F.2d 502, 509 (1st Cir.1988)("Land recording laws must, by their very nature, employ technical rules because the `substance' — presumably the fairness of giving one bona fide purchaser priority over another — yields no simple answers."). The Trustee relies on a number of cases, none of which squarely answer the question. See, e.g., Hudson v. Webber, 72 A. 184, 104 Me. 429 (1908); De Witt v. Moulton, 17 Me. 418 (1840). Some of those cases, however, provide useful guidance.
Hudson involved a disputed claim to ownership of real estate in Piscataquis County, Maine. Two of the deeds in the plaintiff's chain of title were challenged by the defendant on the grounds that they lacked proper acknowledgements. One acknowledgment recited that the deed had been executed in "Suffolk, ss. Feb. 19, 1835" and the other recited that it had been executed in "Suffolk ss. Boston, Oct. 12, 1835." The Law Court began its analysis by noting that:
72 A. at 185. The Law Court also expressed its belief that:
Id. (emphasis added). The question was whether, by examining the entire instrument, the place where the acknowledgment was taken could be discovered with reasonable certainty. See id. at 186. After examining both acknowledgements, the Law Court ruled in favor of the plaintiff. The acknowledgement that identified "Suffolk ss. Boston" presented little difficulty. But the second acknowledgment presented a closer call:
Hudson v. Webber, 72 A. at 186. The Law Court did not, however, rule that the second acknowledgment was sufficient. Instead, it sustained the validity of the second deed on different grounds, that is, that the deed had gone unchallenged for more than seventy years. See id.
The acknowledgment in this case does not identify the municipality, the county, or the state where it was taken. And the mortgage deed has not gone unchallenged for anywhere near seventy years. These two facts make the acknowledgment in question in this case materially different from those upheld in Hudson. There is no indication — in the certificate of acknowledgment or in the Mortgage itself — of where Mr. Jordan was physically located when he took the Bishops' acknowledgment that the deed was their free and act deed. True, the Property is located in Maine and Mr. Jordan is a notary public commissioned in Maine. But those facts tell us nothing about where Mr. Jordan was located when he acknowledged the Mortgage, and his location is critical to the question of whether he had the authority required by statute to acknowledge the instrument.
The Trustee also cites De Witt v. Moulton, 17 Me. 418 (1840), a case involving a mortgage with no acknowledgment whatsoever. Although De Witt is not a "defective acknowledgment" case, it does lend support to the Trustee's position here: if a mortgage with no acknowledgment does not provide constructive notice (as the Law Court concluded in De Witt), then it seems reasonable to conclude that a mortgage with an incomplete acknowledgment would suffer the same fate. That is particularly true where the missing information is material to understanding whether the officer taking the acknowledgment had authority to do so.
The Trustee also relies on a recently-enacted Maine statute, 33 M.R.S.A. § 352. Section 352, titled "Defective Acknowledgments," provides as follows:
33 M.R.S.A. § 352 (2015). Here, the Mortgage was made prior to January 1, 2013, specifically, in November 2012. At first blush, section 352 would seem to insulate the Mortgage from challenge based on the incomplete acknowledgment. But, not so fast, says the Trustee. This version of section 352 was enacted in 2015 and became effective on October 15, 2015 — which is almost three months after the Petition Date. The Trustee acquired the rights and powers of a bona fide purchaser on the Petition Date and, on that date, the curative statute in effect applied only to deeds made prior to January 1, 2000. See 33 M.R.S.A. § 352 (2014).
Instead of relying directly on section 352, the Trustee makes a more nuanced argument. He contends that the existence of the curative statute shows the Maine Legislature's recognition that incomplete acknowledgments are problematic. Without the protection of section 352, the argument goes, the incomplete acknowledgement dooms the Mortgage to a challenge by a bona fide purchaser.
Section 352 does not answer the question before the Court. It does, however, provide a hint about the correct answer. Here, the acknowledgment in the Mortgage was not completed. That is one type of acknowledgement that the Legislature appears to have been contemplating when it enacted section 352. See 33 M.R.S.A. § 352(1)(A). There is no way to determine, from the face of the instrument, whether the grantors were physically present in Maine when their execution of the Mortgage was acknowledged. And we know that the physical location of the person executing a mortgage is important: the qualifications of the person taking the acknowledgment vary depending on where the acknowledgment is taken. See 33 M.R.S.A. § 203; cf. 33 M.R.S.A. §§ 352(1)(C) and (L).
TD argues that the only reasonable inference is that the acknowledgment was taken in Maine. The Debtor and her husband live in Maine, the Property is located in Maine, and Mr. Jordan is commissioned as a notary public in Maine. TD is probably right, but that matters not in this context. Given the technical requirements for transfers of real estate, the dicta in Hudson, and the hint provided by section 352, the Court believes that, under Maine law, the Mortgage would not provide constructive notice of the bank's lien and, as a result, a bona fide purchaser would have acquired an interest in the Property senior to the Mortgage. Thus, the Trustee is entitled to avoid the Debtor's grant of the mortgage under section 544(a)(3). This result, while perhaps harsh, is consistent with the results obtained in other similar cases. See, e.g., Gregory v. Ocwen Federal Bank (In re Biggs), 377 F.3d 515 (6th Cir.2004)(affirming order avoiding, under section 544, a mortgage containing a partially-completed acknowledgment); Cornell v. Bank of America, N.A. (In re Pellerin), 529 B.R. 801 (Bankr.D.N.H.2015)(granting trustee's request to avoid mortgage containing an acknowledgment that suffered from multiple defects, including failure to note where the acknowledgment was taken); Agin v. Mortgage Electronic Registration Systems, Inc. (In re Giroux), 2009 WL 1458173 (Bankr.D.Mass.2009)(holding that a chapter 7 trustee could avoid a mortgage on real estate in Massachusetts where the acknowledgment did not specifically identify the debtor as the person who appeared before the notary); cf. Bank of America v. Casey (In re Pereira), 791 F.3d 180 (1st Cir.2015)(certifying questions regarding effectiveness of subsequently-recorded affidavit to cure a defective acknowledgement
Neither party cites Rackleff v. Norton, 19 Me. 274 (1841), a case in which the Law Court presumed that a deed was acknowledged by a magistrate in a county where he had jurisdiction. See id. at 276. This Court is not persuaded that Rackleff would be controlling or persuasive to the Law Court today. First, the case predates Hudson and was not cited or discussed by the Law Court in Hudson. Second — and perhaps more importantly — Rackleff predates the current statutory scheme regarding real estate transfers, including the various provisions dealing with acknowledgments.
The parties have not cited any controlling authority under Maine law, and the Court has not located any. However, for the reasons discussed above, the Court believes that the Supreme Judicial Court would, if presented with this precise question, hold in favor of the bona fide purchaser.
Section 363(b)(1) provides that "[t]he trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate[.]" A sale of estate property under section 363(b)(1) may be free and clear of any interest held by an entity other than the estate in certain circumstances. See 11 U.S.C. § 363(f)(1)-(5). Using a combination of section 363(b)(1) and 363(f), the Trustee seeks to sell the Debtor's interest in the Property. There is no dispute about the Trustee's entitlement to do so.
Where things get a bit more complicated is the Trustee's request to sell, at the same time and presumably to the same buyer, Mr. Bishop's interest in the Property. As a starting point, the Trustee looks to section 363(h). That section provides:
11 U.S.C. § 363(h). TD Bank does not dispute that the Trustee is able to sell Mr. Bishop's interest in the Property under section 363(h). It maintains, however, that any such sale of Mr. Bishop's interest would be subject to the Mortgage. TD Bank takes this position for an obvious reason: it wants to get paid from the proceeds of its collateral.
TD Bank is correct that section 363(f) authorizes sales free and clear, and that section 363(h), on its face, does not. But this does not compel the result that TD Bank seeks. If the property were jointly owned, but not encumbered by a mortgage lien, the trustee could sell both ownership interests using a combination of subsections 363(b), (f), and (h). In those circumstances, the co-owner would be protected by subsections 363(i) and (j). See 11 U.S.C. § 363(i) (granting, in a sale under subsection (h), a right of first refusal to the co-owner); 11 U.S.C § 363(j) (directing, in a sale under subsection (h), the trustee to distribute the net proceeds to the co-owner according to its interest in the property). There is no good reason why the result should be different here.
Section 105 is not a license to contravene the plain language of the Bankruptcy Code. See Law v. Siegel, ___ U.S. ___, 134 S.Ct. 1188, 188 L.Ed.2d 146 (2014). But it does expressly authorize the Court to issue any order that is necessary or appropriate to carry out the provisions of the Bankruptcy Code. See 11 U.S.C. § 105(a). Here, it is both necessary and appropriate to authorize the Trustee to sell both interests in the Property, subject to the rights of the co-owner under subsections 363(i) and (j).
The Trustee has not, at this point, identified a purchaser for the Property, or even proposed a mechanism for identifying a purchaser. Although the Court agrees that the law allows the Trustee to sell both interests in the Property free and clear of the Mortgage, the Court is not, by this decision, approving any particular disposition of the Property. That will await a later day, most likely after resolution of the Bishops' cross-claims against TD Bank.
A separate order granting the Trustee's motion and denying TD Bank's motion will be entered.
