GUY R. HUMPHREY, Bankruptcy Judge.
This decision concerns whether, under Ohio law, a debtor's granting of a mortgage on her real property can be avoided by a Chapter 7 trustee under a trustee's strong arm powers when the debtor is the only mortgagor and the acknowledgement clause states "[t]he foregoing instrument was acknowledged before me," but it does not provide the name of the mortgagor within the acknowledgement clause or any other information identifying the debtor as the person appearing before the notary to acknowledge her signature. For the reasons set forth below, the court determines that such mortgages may be avoided by a trustee.
This decision addresses and resolves summary judgment motions which the Plaintiff, Thomas R. Noland (the "Trustee"), filed in two adversary proceedings (collectively the "adversary proceedings" and individually the "Burns adversary proceeding" or the "Alexander adversary proceeding") in unrelated estate cases for which he is the Chapter 7 trustee. The adversary proceedings were both commenced by the Trustee when he filed complaints in the bankruptcy cases of Diana M. Burns and Tracy L. Alexander on July 17, 2009 against the mortgagees and other persons holding a lien against or an interest in the real property subject to the mortgages. The Trustee filed motions for summary judgment in both adversary proceedings on April 2, 2010 with responses having been filed by most of the defendants to the adversary proceedings (hereinafter the "Respondents") and the motions have been briefed on essentially the same schedule. On June 9, 2010 the court heard oral argument on the motions from counsel for various parties in both adversary proceedings (the "oral argument"). During the oral argument counsel stated that they did not believe that there were distinguishing factual differences between the Burns and the Alexander adversary proceedings which could lead to a different legal result for the adversary proceedings. Nevertheless, the court will briefly outline the factual and procedural backgrounds of each proceeding.
1. Findings of Fact. On May 21, 2003 Ms. Burns, granted a mortgage (the "Burns Mortgage") in favor Gateway Funding Diversified Mortgage Services, LP. ("Gateway") as security for a promissory note. The parties agree that the current servicer for the Burns Mortgage is Wells Fargo Bank N.A. The Burns Mortgage was granted by Ms. Burns on real property located at 1112 Wildflower Lane, Maineville, Ohio (the "Wildflower Property"). The Burns Mortgage was recorded in the Recorder's Office of Warren County, Ohio on May 28, 2003. The Burns Mortgage was signed by Ms. Burns on page 12 of the document and recorded at Book 3062, Page 733. On that same page, the document contains an acknowledgment clause signed and notarized by Brandon M. Moser. The acknowledgment clause states that "[t]he foregoing instrument was acknowledged before me this 21st of May, 2003 by _______________" (See Appendix A). All of these facts set forth in the Trustee's motion for summary judgment are agreed to by Wells Fargo (Doc. 36, p. 2) or are otherwise contained in the Burns Mortgage.
1. Findings of Fact. On May 15, 2004 Ms. Alexander granted a mortgage in favor of Allied Home Mortgage Capital Corporation ("Allied") as security for a promissory note (the "Alexander Mortgage" and collectively with the Burns Mortgage, the "Mortgages") (Doc. 34, ¶ 1 & Exh. A). The servicer for the Alexander Mortgage is BAC Home Loan Servicing, LP ("BAC"). The Alexander Mortgage was granted on real property located at 6579 Black Forest Court, Morrow, Ohio (Doc. 34, Exh. A) (the "Black Forest Property" and collectively with the "Wildflower Property", the "Properties"). The Alexander Mortgage was recorded in the Recorder's Office of Warren County, Ohio at Book 3815, Page 407. The Alexander Mortgage is signed by the grantor on a separate page from the acknowledgement clause (See Appendix B). The initials on the acknowledgment clause page are those of Ms. Alexander (Doc. 34, ¶ 5). The acknowledgment clause indicates that "[t]he foregoing instrument was acknowledged before me this 25th August, 2004 by _______________" Id. All of these facts are undisputed.
2. Procedural Background. The Trustee's complaint in the Alexander adversary proceeding (Doc. 1) seeks a judgment declaring the Alexander Mortgage invalid, avoiding the Mortgage pursuant to § 544(a)(3), and preserve the mortgagee's interest in the Black Forest Property for the bankruptcy estate. Answers were filed by the Warren County Treasurer, BAC Home Loan Servicing, LP (fka Countrywide Home Loans) ("BAC"), and Ms. Alexander (Doc. 11, 14, & 49). Following a pretrial conference, the court, in an order entered on November 18, 2009 (Doc. 30), fixed a discovery cutoff and dates for dispositive motions. On April 2, 2010 the Trustee moved for summary judgment against all the defendants (Doc. 35).
This court has jurisdiction over the adversary proceedings pursuant to 28 U.S.C. § 1334 and the standing order of reference in this District. The adversary proceedings are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(A), (F) and (O).
The standard to address the parties' filings is contained in Federal Rule of Civil Procedure (FRCP) 56(c) and is applicable to adversary proceedings through Bankruptcy Rule 7056 and states, in part, that a court must grant summary judgment to the moving party if:
In order to prevail, the moving party, if bearing the burden of persuasion at trial, must establish all elements of its claim. Celotex Corp. v. Catrett, 477 U.S. 317, 331, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the burden is on the non-moving party at trial, the movant must: 1) submit affirmative evidence that negates an essential element of the nonmoving party's claim or 2) demonstrate to the court that the nonmoving party's evidence is insufficient to establish an essential element of the nonmoving party's claim. Id. at 331-32, 106 S.Ct. 2548. Thereafter, the opposing party "must come forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citations omitted); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-51, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). All inferences drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Matsushita, 475 U.S. at 586-88, 106 S.Ct. 1348.
The Trustee seeks to avoid the Mortgages on the Properties under the "strong arm" powers of § 544. By legal fiction, § 544(a)(3) allows a trustee to avoid a transfer of real property as "a hypothetical bona fide purchaser as of the commencement of the case." Gemini Servs., Inc. v. Mortgage Elec. Regis. Sys., Inc. (In re Gemini Servs., Inc.), 350 B.R. 74, 81 (Bankr.S.D.Ohio 2006), citing Kovacs v. First Union Home Equity Bank (In re Huffman), 408 F.3d 290, 293 (6th Cir. 2005); Geygan v. World Savings Bank (In re Nolan), 383 B.R. 391, 397 (6th Cir. BAP 2008).
First, the Trustee is a "bona fide purchaser" (sometimes referred to as a "bona fide purchaser for value") as relates to the Properties. Section 544(a)(3) provides, in pertinent part, as follows:
Thus, § 544(a)(3) cloaks a bankruptcy trustee with the status of a bona fide purchaser of real property of the debtor.
Second, a bona fide purchaser status provides the Trustee the ability to avoid improperly executed mortgages. Ohio Revised Code (ORC) § 5301.25(A), provides, in pertinent part, that:
ORC § 5301.25(A) (emphasis added).
Were the Mortgages improperly executed under Ohio law? The answer requires an analysis of the Ohio recording statutes because a mortgage must be executed in conformity with the statutory requirements of Ohio law to be considered valid. Simon v. Chase Manhattan Bank (In re Zaptocky), 250 F.3d 1020, 1024 (6th Cir.2001). While there are a number of different statutory requirements for a mortgage to be valid and enforceable in Ohio against third-parties such as bona fide purchasers, the only requirement in issue in these adversary proceedings is the issue of whether the acknowledgment clauses in the Mortgages are sufficient under Ohio law.
The Trustee's position as to whether the acknowledgment clauses in the Mortgages are sufficient is straight forward: The acknowledgment clauses are not sufficient under Ohio law because they neither identify the mortgagor whose signature was acknowledged nor do they identify the acknowledging party by direct or indirect reference. Burns Reply, p. 3; Alexander Reply, p. 3. The Respondents' arguments are two-fold: a) the acknowledgment clauses are sufficient under the Uniform Recognition of Acknowledgments Act, adopted by Ohio through ORC § 147.51-58 (the "URAA" or "Act"), which effectively overruled the Supreme Court of Ohio's decision in Smith's Lessee and the cases
Since the requirements for a valid mortgage in Ohio are provided by statute, an analysis of the statutory framework is in order. Of primary significance in these adversary proceedings is ORC § 5301.01(A) which provides that the signature of a mortgagor shall be acknowledged by a notary public (or certain other designated officials) and such notary (or official) shall certify the acknowledgment. Specifically, ORC § 5301.01(A) states:
In order to satisfy ORC § 5301.01, (1) the mortgage "must be signed by the mortgagor; (2) the signing of the mortgage must be acknowledged before a notary public; (3) the notary public must certify th[e] acknowledgement; and (4) the notary public must subscribe his name to the certificate of acknowledgement." Drown v. Countrywide Home Loans, Inc. (In re Peed), 403 B.R. 525 (Bankr.S.D.Ohio 2009), quoting Drown v. GreenPoint Mortgage Funding, Inc. (In re Leahy), 376 B.R. 826, 832 (Bankr.S.D.Ohio 2007). This decision concerns whether elements two and three have been satisfied with respect to the Mortgages.
The requirements pertaining to a notary's certification of an acknowledgment of an instrument are provided by the URAA. Ohio adopted the URAA and it became law in Ohio in 1974-75.
ORC § 147.54 provides that the acknowledgement certification may either be "in a form prescribed by Ohio law" or contain the words "`acknowledged before me' or their substantial equivalent." See Nolan, 383 B.R. at 395.
ORC § 147.541 provides a broad definition of "acknowledged before me" and provides that the words "acknowledged before me" mean that:
ORC § 147.541.
ORC § 147.55 provides the "statutory short form" for acknowledgment clauses in Ohio and states, in relevant part, that:
ORC § 147.55 (bold added) (the "statutory short form").
Finally, in recognition that the URAA is a set of the uniform laws adopted in multiple jurisdictions, ORC § 147.57 provides that: "Sections 147.51 to 147.58 of the Revised Code shall be so interpreted as to make uniform the laws of those states which enact it."
Long before Ohio's adoption of the URAA, the Supreme Court of Ohio in Smith's Lessee v. Hunt, 13 Ohio 260 (1844), held that a mortgage containing an acknowledgment clause that did not include the sole grantor's name was defective. Specifically, the court stated:
Id. at 268-69. When Smith's Lessee was decided, Ohio did not have a statute regulating acknowledgment clauses for mortgages.
The Supreme Court of Ohio limited Smith's Lessee in Dodd v. Bartholomew, 44 Ohio St. 171, 5 N.E. 866 (1886). In Dodd, the mortgage was granted by Charles A. Clark and his wife, Sara, but the acknowledgment clause referred to "Charles B. Clark" and "Mary Clark." Id. at 868. Despite these scrivener errors in the mortgage, it was validated. Id. at 869. The difference between Smith's Lessee and Dodd is that the acknowledgment clause in Dodd was substantially in compliance with Ohio law and the one in Smith's Lessee was not. Robinson, 403 B.R. at 502. "This principle enunciated by the Dodd court essentially allows a court to determine whether the execution of the mortgage is in `substantial compliance' with § 5301.01." Id. These early decisions are at the heart of the substantial compliance standard which is still used today. See Smith's Lessee, 13 Ohio at 266, citing Brown v. Farran, 3 Ohio 140 (1827) (requiring a certificate of acknowledgment substantially comply with the law).
Dodd and the substantial compliance doctrine have been applied in a number of cases in Ohio to find mortgages valid and enforceable. Thus, in Administrator Of Veterans Affairs v. The City Loan Company, 1985 WL 9128, 1985 Ohio App. LEXIS 6697 (Ohio Ct.App. May 7, 1985), the court found that a mortgage was valid when the mortgagee's name was stated in the acknowledgment clause as being that of the mortgagor. In finding that the acknowledgment clause and mortgage was in substantial compliance, the court stated:
Id. at *3, 1985 Ohio App. LEXIS 6697 at 6. Similarly, In Mid-American Nat'l Bank & Trust Co. v. Gymnastics Int'l, Inc., the acknowledgment clause included the name of the corporation, instead of the officers of the corporation which signed the mortgage. 6 Ohio App.3d 11, 451 N.E.2d 1243, 1245-46 (1982). The court found the mortgage in substantial compliance. Id. at 1246. The court recognized the principle in the syllabus of Dodd that "[w]here an error occurs in the name of a party to a written instrument, apparent upon its face, and, from its contents, susceptible of correction, so as to identify the person with certainty, such error does not affect the validity of the instrument." Id. at 1245. However, it is apparent from the mortgage that the corporation, a legal fiction, must be represented by officers of that corporation. Id. at 1245-46. Additionally, two witnesses attested to the signatures of the individual officers. Id. at 1245. See also Citifinancial, Inc. v. Howard, 2008 WL 4193051 (Ohio Ct.App. Sept.15, 2008) (mortgage in substantial compliance when the mortgagor signed the mortgage in his individual capacity, but the acknowledgment clause named the individual in his corporate capacity, even through the corporation did not own the property in question).
As suggested, citing Dodd and its progeny, the Respondents argue that the acknowledgement clauses of the Mortgages are in substantial compliance with Ohio law. Specifically, the Respondents argue that when the acknowledgment clauses are considered with the remainder of the Mortgages, the blank in the acknowledgment clause for the name of the person whose signature was acknowledged is insignificant and when the acknowledgment clause is considered with the entirety of the Mortgages, the acknowledgment clauses are in substantial compliance with the law.
The Respondents further argue that the erroneous name within an acknowledgment clause involved in Dodd is a "worse" error than a blank acknowledgement clause. However, while it is perhaps true that listing a completely different name for the mortgagor might be even more confusing than a blank acknowledgment clause, the Supreme Court of Ohio found that an erroneous name that allows an identification of the mortgagor can be in substantial compliance with Ohio law depending on the extent of the mistake. Cf. Smith's Lessee v. Hunt, 13 Ohio 260 (1844) (grantor name missing is not substantial compliance) and Dodd v. Bartholomew, 44 Ohio St. 171, 5 N.E. 866 (1886) (When the grantors were Charles A. Clark and his wife, Sara, and the acknowledgment clause referred to "Charles B. Clark" and "Mary Clark", court found substantial compliance).
In addition, the other substantial compliance cases cited by the Respondents are distinguishable from a "blank" acknowledgment clause. All of those cases include information in the acknowledgment clause which can be compared to the instrument in order to find substantial compliance. In the Mortgages at issue, the instruments were never witnessed and, unlike Mid-American, the acknowledgment clause was completely blank where the grantor's name should have been inserted. Without endorsing the particular reasoning of any of those decisions, in Dodd, Howard and Mid-American, reasonable inferences could be made because the acknowledgment clauses provided some information concerning the acknowledging name to compare to the mortgage.
Multiple decisions addressing similar facts to the Mortgages in these proceedings have found that mortgages with the name of the mortgagor missing in the acknowledgment clause are invalid under Ohio law and are not saved by the doctrine of substantial compliance. Thus, in Simon v. Citimortgage, Inc. (In re Doubov), the bankruptcy court held that the fact that the signature was on the same page as the acknowledgment clause and that the mortgagor's initials were on the same page as the acknowledgment clause with initials on other pages do not demonstrate that the grantor acknowledged his signature and under such circumstances the notary's certification is not sufficient to create a valid mortgage. 423 B.R. 505, 512 (Bankr. N.D.Ohio 2010) ("Citimortgage next argues that the missing acknowledgment can be constructed by looking to the signatures on the mortgage and the adjustable rate rider, as well as the initials which appear on the bottom of seven of the eight
The Respondents argue that Smith's Lessee no longer has vitality following Ohio's adoption of the URAA, at least with respect to mortgages with a single mortgagor. The Respondents emphasize two particular provisions of the URAA to support their arguments: a) ORC § 147.541, because of the meaning provided to "acknowledged before me", eliminates the need to complete the blank in the statutory short form for the name of the person acknowledging her signature; and b) ORC § 147.55 specifically permits "the use of other forms" of acknowledgment other than the statutory short form. For the reasons discussed below, the court finds that Smith's Lessee is still instructive and is consistent with the URAA; Smith's Lessee is consistent with the statutory short form; and the URAA as previously interpreted and applied in this Circuit and District does not support Respondents' argument.
Respondents argue that when only one mortgagor executes a mortgage, the definition of "acknowledged before me" provided by the URAA establishes that the mortgagor who signed the mortgage was the person who acknowledged her signature before the notary and, therefore, completing the blank in the statutory short form for the name of the person whose signature was acknowledged is unnecessary. This argument is based upon the language of ORC § 147.541 which in subsection (A) states that "acknowledged before me" means "[t]he person acknowledging appeared before the person taking the acknowledgement" and in subsection (D) states that "[t]he person taking the acknowledgment either knew or had satisfactory evidence the person acknowledging was the person named in the instrument or certificate." Specifically, the argument follows that since only one mortgagor is named in each of the Mortgages, the notary, aided by the specific meaning given to
Respondents' argument has appeal with respect to the fact pattern of a single grantor.
In a decision interpreting Kentucky law, which has also adopted the URAA, the BAP squarely rejected Respondents' argument. In In re Trujillo, the Chapter 13 Trustee avoided a mortgage when the acknowledgment clause left the name of the mortgagor blank. Select Portfolio Svcs., Inc. v. Burden (In re Trujillo), 378 B.R. 526 (6th Cir. BAP 2007). In rejecting the argument that Section 423.130 of the Kentucky Revised Statutes, which is identical to ORC § 147.541, did not require the name of the mortgagor to be listed in the acknowledgement clause, the BAP found such an interpretation would render Ky. Rev.Stat. § 423.130, the equivalent of ORC § 147.53, superfluous. Id. at 537.
The Respondents suggest that Trujillo can be distinguished because Kentucky law is stricter as to blank acknowledgment clauses than Ohio. The court is unconvinced. First, if anything, the Kentucky cases cited prominently in Trujillo rejected arguments that the URAA should not be applied.
The ruling in Trujillo is also consistent with Geygan v. World Savings Bank (In re Nolan), 383 B.R. 391 (6th Cir. BAP 2008), in which "witness my hand" was determined to not be equivalent to or a satisfactory substitution for "acknowledged before me" under Ohio law. In Geygan the BAP reaffirmed this construction of the URAA, stating:
Id. at 396.
The statutory short form provided by the URAA further support's this court's ruling. Although the statutory short form contains a blank to be completed for the names of the people whose signatures are being acknowledged, Wells Fargo argues that use of the short form is not mandatory and that in fact ORC § 147.55 specifically authorizes use of other forms. For example, in Roberts Judge Preston found that use of the phrase "executed before me" instead of "acknowledged before me" in the acknowledgment clause did not invalidate the mortgage.
The acknowledgment clauses for the Mortgages, both of which left the space for the name of the mortgagor completely blank, are not in substantial compliance with Ohio law because the URAA, as interpreted by the Sixth Circuit Bankruptcy Appellate Panel and other reported decisions, and consistent with Ohio precedent which pre-date the URAA, requires the identification of the mortgagor within the acknowledgment clause or sufficient information within the acknowledgment clause so that the person whose signature was acknowledged can be identified through a review of the remainder of the mortgage. The court also finds that Smith's Lessee is consistent with the URAA and remains binding precedent in Ohio. The failure to include the name of the mortgagor in the blank on the statutory short form without any other information in the acknowledgment clause identifying who acknowledged the signing of his or her name to the mortgage renders the notary's certifications invalid and, consequently, the Mortgages may be avoided.
Accordingly, the Chapter 7 Trustee's Motions for Summary Judgment (Doc. 33 in Adv. Pro. No. 09-3198 and Doc. 35 in Adv. Pro. No. 09-3199) are
