Opinion
Case No. 05-65743, Adv. Pro. No. 06-2353.
September 18, 2008
MEMORANDUM OPINION AND ORDER REGARDING SECOND AMENDED COMPLAINT TO AVOID DEFECTIVE MORTGAGE (NO. 42)
This Memorandum Opinion and Order constitutes the Court's findings of fact and conclusions of Law for the Second Amended Complaint to Avoid Defective Mortgage (No. 42) filed by the chapter 7 trustee, William B. Logan, Jr., ("Plaintiff"). It is alleged that a mortgage, now held by US Bank N.A. ("Defendant"), is defective, due to a notary's failure to sign the acknowledgment pursuant to Section 5301.01 of the Ohio Revised Code ("O.R.C."). On this basis the Plaintiff seeks a determination that Defendant's Mortgage was invalid and recovery of the value for the estate, pursuant to sections 544(a) and 551 of the United States Bankruptcy Code ("Code").
Based upon the evidence, stipulations, pleadings and statements of the parties, the Court has concluded that the Defendant's Mortgage was in substantial compliance with Ohio's mortgage execution laws, and would not have been subject to avoidance. A brief history will detail the bases for this decision.
Vicki S. Cooperman ("Debtor") resided at 3141 Parklane Avenue in Columbus, Ohio. This home was subject to the Defendant's Mortgage in the amount of $85,164.82. It was signed at a closing conducted on May 6, 2005. Those present included Joan M. Wright, who served as the notary and closing agent ("Notary") and the Debtor, who signed the mortgage individually and for her husband, as his attorney in fact. The acknowledgment clause was completed by the Notary, including insertion of the county, closing date and her notary seal. The acknowledgment, however, was not signed by the Notary.
Slightly more than three months after the closing, the instant chapter 7 proceeding was commenced by the Debtor on August 31, 2005. The Schedules described the residence as being subject to the Mortgage. The Plaintiff was appointed as trustee, and the meeting of creditors was conducted on October 7, 2005. On October 26, 2005, the Plaintiff filed an Interim Report in which his investigation regarding the validity of the Mortgage was disclosed.
In her January 6, 2006 Statement of Intention the Debtor represented that she would reaffirm the Mortgage. This was not done, however, and on January 22, 2006, the Debtor received a discharge. On May 9, 2006, the instant adversary proceeding was commenced, and on January 5, 2007, the Court entered an Order allowing the Defendant to conduct a Bankruptcy Rule 2004 examination of the Debtor scheduled or January 12, 2007. Approximately two months later, on March 26, 2007, the Debtor refinanced and paid the Mortgage held by the Defendant.
The record indicates that this was done without the knowledge of the Plaintiff and/or the approval of the Court. Indeed, the refinancing application reflects that the Debtor failed to disclose this bankruptcy case, that is in addition to her prior chapter 13 proceedings, Case Numbers 92-26168 and 98-61299. Unfortunately, all of the details of this transaction are still unknown because there has been no testimony from the Debtor. She failed to appear on the initial and second trial dates after being subpoenaed by the Defendant and ordered to appear by this Court. As a result, the Debtor's discharge was revoked on January 23, 2008.
The evidence clearly demonstrates that the Notary was present and witnessed the Debtor sign the Mortgage on her behalf and that of her spouse, Barry Cooperman, Sr. In her testimony, Ms. Wright made specific reference to writing in "Franklin" County and the date, the "6th" day "May," "2005", as well as placing her stamp and seal under the acknowledgment clause. In response to the Court's inquiry the Notary indicated that she simply did not know why she failed to sign the Acknowledgment. The Notary, however, credibly testified that she did in fact attend the closing to execute the documents.
The testimony of the Notary and documents received into evidence demonstrate that as part of the May 6, 2005, closing four other documents were notarized: 1) The Debtor's "Name Affidavit"; 2) Barry Cooperman, Sr.'s "Name Affidavit"; 3), the "Owner's Affidavit", and 4) the "Certification of Proof of Identity". The Debtor's "Name Affidavit" was signed by the Notary, included her notary stamp and also included insertions of the closing location information (Ohio and Franklin County), the closing date of May 6, 2005, her notary commission expiration date of November 22, 2009, and the name of the Debtor.
In addition, the "Owner's Affidavit" and "Certification of Proof of Identity" were both dated May 6, 2005, and were both signed by the Notary. The same holds true for the "Information for Government Monitoring Purposes". The Settlement Statement dated May 6, 2005, bears the signature of the Debtor and the Notary. The closing documents also included a copy of the Debtor's driver's license. The Notary stated this was required as part of the closing process. All of these facts support the Notary's testimony that she witnessed the Debtor's signature at the closing.
Turning to the law, section 5301.01(A) of the Ohio Revised Code details the requirements for proper execution of a mortgage as follows:
(A) . . . mortgage . . . shall be signed by the grantor, mortgagor, vendor, or lessor in the case of a deed, mortgage, land contract, or lease or shall be signed by the trustee in the case of a memorandum of trust. The signing shall be acknowledged by the grantor, mortgagor, vendor or lessor, or by the trustee, 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 acknowledgment and subscribe the official's name to the certificate of the acknowledgment.
Section 5301.01 of the Ohio Revised Code serves as a deterrent to fraud, and it is intended to provide "reasonable assurance that the instrument is genuine." Menninger v. First Franklin Corp. ( In re Fryman), 314 B.R. 137, 138 (Bankr. S.D. Ohio 2004); Delfino v. Paul Davis Chevrolet, Inc., 2 Ohio St. 2d 282, 209 N.E. 2d 194, 286 (Ohio 1965). In the instant case, however, fraud is not at issue. Indeed, the Debtor failed to provide any testimony and in particular indicate whether she disputed the testimony and documentary evidence that indicates that she signed the Mortgage in the presence of the Notary.
If one of the execution requirements is not met, a mortgage is deemed invalid, and it may be avoided by a trustee in the absence of actual or constructive notice. Simon v. Chase Manhattan Bank (In re Zaptocky), 250 F.3d 1020, 1024 (6th Cir 2001). As the challenger, the Plaintiff must prove by clear and convincing evidence that the Mortgage should be deemed invalid. Menninger v. Mortgage Electronic Registration Systems (In re Bowling), 314 B.R. 127, 135 (Bankr. S.D. Ohio 2004).
A defectively executed mortgage may withstand a trustee's challenge if there is substantial compliance with the requirements of the mortgage execution statute. In re Fryman at 138-139. To determine whether there is substantial compliance courts are instructed to examine the document to determine whether it "supplies within itself the means of making the correction. " In re Bross, 2006 WL 2381542, (D.S.D. Ohio 2006) citing Dodd v. Bartholomew, 44 Ohio St. 171, 5 N.E. 866 (1886). In addition, courts may consider other evidence, such as a notary's affidavit to substantiate that parties attended the closing and signed the mortgage in their presence. Collins v. Zambrano, 1990 WL 12723 at *3. (Ohio App., 1990).
Unlike the case of Logan v. Universal 1 Credit Union, Inc. (In re Bozman), 365 B.R. 824, 826-829 (Bankr. S.D. Ohio 2007), we have an acknowledgment clause on the Mortgage, and it clearly bears the Notary's stamp, the expiration date of the Notary's Commission and the closing date of the transaction, May 6, 2005. This Court finds and concludes that these additional signs, that appear on the Mortgage itself, serve to cure the signing defect and erase any doubt that the Debtor appeared and signed in the presence of the Notary. As noted in earlier proceedings by the Defendant's Counsel, the Mortgage is not a complicated and lengthy document that would lead one to require additional indicia that it was signed in the presence of the Notary. It is only two pages with a one-page "Adjustable Rate Rider" and a one-page property description. The curative factors on the Mortgage are only bolstered by the other documents that were executed during the closing, as previously detailed in this Order.
In considering all the facts of this case, the Court finds and concludes that the Notary's failure to sign the Acknowledgment on the Mortgage was a mere clerical omission, and that the Acknowledgment is in substantial compliance with section 5301.01 of the Ohio Revised Code. As a result, the Mortgage was not invalid, and the Plaintiff is not entitled to recover the refinancing proceeds paid to the Defendant.
The Court notes that even if the Plaintiff prevailed, any recovery should not be for the entire balance of $85,164.82 since the Defendant holds the largest claim, and all the other claims only total $54,349.07. The second largest claim is held by the Franklin County Department of Jobs and Family Services. It is based upon a March 3, 1999, Criminal Judgment Entry in the amount of $32,495.44.
Finally, after conducting the hearing, the Court now shares the view of the Defendant that this is not a simple case of recovery premised upon a defective mortgage execution. Rather, this case involves a critical intervening event in the form of the Debtor's unauthorized refinancing of the Mortgage on March 26, 2007. In that transaction the Defendant received a payoff in the amount of $86,399.71, and the Debtor received the sum of $1,908.19. The Defendant, in reliance upon the payoff, recorded a release of its Mortgage on May 8, 2007. If the Plaintiff is to have a recovery it should be premised upon section 549(a)(1)(2)(B) and (d) of the Code, that allows for the avoidance of unauthorized post petition transfers. Such a cause of action would involve the parties to that unauthorized transaction, and not the Defendant.
Accordingly, the Defendant is entitled to judgment in its favor.
IT IS SO ORDERED.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.