Field v. Wells Fargo et al

OCR transcription for search; preserved printed pages are authoritative

Case 1:05-ap-01086 Doc35 Filed 01/18/06 Entered 01/19/06 12:39:42 Desc Main
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This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southem District of Ohio.

IT SS SO ORDERED.

di

Dated: January 18, 2006 JWvincent Aug, Jr.
United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO

WESTERN DIVISION

In re Case No. 04-16231
Kimberly Marie Bross, .

Debtor(s) Chapter 7 (Judge Aug)
Eileen K. Field, Trustee, Adv No. 05-1086

Plaintiff
v.
Wells Fargo, et al.

Defendants.

ORDER GRANTING PLAINTIFF TRUSTEE’S
MOTION FOR SUMMARY JUDGMENT
. AND
DENYING DEFENDANT WELLS FARGO’S
MOTION FOR SUMMARY JUDGMENT

AND
DENYING THIRD PARTY DEFENDANT TERRANCE R. MONNIE’S
MOTION FOR SUMMARY JUDGMENT

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This matter is before the Court on Third Party Defendant Terrance R.
Monnie’s motion for summary judgment (Doc. 25, 27), Plaintiff Eileen K. Field,
Trustee’s motion for summary judgment (Doc. 29), Defendant Wells Fargo Home
Mortgage’s motion for summary judgment (Doc. 30), and the parties’ responsive
briefs (Docs. 31, 32, 33, 34).

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §1334 and

the general order of reference entered in this district. This is a core proceeding
pursuant to 28 U.S.C. §157(b)(2)(K).

The issue before the Court is whether the failure of the Debtor to sign the
mortgage renders the mortgage defective under Ohio Revised Code $5301.01 and
avoidable by the Chapter 7 Trustee.

Summary judgment is appropriate when the pleadings, answers to
interrogatories, and admissions on file, 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.
See Bankruptcy Rule 7056.

The material facts are not in dispute. The subject mortgage in favor of Wells
Fargo was not signed by the Debtor. The Debtor did initial each page of the
mortgage, including the signature page and the Debtor did sign two riders to the
mortgage.

A bankruptcy trustee may avoid a transfer that is avoidable by a bona fide
purchaser. 11 U.S.C.§544(a)(3)}. Under Ohio law, only properly executed
mortgages take priority over a bona fide purchaser. £.g., In re Huffman, 369 F.3d
972, 974 (6th Cir. 2004). | .

For a mortgage to be properly executed, Ohio Revised Code §5301.01 states
that “A ... mortgage shall be signed by the... mortgagor...” and that “[t]he
signing shall be acknowledged by the... mortgagor... before a... notary public .

Over 100 years ago, the Supreme Court of Ohio enunciated the principle that
the court must review the nature of the error and the balance of the document to
determine whether or not the “instrument supplies within itself the means of making
the correction.” Dodd y. Bartholomew, 44 Ohio St. 171 (1886)(notary

a

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acknowledgment clause with wrong middle initial of husband and wrong first name
of wife found valid). In other words, “substantial compliance” with Ohio Revised
Code §5301.01 is required. See Mid-American Bank & Trust Co. v. Gymnastics
International, Inc., 6 Ohio App. 3d 11 (1982)(notary acknowledgment clause with
recital that corporation signed mortgage rather than corporation’s officers found
valid).

On several recent occasions, this Court has addressed the issue of defective
notary acknowledgment clauses. See Jn re Fryman, 314 B.R. 137 (Bankr. 8.D.
Ohio 2004)(Aug, J.); In re Wolfzorn, Adv. 03-1674 (Bankr. $.D. Ohio Sept. 30,
2004); In re Wheeler, Adv. No. 04-1386 (Bankr. §.D. Ohio July 21, 2005)(Perlman,
J.). This case involves a defective signature as well as a defective notary clause.
Specifically, this case involves a mortgage with no signature. Not only is the
mortgage not properly executed, it is not executed at all.

The Defendants point to the fact that the Debtor signed a condominium rider
and a mortgage insurance rider. However, neither of these signatures were
notarized.

The Defendants also point to the fact that the Debtor initialed the bottom of
each page of the mortgage, including the signature page of the mortgage. In this
regard, the Defendants cite numerous cases which stand for the proposition that
initials can satisfy the statute of frauds or that initials can be used by an official to
authenticate an official act. E.g., Hongosh v. Piszko, 1982 Ohio App. LEXIS 14504
(Cuyahoga Ct. App. May 19, 1983). The Defendants also cite a case for the
proposition that a mere mark may be a signature. Truman v. Lore, 14 Ohio St. 144
(1862). Other than the Truman case, of which the portion cited is dicta, none of the
cases cited by the Defendants involve recorded documents. Rather, the cases cited
by the Defendants involve documents such as sales contracts, insurance
applications, and negotiable instruments.

The Defendants also cite several cases for the proposition that the location of
a signature can be anywhere on the document. Like most of the cases cited above
by the Defendants, Phelps v. Sanders, 1999 WL 33244757 (Ct. App. Ohio 1999)
and Pio v. Gilliland Construction Co., 560 P.2d 247 (Ore. 1976) are easily
distinguished in that they do not involve recorded instruments. Although the
document at issue in Graham v. Burggraf, 1896 WL 630 (Ohio Cir. 1897), did
involve a deed which was signed by one party on the wrong page, that case may be
distinguished because the court crafted an equitable remedy for the grantee.

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Equitable remedies are generally not available with regard to the rights and powers
of a bankruptcy trustees under 11 U.S.C. §544(a)(3). See Norwest Bank
Worthington vy. Ahlers, 485 U.S. 197 (1988)(equitable remedies and defenses are

not available in bankruptcy unless consistent with the express terms of the Code).

What makes a recorded document unique is that it must be notarized.
Because of the notarization requirement, the location of the signature line takes on
more significance. Since a notary can only properly notarize a mortgage after the
notary has observed the mortgagor sign the mortgage, it is logical to presume that
the mortgagor’s signature should appear “above” the notary’s signature, not
“below” it. The Court takes judicial notice that it has never seen a mortgage (or

deed or affidavit) where the notary clause precedes the signature line of the signor.

We conclude that for purposes of Ohio Revised Code §5301.01, for initials or
other mark to be tantamount to a signature, the initials or mark should appear on the
signature line if there is one. We interpret the presence of initials on the bottom of
each page of a lengthy document to insure the completeness of the document at the
time of its execution. Except, in the present case, the execution never occurred.

We further conclude that the instrument itself does not supply the means of making
the correction, see In re Dodd, 44 Ohio St. 171, and that it would set a dangerous
precedent to give credence to a mortgage with an absolutely blank signature line.

The Defendants contend that the Trustee has failed to allege that the
mortgage is fraudulent. However, the Trustee does not have to prove fraud. The
issue is whether a defectively executed mortgage takes priority over a bona fide
purchaser, the rights and powers of whom the Trustee has under 11 U.S.C.
§544(a)(3). The law is clear that a bona fide purchaser prevails. See in re Huffman,
369 F.3d 972.

The Defendants’ reference to Ohio Revised Code §5301.234 is misplaced.
This 1999 change to the recording statute eliminated the need for the signatures of
two witnesses. It did not eliminate the requirement that the Debtor sign the
mortgage.

Lastly, the Defendants contend that the notary acknowledgment clause saves
the mortgage. We disagree. The “acknowledgment” of a blank signature line is in
and of itself suspect and does nothing to save the mortgage. Further, the notary
clause in the subject mortgage refers to the “foregoing” instrument, which is all the
more reason to require the signature of the mortgagor to appear “above” the

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signature of the notary. See supra.

Under the guidance of the above cases, we conclude that the complete
omission of the Debtor’s signature from the signature line on the mortgage causes
the mortgage not to be in substantial compliance with Ohio Revised Code §5301.01
and not properly executed under Ohio law. As we stated in In re Wolfzorn, we
reluctantly acknowledge that the outcome allows the Trustee and the Debtor’s
unsecured creditors to benefit from a defective mortgage. Such is the state of the
law.

Accordingly, the Trustee’s motion for summary judgment is hereby
GRANTED and the mortgage is avoided in favor of the Trustee;

The Defendants’ motions for summary judgment are hereby DENIED.

IT IS SO ORDERED.

copy to:
Eileen K. Field, Trustee
Todd J. Flagel, Esq.
Amelia Bower, Esq.
U.S. Trustee

HH #