Opinion
Case No. 11-32775 Adv. No. 11-3264
04-10-2012
In re: ANNETTE GALE WIGGINS, Debtor THOMAS R. NOLAND, TRUSTEE, Plaintiff v. ANNETTE GAIL WIGGINS, ET AL., Defendants
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.
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Lawrence S. Walter
United States Bankruptcy Judge
Judge L. S. Walter
Chapter 7
DECISION OF THE COURT GRANTING SUMMARY JUDGMENT TO
PLAINTIFF TRUSTEE THOMAS R. NOLAND FOR AVOIDANCE OF THE
MORTGAGE HELD BY DEFENDANT PNC BANK, N.A.
The matter is before the court on Plaintiff Trustee's Motion for Summary Judgment for Avoidance of Mortgage of Defendant PNC Bank, N.A. [Adv. Doc. 27]. In the motion, Chapter 7 Trustee Thomas R. Noland ("Trustee") requests summary judgment against Defendant PNC Bank, N.A. ("PNC") and avoidance of a mortgage held by PNC because of an alleged defect in the mortgage's acknowledgment clause. PNC did not timely respond to the Trustee's motion and it remains unopposed. Thus, the matter is now ripe for decision.
The court notes that the Trustee named other defendants in his complaint. Default judgment has been entered against two of these defendants, more specifically, Carolyn Rice, the Montgomery County Treasurer and the Debtor [Adv. Doc. 29]. Another defendant, Fifth Third Mortgage Corporation, filed an answer [Adv. Doc. 14], but the Trustee does not seek summary judgment against Fifth Third in his motion.
After review of the undisputed facts including the copy of the mortgage instrument attached as an exhibit to the Trustee's motion, the court concludes that the mortgage held by PNC is defectively executed because it contains a "blank acknowledgment" in that the notary public failed to identify the mortgagors in the certificate of acknowledgment. Because of this defect, the Trustee is entitled to avoid PNC's mortgage and preserve the lien for the benefit of the Debtor's estate. The court grants summary judgment to the Trustee on his claim for avoidance of PNC's mortgage.
FACTUAL BACKGROUND
Because the Trustee's motion is unopposed, the court relies on the facts presented and designated by the Trustee in his motion as the undisputed facts. On or about June 1, 2004, Debtor Annette Gale Wiggins ("Debtor") executed a mortgage in favor of National City Mortgage Company purporting to encumber the real property more commonly known as 5419 Keith Drive, West Carrollton, OH, 45449 (the "Property"). PNC is the successor in interest to National City Mortgage Company. The mortgage was recorded in the Montgomery County, Ohio Recorder's office on June 10, 2004 at microfiche number MORT-04-067857 and a copy is attached to the Trustee's Motion as Exhibit A [Adv. Doc. 27, Ex. A]. The recorded mortgage is signed by the Debtor [Id.]. The mortgage also contains an acknowledgment clause signed by Teresa L. Ganka, "Notary Public" [Id.]. However, the clause fails to indicate the name or identity of the mortgagors who appeared before the notary [Id.]. More specifically, the acknowledgment clause states: "This instrument was acknowledged before me this of , by " and includes blank areas for both the date and the name of the mortgagors [Id.].
Originally, Debtor Annette Wiggins and her prior husband, Scott Wiggins, were named on the general warranty deed on the Property and the mortgage encumbering the Property [Adv. Doc. 1, Exs. A and D]. Neither Annette nor Scott's name appears in the acknowledgment clause of the mortgage[Id., Ex. D]. By way of quitclaim deed executed April 8, 2010, Scott transferred his interest in the Property to Annette [Id., Ex. B]. Thus, at the time of the bankruptcy filing, Debtor Annette Wiggins owned the Property in its entirety [ Id ., ¶ 7].
Although not specifically addressed in the Trustee's motion, PNC admits in its answer that it is the successor in interest to National City Mortgage Company and, consequently, the holder of the mortgage at issue [Adv. Doc. 16, ¶¶ 8, 11, 14-15]. Consequently, the court considers this an undisputed fact.
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While "1 of June 2004" is hand-written in the appropriate space for the date, no names or other identifying information appear in the blank area for the names of the mortgagors acknowledging their signatures before the notary [Id.].
STANDARD FOR SUMMARY JUDGMENT
The Trustee requests summary judgment pursuant to Fed. R. Civ. P. 56 incorporated in bankruptcy adversary proceedings by Fed. R. Bankr. P. 7056. Rule 56 provides that summary judgment is to be granted by the court "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law" using appropriate citations to materials in the record. Fed. R. Civ. P. 56(a) and (c). 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 (1986). 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, 586-87 (1986) (citations omitted); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-251 (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.
The Trustee's motion is unopposed in this case. Nonetheless, the court may grant summary judgment only when the motion and supporting materials show that the moving party has established a right to relief as a matter of law and that no genuine issue of material fact exists. See Fed. R. Civ. P. 56(e); Rance v. Datavantage, Corp., 2008 WL 1899986, at *3 (N.D. Ohio April 28, 2008). Significantly, in a situation where the nonmoving party fails to respond, "the trial court is under no obligation to 'search the entire record to establish that it is bereft of a genuine issue of material fact.'" Rabin v. Delacruz (In re St. Clair Clinic, Inc.), 1996 WL 6531, at *2 (6th Cir. Jan. 8, 1996) (further citation omitted); Rance, 2008 WL 1899986, at *3. "Rather, the trial court may rely upon the 'facts presented and designated by the moving party.'" Rabin, 1996 WL 6531, at *2 (further citation omitted); Rance, 2008 WL 1899986, at *3.
LEGAL ANALYSIS
In his motion, the Trustee contends that he is entitled to summary judgment on his claim for avoidance of a mortgage held by PNC against the Debtor's Property because the mortgage contains a defective acknowledgment clause that fails to identify the acknowledging mortgagors. The court has reviewed the requirements for a properly executed mortgage under Ohio law as well as the relevant bankruptcy cases from this district and agrees with the Trustee's position. This defect, also known as a "blank acknowledgment," is fatal to the proper execution of the mortgage and, consequently, the Trustee may use his strong-arm powers to avoid the mortgage and preserve the lien for the estate.
The court begins with the strong-arm powers of a bankruptcy trustee to avoid certain transfers of property on behalf of a bankruptcy estate. Bankruptcy Code Section 544(a)(3) provides, in pertinent part:
(a) 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—11 U.S.C. § 544(a)(3). By way of a legal fiction, § 544(a)(3) provides the trustee with the ability to avoid a transfer of a debtor's interest in real property to the extent that the interest would be avoidable under applicable law by a bona fide purchaser of that real property on the date that the bankruptcy case commenced. Noland v. Burns (In re Burns), 435 B.R. 503, 507-08 (Bankr. S.D. Ohio 2010); Stubbins v. Chase Home Fin., LLC, (In re Robinson), 403 B.R. 497, 500 (Bankr. S.D. Ohio 2008) (noting that a Chapter 7 trustee enjoys the status of a hypothetical bona fide purchaser without regard to any actual knowledge of the trustee). Any transfer avoided under § 544(a)(3) is automatically preserved for the benefit of the estate. 11 U.S.C. § 551. The rights of a bona fide purchaser of real property are determined under the laws of the state in which the property is located which, in this case, is Ohio. Simon v. Citimortgage, Inc. (In re Doubov), 423 B.R. 505, 510 (Bankr. N.D. Ohio 2010).
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(3) 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 a purchaser exists.
Under Ohio law, only a properly executed and recorded mortgage is entitled to priority over a bona fide purchaser. Burns, 435 B.R. at 508. More specifically, Ohio Rev. Code § 5301.25(A) provides:
All deeds, land contracts referred to in division (A)(2)(b) of section 317.08 of the Revised Code, and instruments of writing properly executed for the conveyance or encumbrance of lands, tenements, or hereditaments, other than as provided in division (C) of this section and section 5301.23 of the Revised Code, shall be recorded in the office of the county recorder of the county in which the premises are situated. Until so recorded or filed for record, they are fraudulent insofar as they relate to a subsequent bona fide purchaser having, at the time of purchase, no knowledge of the existence of that former deed, land contract, or instrument.Ohio Rev. Code § 5301.25(A) (emphasis added). Pursuant to this provision, an improperly executed mortgage is not entitled to be recorded and, if it is recorded, the improperly executed mortgage is treated as if it were not recorded. Burns, 435 B.R. at 508 (citing Robinson, 403 B.R. at 501 and Mortgage Elec. Registration Sys. v. Odita, 822 N.E.2d 821, 825 (Ohio Ct. App. 2004)). Accordingly, "[a]n improperly executed mortgage cannot provide constructive notice to a bona fide purchaser without knowledge and can be avoided by a Chapter 7 trustee." Burns, 435 B.R. at 508.
In the case at hand, the Trustee asserts that PNC's mortgage is improperly executed because of a defective acknowledgment clause that fails to meet state law requirements. In Ohio, the requirements for a properly executed mortgage are set forth in Ohio Rev. Code § 5301.01 which states, in relevant part:
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, county engineer, notary public, or mayor, who shall certify the acknowledgement and subscribe the official's name to the certificate of the acknowledgement.Ohio Rev. Code § 5301.01(A). Under this statute, a mortgage executed before a notary public is properly executed only if: "(1) the mortgagor signs the mortgage; (2) the mortgagor acknowledges his or her signature before the notary public; (3) the notary public certifies the acknowledgment; and (4) the notary public subscribes his or her name to the certificate of acknowledgment." Rhiel v. Huntington Nat'l Bank (In re Phalen), 445 B.R. 830, 839 (Bankr. S.D. Ohio 2011). See also Drown v. GreenPoint Mortgage Funding, Inc. (In re Leahy), 376 B.R. 826, 832 (Bankr. S.D. Ohio 2007).
Significantly, a mortgagor, like the Debtor in this case, who signs her name to the mortgage in the presence of the notary public only meets the first and second requirements of Ohio Rev. Code § 5301.01(A). Phalen, 445 B.R. at 839-40; Leahy, 376 B.R. at 832. To meet the third requirement of this statute, the notary public must certify the mortgagor's acknowledgment of her signature. Phalen, 445 B.R. at 840; Leahy, 376 B.R. at 832. Under longstanding judicial precedent in Ohio, the notary public's certification must include the name of, or otherwise identify, the mortgagor. Phalen, 445 B.R. at 841-48 (applying the principles established in Smith's Lessee v. Hunt, 13 Ohio 260 (1844)). See also Burns, 435 B.R. at 516-17.
Numerous bankruptcy courts have dealt with mortgages governed by Ohio law in which the notary public's certification omits the name or identification of the mortgagor whose signature is to be acknowledged, a defect that is commonly known as a "blank acknowledgment." See, e.g., Terlecky v. Chase Home Fin., LLC, (In re Winningham), 448 B.R. 450, 451 (Bankr. S.D. Ohio 2011); Burns, 435 B.R. at 517; Doubov, 423 B.R. at 512-513. See also Phalen, 445 B.R. at 843 n.5 (citing many other cases). These courts have consistently held that a blank acknowledgment is a fatal defect to the proper execution of the mortgage and is not in substantial compliance with Ohio law. Winningham, 448 B.R. at 451-52; Phalen, 445 B.R. at 843; Burns, 435 B.R. at 517 (noting that the blank acknowledgment clause renders the mortgage invalid under Ohio law and the mortgage cannot be saved by the doctrine of substantial compliance); Doubov, 423 B.R. at 512-13; Leahy, 376 B.R. at 833-35. Accordingly, such a mortgage may be avoided by a Chapter 7 trustee. Winningham, 448 B.R. at 452; Burns, 435 B.R. at 517; Doubov, 423 B.R. at 513; Leahy, 376 B.R. at 835.
On summary judgment, the Trustee presents undisputed evidence demonstrating that the mortgage held by PNC was executed with a "blank acknowledgment" omitting any identification of the mortgagors [Adv. Doc. 27, Ex. A]. The court concludes that this defect renders the execution of the mortgage invalid as to a bona fide purchaser under Ohio law. As a hypothetical bona fide purchaser, the Trustee may avoid the mortgage on behalf of the bankruptcy estate pursuant to 11 U.S.C. § 544(a)(3) and § 551.
CONCLUSION
For the foregoing reasons, the court grants the Trustee summary judgment for avoidance of the mortgage held by Defendant PNC Bank, N.A. and preservation of the lien for the benefit of the Debtor's bankruptcy estate.
SO ORDERED.
cc:
Thomas R Noland
Statman, Harris & Eyrich, LLC
Fifth Third Center
1 South Main Street
Suite 900
Dayton, OH 45402
Email: notices@statmanharris.com
Charles Erik Baverman, III
Dinsmore & Shohl LLP
255 E Fifth St
Suite 1900
Cincinnati, OH 45202
Email: charles.baverman@dinslaw.com
Lisa Pierce Reisz
52 E Gay St
PO Box 1008
Columbus, OH 43216-1008
Email: lpreisz@vorys.com
Alison A Gill
655 Cooper Road
Westerville, OH 43081
Email: alison.gill@ohiolaws.com
Annette Gale Wiggins
11262 Trailing Oak
Miamisburg, OH 45342
Richard E West
195 E Central Avenue
PO Box 938
Springboro, OH 45066
Email: bknotice@woh.rr.com
Carolyn Rice
Montgomery County Ohio Treasurer
451 West Third Street
Dayton, OH 45422