Field v. Wheeler et al

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
In Re
Patricia Wheeler
Debtor
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Eileen K. Field, Trustee
Plaintiff
vs.
ABN AMRO Mortgage Group, Inc.
Defendant
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Case No. 02-18847
Adversary No. 04-1386
Chapter 7
Judge Burton Perlman
This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: July 21, 2005
____________________________________________________________
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DECISION ON CROSS MOTIONS FOR SUMMARY JUDGMENT
Introduction
Now before the Court are cross-motions for summary
judgment in an adversary proceeding that involves an attempt
by the trustee, Eileen Field to avoid a mortgage on real
property jointly owned by the debtor, Patricia Wheeler and her
non-debtor spouse, Harry R. Wheeler. In its motion, defendant
attached several exhibits, including the relevant mortgage
documents, answers to certain interrogatories and requests for
admissions. Based upon these exhibits and its application of
Ohio law, defendant argues that the trustee may not avoid the
mortgage because the acknowledgment clause “substantially
complies” with O.R.C. §5301.01 (2001).
In the alternative, defendant also argues that even if
the acknowledgment clause is defective as to the debtor, the
defendant’s mortgage on the debtor’s interest in the property
is still valid because the mortgage was properly acknowledged
as to the non-debtor spouse’s signature. This allowed the
defendant to properly record the mortgage and bestowed
constructive notice upon the trustee of all of the mortgage
documents, including the debtor’s grant of a mortgage to the
defendant. As a consequence, defendant asserts that the
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trustee was put on constructive notice of the defendant’s
mortgage on the debtor’s share of the property, the trustee’s
ability to avoid the mortgage was thereby eliminated.
Trustee filed a memorandum in opposition to defendant’s
motion seeking either a denial of defendant’s motion, or a
grant of summary judgment in her favor. In her memorandum,
trustee argues that the debtor’s signature on the mortgage was
not properly acknowledged in accordance with O.R.C. §5301.01.
Trustee further asserts that as a result of the defective
acknowledgment she may avoid defendant’s mortgage attaching to
the debtor’s interest in the property as a hypothetical bona
fide purchaser under 11 U.S.C. §544(a)(3)(2005).
Legal Standard
Motions for summary judgment are governed by F.R.Civ.P.
56 which is incorporated into bankruptcy practice by F.R.B.P.
7056. That rule provides in part that a motion for summary
judgment is to be granted “if the pleadings, depositions,
answers to interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no genuine
issue of material fact and that the moving party is entitled
to judgment as a matter of law.” The moving party bears the
initial burden of showing that there is no issue of material
fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323-324 (1986).
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The nonmoving party, however, bears the ultimate burden of
showing that a genuine issue of material fact exists. In
doing so, the nonmoving party cannot rest on its pleadings,
but must, in response, offer some evidence which demonstrates
a genuine issue of material fact for trial. Id.
Facts
On December 24, 2001, the debtor, Patricia Wheeler, and
her non-debtor husband, Harry R. Wheeler, as joint owners of a
parcel of real property executed a mortgage in favor of the
defendant. The mortgage was recorded in the Hamilton County
Recorder’s office on February 2, 2001. The debtor and her
spouse signed the mortgage in the presence of a notary public.
In addition, the debtor and her spouse initialed each page of
the note and mortgage. Despite the fact that the debtor’s
signature and initials appear on both the note and mortgage
documents, the debtor’s name does not appear on the notary’s
acknowledgment clause. The sole name contained in the
acknowledgment clause is that of the non-debtor spouse.
Discussion
The primary issue in this case is whether the defendant
satisfied the requirements contained in O.R.C. §5301.01 when
executing the mortgage. If the defendant failed to satisfy
the requirements, the trustee may avoid the mortgage by
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111 U.S.C. 544(a)(3) states:
The trustee shall have, as of the commencement of the case, and without regard
to any knowledge of the trustee or of any creditor, the rights and powers of, or
may avoid any transfer of property of the debtor or any obligation incurred by the
debtor that is voidable by a bona fide purchaser of real property, other than
fixtures, 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
purchaser exists
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utilizing her status as a hypothetical bona fide purchaser
under 11 U.S.C. 544(a)(3).1 Amick v. Woodworth,50 N.E. 437,440
(Ohio 1898).
The language of O.R.C. §5301.01 reads as follows:
A ... mortgage ... shall be signed by the
mortgagor.... The signing shall be acknowledged by
the ... mortgagor ... before a judge or clerk of a
court of record in this state, or a county auditor,
country engineer, notary public, or mayor, who shall
certify the acknowledgment and subscribe the
official’s name to the certificate of the
acknowledgment.
In Ohio, caselaw indicates that substantial, rather than
strict compliance is sufficient to properly execute a mortgage
in accordance with O.R.C. §5301.01. Mid-American Natl. Bank &
Trust Co. v. Gymnastics Intl. Inc., 451 N.E. 2d 1243, 1246
(Ohio. App. 1982) (holding that the acknowledgment clause
substantially complied with O.R.C. §5301.01 where the clause
incorrectly identified the corporation as the signor of the
mortgage rather than the corporate officers who actually
signed the mortgage on behalf of the corporation). The Ohio
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Supreme Court has stated that courts must review the nature of
the error in the context of the entire instrument to determine
if the “instrument supplies within itself the means of making
the correction.” Dodd v. Bartholomew, 5 N.E. 866 (1886)(notary
acknowledgment clause containing the incorrect middle initial
of the husband and the incorrect first name of the wife was
nevertheless still valid). It is clear however that when an
acknowledgment clause fails to indicate the name of a sole
grantor, the resulting mortgage is unenforceable against
subsequent bona fide purchasers. Lessee v. Hunt, 13 Ohio 260
(1844), See Generally In re Wolfzorn, Adv. No. 03-1674 (Bankr.
S.D. Ohio Sept. 30, 2004).
In the current case, the debtor’s name does not appear
within the notary public’s acknowledgment clause. The only
person named in the clause is the debtor’s spouse. Defendant
argues that despite this defect, the mortgage still
substantially complies with O.R.C. §5301.01. Defendant cites
to In re Fryman, 314 B.R. 137 (Bankr. S.D. Ohio 2004)as
support for its position. Defendant says that the facts
contained in Fryman are similar to the set of facts currently
before the Court.
In Fryman, two individuals granted a mortgage interest in
jointly held property, but the acknowledgment clause contained
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the name of only one of the grantors. Id. at 138. Both
grantors signed at the appropriate location on the mortgage
and initialed each page of the mortgage. Id. Despite the
failure to specifically list both grantors in the
acknowledgment clause, the Fryman Court found that the
mortgage was still valid as to both grantors’ conveyances and
substantially complied with O.R.C. §5301.01. Id. at 139. The
Fryman court’s rationale was based upon the existence of three
distinct facts. Id.
The court first pointed to the fact that the
acknowledgment clause failed to list only one of the grantors,
not both. Id. Second, the Fryman court pointed to the fact
that the notary also served as a witness to the signing of the
mortgage, and the witnessing was not challenged by the
trustee. Id. The court determined that it would be
inconsistent to discredit the notary’s acknowledgment, when
the notary’s role as a witness was accepted by the trustee as
proper. Id. Finally, the Fryman court determined that there
were, “numerous other indicators apparent from the face of the
mortgage itself to make the correction.” Id. (citing Dodd, 5
N.E. at 866). The Fryman court made specific mention of the
fact that both grantors signed the mortgage and initialed each
page. It said further:
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2At the time the mortgage in question was executed, O.R.C. §5301.01 (2001) a grantor’s signature
required two witnesses. The current version of O.R.C. §5301.01 (2005) does not include the two witness
requirement.
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The balance of the acknowledgment clause recites
that “they” examined, read, and signed the
instrument of “their” free act and deed. The plural
pronouns “they” and “their” are not pre-printed but
are handwritten in by the notary.
In the current case, similar to Fryman, the
acknowledgment clause refers only to one of the two grantors,
the non-debtor spouse. Also similar to Fryman, the notary
public served as a witness to the grantors’ signatures in
addition to acknowledging the signing. This Court agrees with
the rationale of Fryman that it would be contradictory to
discredit the notary’s acknowledgment when the notary’s actual
witnessing of the signing of the mortgage by the debtor is
unchallenged.2
Unlike Fryman, however, where the notary made specific
use of the term “they” or “theirs” within the acknowledgment
clause, there is no language contained within the defendant’s
acknowledgment clause that indicates that the notary
acknowledged the signature of anyone other than the non-debtor
spouse, “Harry R. Wheeler, married”. In addition, there is no
pre-printed or typewritten language within the mortgage
documents that indicate the debtor was even a party to the
transaction. This is evidenced by the fact that the term
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3A properly executed and recorded mortgage takes priority over a subsequent bona fide purchaser.
O.R.C. §5301.25 (2001), In re Winland, 276 B.R. 773, 780 (Bankr. N.D. Ohio 2001).
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“borrower” is defined in the mortgage as “Harry R. Wheeler,
married”.
Defendant advances an alternative basis in an attempt to
validate the debtor’s grant of a mortgage interest in the
property. Defendant argues that even if the acknowledgment
clause is improper as to the debtor’s grant of her mortgage
interest, the clause is still valid as to the non-debtor
spouse and the mortgage is therefore properly recordable.
Defendant further argues that as a result of the recording of
the mortgage, the trustee, as a hypothetical bona fide
purchaser under 11 U.S.C. §544(a)(3), was placed on
constructive notice of the contents of the entire mortgage,
including the debtor’s grant of a mortgage interest to the
defendant. As a result, defendant asserts that constructive
notice of the mortgage eliminates the trustee’s ability to
utilize her hypothetical status of a bona fide purchaser.3
While it appears that no relevant Ohio caselaw exists,
the vast majority of caselaw from other jurisdictions does not
support defendant’s position regarding constructive notice.
In similar situations, where there are multiple grantors of a
property interest, and not all of the grantors comply with the
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acknowledgment or attestation requirements of a particular
state law, any subsequent recording of the interest is only
valid against a subsequent bona fide purchaser as to the
grantors who complied with the state law. People v. Donegan,
123 N.E. 71 (N.Y. 1919)(where four persons execute a deed and
the acknowledgment of the deed by one of them is defective the
recording of the deed as to the grantor whose acknowledgment
was defective would not serve as notice to subsequent
purchasers). In addition, the Michigan Supreme Court has
stated:
We are all of opinion . . . that when a deed from
several grantors is recorded, as to only a part of
whom it is properly executed and witnessed, the
record can only be evidence of the deed as to those
parties by whom it has been duly witnessed, so as to
entitle it to record had they been the only grantors
named. In other words, a defective execution or
attestation as to one grantor, cannot be aided by a
perfect execution and attestation as to other
parties. To hold otherwise would be to defeat the
manifest object of the registry laws , and to open a
wide door to fraud.
Hall v. Redson 10 Mich 2l (1862), Bell v. Sage, 212 P. 404,
406 (Cal. App. 3d Dist. 1922), Prudential Ins. Co. of Am. v.
Holliday, 214 N.W. 2d 273, 275 (Neb. 1974), but see In re
Barnacle, 623 A. 2d 445, 449 (R.I. 1993) (finding that a
defectively executed mortgage that is recorded may impart
constructive notice upon a subsequent purchaser).
Thus, in following the majority of other jurisdictions,
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this Court finds that while the non-debtor spouse complied
with O.R.C. §5301.01 and the recording of the defendant’s
mortgage interest in the non-debtor spouse’s portion of the
property imparts constructive notice to subsequent purchasers,
this constructive notice is limited to the defendant’s
mortgage interest in the non-debtor spouse’s share of the
property. The failure to substantially comply with the
acknowledgment requirement of O.R.C. §5301.01 invalidates any
recording of the defendant’s mortgage on the debtor’s share of
the property. As a result, there was no constructive notice
of the defendant’s mortgage interest in the debtor’s share of
the property at the time the debtor filed her bankruptcy.
Therefore, the trustee prevails in avoiding the interest as a
hypothetical bona fide purchaser under 11 U.S.C. §544(a)(3).
Our conclusion that the execution of the mortgage was
inadequate to comply with O.R.C §5301.01 is reinforced by the
fact that the mortgage was prepared by defendant. Where there
is a question of construction of an instrument, the rule is
that it must be construed against the drafter. Mead Corp. v.
ABB Power Generation, Inc., 319 F. 3d 790, 797 (6th Cir. 2003).
For the reasons stated above, the Court concludes that
the failure to indicate that the debtor’s signature was
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properly acknowledged by the notary resulted in the failure to
substantially comply with O.R.C. §5301.01. As a result, the
subsequent recording of that interest does not give
constructive notice of the defendant’s mortgage interest to
any subsequent bona fide purchaser of the property. Thus, the
trustee, as a hypothetical bona fide purchaser under 11 U.S.C.
§544(a)(3)is able to avoid the defendant’s mortgage on the
debtor’s interest in the property.
Accordingly, the plaintiff’s motion for summary judgment
will be GRANTED and the defendant’s motion for summary
judgment will be DENIED.
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