Opinion
Case No. 04-30622, Adv. No. 04-3030.
March 24, 2005
MEMORANDUM OPINION
This adversary proceeding is before the court pursuant to Agreed Order of Submission (Document # 23) following a hearing on February 28, 2005 ( See Document # 21) and after the parties having tendered their proposed Findings of Fact and Conclusions of Law (Documents # 24 25).
The court has jurisdiction pursuant to 28 U.S.C. § 1334(d), and this is a core proceeding pursuant to 28 U.S.C. § 157(d)(2)(A), (K), and (O).
FINDINGS OF FACT:
The parties filed Joint Stipulations (Document # 14) which are incorporated herein as if set forth in their entirety. In addition, the following Findings of Fact are made specifically.
On June 2, 2000 the debtor, Rebecca Joyce Bradley, executed a real estate mortgage with Conseco Finance Servicing Corp., which is now known as Green Tree Servicing, LLC. The document is titled "MORTGAGE (with Future Advance Clause)" and in Paragraph 3, titled "MAXIMUM OBLIGATION LIMIT," states that the total principal amount secured is $69,747.92. Paragraph 4, titled "SECURED DEBT AND FUTURE ADVANCES," in Subsection A states that the mortgage secures "a Note executed by Mortgagor dated today. The above obligation is due and payable on 360 months from last construction disbursement if not paid earlier." Subsection B states in part, "All future advances and other future obligations are secured by this Security Instrument even though all or part may not yet be advanced. All future advances and other future obligations are secured as if made on the date of this Security Instrument." (Exhibit to Joint Stipulations, Document # 14).
The plaintiff filed his complaint against the defendant pursuant to 11 U.S.C. § 544 in order to avoid the lien as a hypothetical bona fide purchaser and a hypothetical judgment lien creditor. (Document # 1).
CONCLUSIONS OF LAW:
The issue presented is whether the mortgage satisfies Kentucky Revised Statute ("KRS") 382.330, which requires that a mortgage state "the date and the maturity of the obligations thereby secured," thus defeating the trustee's "strong arm" powers which are granted by federal bankruptcy statute.
Under 11 U.S.C. § 544, the bankruptcy trustee has the status of a bona fide purchaser of real property. If a hypothetical bona fide purchaser can avoid a lien, the trustee can avoid it as well, pursuant to 11 U.S.C. § 544. In re Zaptocky, 250 F.3d 1020, 1023-24 (6th Cir. 2001). The trustee's actual knowledge is irrelevant. 11 U.S.C. § 544; In re Zaptocky, 250 F.3d 1020, 1028 (6th Cir. 2000); Thacker v. United Companies Lending Corp., 256 B.R. 724 (Bankr.W.D.Ky. 2000). Since the trustee never has "actual notice" of a lien, the issue becomes whether the trustee has "constructive notice."
If a mortgage is recordable and is recorded, a bona fide purchaser is deemed to have "constructive notice" of its contents whether that purchaser conducts a title search or not. However, the recordation of an unrecordable mortgage does not constitute "constructive notice." State Street Bank and Trust Co. v. Heck's Inc., Ky., 963 S.W.2d 626, 630 (1998); See also Thacker v. United Companies Lending Corp., 256 B.R. 724, 729 (Bankr. W.D. Ky. 2000).
KRS 382.330 states in relevant part:
No county clerk shall record a . . . mortgage covering real property by which the payment of any indebtedness is secured unless the . . . mortgage states the date and the maturity of the obligations thereby secured which have been already issued or which are to be issued forthwith. In the case of obligations due on demand, the requirement of stating the maturity thereof shall be satisfied by stating that such obligations are "due on demand."
In Trio Realty Co. v. Queenan, 360 S.W.2d 747 (Ky. 1962), one of the two reported cases dealing with omission of date and maturity of a secured obligation, the court stated, "[A] mortgage which does not reveal the date and maturity of the obligation secured thereby is not a recordable instrument" (emphasis added). In the other reported case, In re Taylor, 18 B.R. 128 (Bankr. W.D.Ky. 1982), the court found that if a person can make the "necessary mathematical computations to derive the payout date," KRS 382.330 is satisfied.
Counsel for the plaintiff cites the court to Memorandum Opinion entered in James Gardner, trustee v. Century Bank of Kentucky, (In re Dennis), AP No. 04-3022, in the U.S. Bankruptcy Court for the Eastern District of Kentucky by Judge William S. Howard on September 29, 2004 (Document # 22) for its holding that the mortgage was avoidable by the trustee because it failed to state a maturity date. However, this court finds that case to be distinquishable because the mortgage under examination was blank as to the maturity date. No maturity date was stated at all.
Here, although the mortgage provides that the "obligation is due and payable on 360 months from last construction disbursement if not paid earlier," it states neither the maturity of the promissory note it secured nor the date of the last disbursement. Because the mortgage fails to state the date of the last disbursement, it is not possible to calculate the maturity date of the note secured by the mortgage. Consequently, neither Trio Realty ("reveal" maturity) nor In re Taylor ("mathematical computations") is satisfied.
Counsel for Green Tree asserts that by the terms of the mortgage the future advances are "deemed" to have occurred on the date of the mortgage, June 2, 2000. Furthermore, counsel for Green Tree asserts that a specific calendar date is not required by KRS 382.330 and that 360 months from last construction disbursement is a finite term, not open-ended. However, counsel for the defendant also acknowledges that "reference to extrinsic matter might be necessary." (Document # 24). This court is of the opinion that KRS 382.330 is not satisfied by a party having to assume what is the maturity of the obligation secured by a recorded mortgage. Furthermore, this court is of the opinion that KRS 382.330 is not satisfied by having to refer to evidence extrinsic to the recorded document. As stated by the court in Trio Realty:
Whatever the motivation purpose may have been, it was within the legislative perogative to define an unrecordable instrument. There are other statutes defining conditions to recording deeds and mortgages. Illustrative are KRS 382.130, 382.335, 382.340. The courts must interpret statutory provisions and give them effect according to their unambiguous language. The language here is that a morgage which does not reveal the date and maturity of the obligation secured thereby is not a recordable instrument.
Trio Realty, 360 S.W.2d at 749.
A mortgage which does not provide the maturity of the obligation secured by it does not comply with KRS 382.330. A mortgage, even though recorded, which does not comply with KRS 382.330 is not a recordable instrument and is not sufficient notice to a bona fide purchaser or judgment lien creditor. Therefore, the mortgage in question here does not put the trustee on notice, and he may avoid the mortgage.
Within ten (10) days the plaintiff shall tender a judgment in conformity with this Memorandum Opinion.