Drown v. Argent Mortgage Company, LLC et al

UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION AT COLUMBUS
In re: 	:
: 	Case No. 05-68835
MICHELLE MONICK BUNN, 	: 	Chapter 7
: 	Judge Hoffman
Debtor. 	:
:
:
William Todd Drown, Chapter 7 Trustee, 	:
:
Plaintiff, 	:
:
v. 	: 	Adv. Pro. No. 06-2232
:
Argent Mortgage Company, LLC, et al., 	:
:
Defendants. 	:
MEMORANDUM OPINION ON PLAINTIFF’S
CROSS-MOTION FOR SUMMARY JUDGMENT
AND MOTION OF DEFENDANT ARGENT
MORTGAGE COMPANY, LLC, FOR SUMMARY JUDGMENT
I. Introduction
The issue presented by the parties’ cross-motions for summary judgment is whether a
bankruptcy trustee in his/her role as a hypothetical, good-faith purchaser for value may avoid a
consensual mortgage between a debtor and the mortgagee because the mortgage lacks a legal
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: September 29, 2007
____________________________________________________________
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1Neither the Motion nor the Cross-Motion seek judgment on the Trustee’s claims for
avoidance of preferential payments or sale of the real estate. 	Therefore, this decision will not
address either of these claims for relief.
2
description of the real property. Before the Court are the following: (1) the motion for summary
judgment (“Motion”) (Doc. 17) filed by Defendant Argent Mortgage Company, LLC (“AMC”) on
the complaint (“Complaint”) (Doc. 1) filed against it by Plaintiff William Todd Drown (“Drown”
or “Trustee”), and the counterclaim and cross-claim filed by AMC against Drown and the Debtor,
Michelle Bunn (“Debtor”); (2) Drown’s response and cross-motion for summary judgment (“Cross-
Motion”) (Doc. 21); and (3) AMC’s reply (“Reply”) (Doc. 22). The Court heard oral argument on
the cross-motions on May 14, 2007.
II. Jurisdiction
The Court has jurisdiction to hear and determine this adversary proceeding pursuant to
28 U.S.C. § 1334(b) and the general order of reference entered in this district. 	This is a core
proceeding. 28 U.S.C. § 157(b)(2).
III. Procedural Background
In the Complaint, Drown requests three types of relief. 	First, he seeks avoidance of a
mortgage granted to AMC from the Debtor and her non-debtor spouse, Charles Bunn. Second, he
asks for recovery of three months of pre-petition mortgage payments made from the Debtor to AMC
on the basis that the payments constituted preferential transfers. 	And third, Drown requests
authority to sell the Debtor’s real property free and clear of all interests.1 The Complaint names both
AMC and the Debtor as defendants.
AMC filed an answer (Doc. 4), which it amended (Doc. 6) to include a counterclaim against
Drown and a cross-claim against the Debtor. The counterclaim and cross-claim assert that it was
the intention of AMC, the Debtor and Charles Bunn to include a legal description of the property
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2It appears from the record that neither the Complaint nor the cross-claim was properly
served. The Debtor is represented by counsel and counsel was not served with a copy of the
Complaint and summons, as required by Fed. R. Bankr. P. 7004(b)(9) (amended effective
December 1, 2006 and now found in Fed. R. Bankr. P. 7004(g)). Further, Drown has never filed a
certificate of service reflecting that the Complaint and summons were served on either AMC or the
Debtor. There is also nothing in the record to reflect that Debtor’s counsel was served with a copy
of AMC’s motion for default judgment. The motion for default judgment was not accompanied by
an affidavit establishing that the Debtor is not an infant or incompetent person, nor is it in
compliance with the Soldiers’ and Sailors’ Civil Relief Act of 1940, as amended by the
Servicemembers Civil Relief Act of 2003. 	However, for purposes of this controversy, the
appearance or non-appearance of the Debtor does not affect the outcome.
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within the mortgage, and that AMC is therefore entitled to reform the mortgage to include the legal
description. 	Drown filed an answer to the counterclaim, asserting a general denial of these
allegations. 	The Debtor did not respond to either the Complaint or the cross-claim, and AMC
moved for the entry of a default judgment against her.2
IV. Undisputed Facts
While the parties have not filed a stipulation of facts, a review of the documents filed in the
Debtor’s bankruptcy case, as well as the pleadings and exhibits on file in this adversary proceeding,
reveals that the parties are in agreement as to the relevant facts. The only disagreement between the
parties relates to the legal import of one fact.
The Debtor is the owner in fee simple of real property located at 8707 Shear Drive, Powell,
Ohio (“Property”). Her bankruptcy schedules list her ownership interest in the Property in three
places: Schedule A—Real Property, Schedule C—Property Claimed as Exempt and Schedule D—
Creditors Holding Secured Claims. All three schedules reference AMC Mortgage Services as the
holder of the first mortgage on the Property.
A general warranty deed (“Deed”) transferring the Property from P&D Builders, Inc. to
Charles Bunn and Michelle Bunn was executed on August 18, 1995, and recorded on August 22,
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3 Although Charles Bunn and Michelle Bunn executed the Mortgage as co-borrowers and
as husband and wife, the Debtor’s Schedule I lists her marital status as “separated,” which perhaps
explains why Charles Bunn quitclaimed his interest in the Property to the Debtor the same day the
Mortgage was executed.
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1995 in the Franklin County, Ohio Recorder’s Office. 	A copy of the Deed is attached to the
Complaint as Exhibit A. The Deed contains the following legal description of the Property:
Situated in the State of Ohio, County of Franklin and in the City of
Columbus: Being Lot Number Seven Hundred Thirty One (731) in
Smoky Ridge Estates ReSubdivision Section 6, as the same is
numbered and delineated upon the recorded plat thereof, of record in
Plat Book 59, pages 32 and 33, Recorder’s Office, Franklin County,
Ohio.
On December 15, 2004, Charles Bunn and Michelle Bunn executed a mortgage
(“Mortgage”), including “all Riders to this document,” in favor of AMC to secure payment of a
$90,000 loan. A copy of the Mortgage is attached to the Complaint as Exhibit C, and an Adjustable
Rate Rider is included in that Exhibit. The Mortgage was recorded on December 27, 2004. The
section of the Mortgage captioned “Transfer of Rights in the Property,” states in relevant part:
Borrower does hereby mortgage, grant and convey to Lender the
following described property located in the County of Franklin: Legal
Description Attached Hereto and Made a Part Hereof:
[Blank area]
Parcel ID Number: 610-190884 which currently has the address of
8707 Shear Drive, Powell, Ohio 43065.
The Mortgage, however, contains no legal description of the Property, nor is a legal description
attached. There is no reference in the Mortgage to the Deed, or to any map or other instrument that
may contain a legal description. The Adjustable Rate Rider likewise contains no legal description
of the Property nor any reference to the Deed or other instrument.
Also on December 15, 2004, Charles Bunn transferred his interest in the Property to the
Debtor by quitclaim deed.3 A copy of the quitclaim deed is attached to the Complaint as Exhibit B.
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The quitclaim deed also was recorded on December 27, 2004. The quitclaim deed contains the same
legal description found in the Deed. A printout from the Franklin County, Ohio Recorder’s Office
website attached by the Trustee as Exhibit A to his Cross-Motion shows the existence in the records
of the Deed, the Mortgage and the quitclaim deed, and the dates and times these instruments were
recorded.
The Deed, the Mortgage, and the quitclaim deed all list the parcel number of the Property
(610-190884) and its street address (8707 Shear Drive, Powell, Ohio 43065). Only the Mortgage
lacks a legal description of the Property.
V. Arguments of the Parties
The Trustee asserts that because the Mortgage lacks a legal description of the Property, it
is invalid and thus improperly recorded. 	Accordingly, he asserts that because the Mortgage is
invalid, it did not provide constructive notice of the lien and is therefore avoidable under the strong-
arm powers granted to him by 11 U.S.C. § 544(a)(3). AMC, on the other hand, argues that the
Trustee has no basis for avoiding its lien because the Mortgage, which lists both a street address and
parcel identification number, contains a sufficient description of the Property to comply with Ohio’s
recording statute, and thus provides sufficient notice to third parties of the existence of the
encumbrance. In addition, AMC asserts that the parties intended the Mortgage to contain the legal
description, and that the lack of the legal description is a mutual mistake that can be cured by
reformation pursuant to Ohio Revised Code § 2719.01.
VI. Legal Analysis
A. 	Summary Judgment Standard
Summary 	judgment 	is 	appropriate 	where 	“the 	pleadings, 	depositions, 	answers 	to
interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter
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of law.” Fed. R. Civ. P. 56(c), made applicable in this adversary proceeding by Fed. R. Bankr. P.
7056. On motion for summary judgment, the inferences drawn from the underlying facts must be
viewed in the light most favorable to the non-moving party. See Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 587 (1986); Anthony v. BTR Auto. Sealing Sys., Inc., 339 F.3d
506, 511 (6th Cir. 2003); McKenzie v. BellSouth Telecomms., Inc., 219 F.3d 508, 512 (6th Cir.
2000). The moving party bears the initial burden of demonstrating the absence of a genuine issue
of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986); Leary v. Daeschner,
349 F.3d 888, 897 (6th Cir. 2003); Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479 (6th Cir.
1989). Once the moving party satisfies its burden, the non-moving party must then “come forward
with specific facts showing that there is a genuine issue for trial.” Matsushita, 475 U.S. at 587;
Lanier v. Bryant, 332 F.3d 999, 1003 (6th Cir. 2003); McKenzie, 219 F.3d at 512. The non-moving
party may not meet this burden by resting on mere allegations in the pleadings. See Fed. R. Civ. P.
56(e); Celotex, 477 U.S. at 324; Mounts v. Grand Trunk W.R.R., 198 F.3d 578, 580 (6th Cir. 2000).
“Merely alleging the existence of a factual dispute is insufficient to defeat a summary judgment
motion; rather, there must exist in the record a genuine issue of material fact.” McKenzie, 219 F.3d
at 512 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–50 (1986)). A material fact is one
that has the “potential to affect the outcome of the suit under applicable law.” FDIC v. Anchor
Props., 13 F.3d 27, 30 (1st Cir. 1994) (citation omitted). “[A]s to materiality, the substantive law
will identify which facts are material. Only disputes over facts that might affect the outcome of the
suit under governing law will properly preclude the entry of summary judgment. Factual disputes
that are irrelevant or unnecessary will not be counted.” Niecko v. Emro Mktg. Co., 973 F.2d 1296,
1304 (6th Cir.1992) (quoting Anderson, 477 U.S. at 248).
The filing of cross-motions does not alter the standards governing the determination of
summary judgment motions. See Taft Broad. Co. v. United States, 929 F.2d 240, 248 (6th Cir.
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1991); Terlecky v. Beneficial Ohio, Inc. (In re Little Key), 292 B.R. 879, 881 (Bankr. S.D. Ohio
2003).
B. 	Validity of Mortgage—Ohio Statutory Requirements
To be valid in Ohio, a mortgage must be signed by the mortgagor, and the signature must be
acknowledged by the mortgagor before a judge or clerk of a court of record, a county auditor, county
engineer, notary public or mayor, who certifies the acknowledgment and subscribes the official’s
name to the certificate of the acknowledgment. Ohio Rev. Code Ann. § 5301.01(A) (LexisNexis
2004 & Supp. 2007). A properly executed mortgage must be recorded in the office of the county
recorder of the county in which the mortgaged premises are situated. 	Ohio Rev. Code Ann.
§ 5301.23(A) (LexisNexis 2004). 	A properly executed mortgage takes effect at the time it is
delivered to the recorder for record. Id. Section 5302.12 of the Ohio Revised Code supplies a form
mortgage and provides that a mortgage following the form in substance, when duly executed in
accordance with Chapter 5301 of the Revised Code, “has the force and effect of a mortgage to the
use of the mortgagee and the mortgagee’s heirs, assigns, and successors, . . . to secure the payment
of the money or the performance of any obligation specified in the mortgage.” Ohio Rev. Code Ann.
§ 5302.12. The form requires the name, marital status and current mailing address of the mortgagor,
the amount of the debt secured by the mortgage, the name and current mailing address of the
mortgagee, and a “[d]escription of land or interest in land and encumbrances, reservations, and
exceptions, if any.” Id. There is no statutory instruction that the “description of land” follow a
particular format.
A review of the Mortgage reflects that it is signed by Charles Bunn and Michelle Bunn and
that their signatures are notarized. The Mortgage lists the name and mailing address of the
mortgagee. The Mortgage contains the amount of the debt secured and contains, by way of the street
address and parcel identification number, a description of the Property. See Complaint, Exhibit C.
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There is no question that the Mortgage was recorded in the county in which the Property is located,
or that the Debtor, her husband and AMC intended that the Property be subject to the Mortgage.
Because it was executed in accordance with the statute and contained all required information, the
Mortgage is valid as between the mortgagors and mortgagee. 	The validity of the Mortgage as
between the parties, however, does not answer the question of whether the Mortgage provided
adequate notice to third parties or may be avoided by the Trustee using the strong-arm powers
granted by § 544 of the Bankruptcy Code.
The Trustee’s argument rests on the supposition that lack of a legal description is fatal to the
instrument, and that this deficiency renders the Mortgage unrecordable and invalid. The purpose
of the recording statutes is “to furnish notice to the world of the existence and contents of the
mortgage.” 69 Ohio Jur. 3d Mortgages § 124 (2007) (footnote omitted). While nothing in the Ohio
Revised Code requires a mortgage to contain a legal description of the property, and the Mortgage
here contains both the street address of the Property and its parcel ID number, either of which, and
certainly both together, arguably serve as “a description of the land or interest in land,” the Trustee
asserts that without a legal description, the Mortgage does not provide constructive notice to third
parties of the lien.
C. 	Section 544(a)(3)
Section 544(a)(3) of the Bankruptcy Code provides that
(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—
. . . .
(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
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commencement of the case, whether or not such a purchaser
exists.
11 U.S.C. § 544(a)(3). This provision permits a bankruptcy trustee to avoid any transfer of real
property that would have been unenforceable against a bona-fide purchaser of the property at the
time a bankruptcy petition was filed and gives a trustee the status of a hypothetical, good-faith
purchaser for value without knowledge of any prior lien. See Rogan v. Bank One, Nat’l Assoc. (In
re Cook), 457 F.3d 561, 566 (6th Cir. 2006) (“Pursuant to 11 U.S.C. § 544, a bankruptcy trustee is
considered a bona fide purchaser of the debtor’s real estate and may therefore avoid certain
obligations placed on the property that are voidable under state law.”); Kovacs v. First Union Home
Equity Bank (In re Huffman), 408 F.3d 290, 293 (6th Cir. 2005) (holding that a bankruptcy trustee
was entitled to avoid mortgages that were not properly executed) (citing 11 U.S.C. § 544(a)(3)).
Whether a trustee has actual notice of the lien is irrelevant; the test is whether a hypothetical, good-
faith purchaser for value would have had constructive notice of a lien on the property as of the time
of the bankruptcy filing. See 11 U.S.C. § 544(a)(3) (stating that the trustee shall have the rights and
powers of a bona-fide purchaser “without regard to any knowledge of the trustee or of any
creditor”); Robertson v. Peters (In re Weisman), 5 F.3d 417, 420 (9th Cir. 1993) (“[s]ection
544(a)(3) creates the legal fiction of a perfect BFP and explicitly renders the trustee’s actual notice
of prior grantees irrelevant . . . .”).
1. 	Bona-Fide Purchaser
“As a hypothetical bona fide purchaser, the trustee . . . is deemed to have conducted a title
search, paid value for the property and perfected its interest as a legal title holder as of the date of
the commencement of the case.” 5 Collier on Bankruptcy ¶ 544.08 (Alan N. Resnick & Henry J.
Sommer, eds., 15th ed. rev. 2007). The purpose of § 544(a)(3) is to permit trustees to avoid
unperfected or secret liens and to preserve and/or recover the affected property for the benefit of the
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bankruptcy estate. Id. at ¶ 544.03. This so-called “strong-arm” power, however, “does not clothe
a trustee with this protective mantle if there was no way, under the applicable state law, that anyone
could attain the status of a bona fide purchaser.” Condren v. Harrison (In re Borison), 226 B.R. 779,
787 (Bankr. S.D.N.Y. 1998).
The Court must look to state law to determine who qualifies as a bona-fide purchaser. See
Owen-Ames-Kimball Co. v. Michigan Lithographing Co. (In re Michigan Lithographing Co.), 997
F.2d 1158, 1159 (6th Cir. 1993); Kildow v. EMC Mortgage Corp. (In re Kildow), 232 B.R. 686, 693
(Bankr. S.D. Ohio 1999) (citing Butner v. United States, 440 U.S. 48, 55 (1979)). In Ohio, a bona-
fide purchaser is “one who takes in good faith, for value, and without actual or constructive notice
of any defect.” Little Key, 292 B.R. at 883 (citing Shaker Corlett Land Co. v. City of Cleveland, 41
N.E.2d 243, 246 (Ohio 1942)); Hightower v. Reiger, 1988 WL 112525 at *1 (Ohio Ct. App. Oct. 6,
1988) (“A bona fide purchaser is a purchaser who takes property 1) for valuable consideration, 2)
in good faith, and 3) absent notice of any adverse claims.”). 	A purchaser is “charged with
knowledge of a previous encumbrance upon real property when he has knowledge of facts which
would induce a prudent person to make an inquiry by which he would have or could have obtained
knowledge of the prior encumbrance.” Thames v. Asia’s Janitorial Serv., Inc., 611 N.E.2d 948, 953
(Ohio Ct. App. 1992).
2. 	Constructive Notice
In explaining the concept of constructive notice, the Thames court set forth the following
guidelines:
In order to eliminate some possible confusion, we point out
that the doctrine of “constructive knowledge” encompasses two
distinct rules relative to bona-fide purchasers of real property . . . .
The first rule is the “common law” or “equitable” rule that a
purchaser will be charged with knowledge of a previous encumbrance
upon real property when he has knowledge of facts which would
induce a prudent person to make an inquiry by which he would have
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or could have obtained knowledge of the prior encumbrance. Such
a person is deemed to have actual knowledge as a result of having
“constructive” or “implied” knowledge, is not a bona-fide purchaser
and takes the property subject to the prior encumbrance. 	This
equitable constructive-notice rule, however, has only been applied in
Ohio in the absence of a recording statute.
The second rule is that the proper recording of those
instruments referenced in [Ohio Revised Code §] 5301.25(A) serves
as “constructive notice” of that interest or encumbrance to all who
claim through or under the grantor by whom such deed was executed.
Such notice, in this statutory sense, is “constructive” because the
subsequent purchaser is deemed to have notice of the record whether
he reviewed it or not.
Id. (citations omitted).
Thus, under Thames, because the Mortgage in question was recorded, the Court looks to the
second rule to determine whether a hypothetical, good-faith purchaser would have notice of the
record. 	Surprisingly, there is no case law in Ohio directly addressing the question of whether
constructive notice is provided when there is a total absence of a legal description in a recorded
mortgage. AMC cites Buckeye State Hauling v. Troy, 1974 WL 184519 (Ohio Ct. App. Dec. 31,
1974) and ABN AMRO Mortgage Group, Inc. v. Jackson, 824 N.E.2d 600 (Ohio Ct. App. 2005),
for the proposition that something less than a full legal description is sufficient to put third parties
on notice of a lien, although neither case addresses the sufficiency of a description in a mortgage as
it relates to a third party. 	The court in Buckeye State Hauling found that for purposes of the
mechanics’ lien statute, an affidavit containing a description that included the name of the apartment
complex, its street address, city and state was adequate even though the name of the street was
incorrect. Buckeye State Hauling, 1974 WL 184519 at **2–3. In Jackson, the court held that the lis
pendens requirement was satisfied and thus a subsequent mortgagee was on notice of an earlier
mortgage where the original mortgagee’s foreclosure complaint contained a reference to a
permanent parcel number, street address and other parties’ liens on the property, but failed to contain
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a legal description of the property. Jackson, 824 N.E.2d at 606. According to AMC, the reasoning
in these cases, when applied to the facts before the Court, establishes that the description of the
Property contained in the Mortgage is sufficient to provide the Trustee or any third party with
constructive notice of its lien.
The Trustee relies upon a number of decisions dealing with sufficiency of property
descriptions in deeds and writs of execution; none of the cited cases address property descriptions
in mortgages. The Trustee, however, also directs the Court to the decisions of Judge Calhoun of this
Court in Jack Conie & Sons Corp. v. Qualstan Corp. (In re Qualstan Corp.), 303 B.R. 149 (Bankr.
S.D. Ohio 2003) (“Qualstan II”) and Efficient Air, Inc. v. Qualstan Corp. (In re Qualstan Corp.),
302 B.R. 575 (Bankr. S.D. Ohio 2003) (“Qualstan I”) for the proposition that lack of a legal
description invalidates a mortgage. In the Qualstan cases, the court held that certain mechanics’
liens took priority over mortgages, where the liens reflected work that was commenced after the
original mortgages were recorded, but prior to the recording of mortgage modifications containing
proper legal descriptions. See Qualstan II, 303 B.R. at 159; Qualstan I, 302 B.R. at 581. Qualstan I
held that the mortgages did not cut off the rights of mechanics’ lienholders until they were filed with
proper legal descriptions, stating: 	“A mortgage is only a lien when the premises are described
therein and recorded.” 	Qualstan I, 302 B.R. at 580. 	The Qualstan decisions, according to the
Trustee, point to the critical nature of a legal description in a mortgage. Because the Mortgage here
contains no legal description, the Trustee maintains that “[t]here is no way to discern, based on a
review of the four corners of the mortgage in question, the exact geographic dimensions of what has
been mortgaged.” Response at 17. Thus, the question the Court must determine is whether notice
of the mere existence of a lien is sufficient to cut off the Trustee’s lien avoidance powers, or whether
the notice must be specific as to the nature and extent of the lien in order to provide protection to the
lien holder.
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The nearest pronouncement by an Ohio court is found in Wayne Bldg. & Loan Co. v.
Yarborough, 228 N.E.2d 841 (Ohio 1967). There, the Ohio Supreme Court analyzed whether a
construction mortgagee was on notice of an equitable vendee’s lien where the mortgagor had entered
into a contract for the sale of the property. The court found “ample evidence” in the record that the
mortgagee had notice of the underlying contract, was on inquiry notice as to the extent of the interest
of the purchaser, and the court held that the mortgagee took the mortgage subject to the purchaser’s
equitable interest. Id. at 847. Having found that the mortgagee was on inquiry notice as to the extent
of any already existing interest, the court then, in seeming contradiction, stated that “[f]or notice of
an outstanding equitable interest to exist, it is not necessary that a person have knowledge or notice
of the identity of its owner, or the extent of the interest, but merely that there is such in an interest.
55 American Jurisprudence 1070, Vendor and Purchaser, Section 689.” Id. at 847–48 (emphasis
added).
Yarborough, however, dealt with a purchase agreement, which was not recordable. Thus,
constructive notice was analyzed under the first rule set forth in Thames—i.e., the mortgagee would
be charged with knowledge of a previous encumbrance when he/she had knowledge of facts that
would induce a prudent person to make any inquiry by which he/she could have or would have
obtained knowledge of the encumbrance. Because of the apparent contradiction set forth above
regarding whether notice of the extent of a lien was necessary or whether notice of its existence was
all that is required, and the fact that the purchase agreement was not subject to a recording statute,
the Court does not find Yarborough’s instruction that an intervening third party need only have
knowledge of the existence of a mortgage, and not of its extent, to be controlling in this case.
Under the circumstances of this case, the Court agrees with the Trustee that something more
than the street address and permanent parcel number is necessary to provide constructive notice of
the Mortgage to a hypothetical, good-faith purchaser for value. This is so because even if a third
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party had record notice of the existence of this Mortgage, neither the parcel number nor the street
address, nor both together, would lead that third party to discover precisely what property is covered
by the Mortgage. Both a street address and a permanent parcel number may refer to a geographic
area that contains more or less property than what the mortgagor intended to encumber.
In Ohio, a written instrument properly executed for the conveyance or encumbrance of land,
e.g., a mortgage, must be “recorded in the office of the county recorder of the county in which the
premises are situated . . . .” Ohio Rev. Code Ann. § 5301.25(A) (LexisNexis 2004 & Supp. 2007).
Each county recorder is required to keep a direct and reverse alphabetical index of the grantor and
grantee of a mortgage and these “indexes shall show . . . the range, township, and section or the
survey number and number of acres, or the permanent parcel number . . . , or the lot and sublot
number and the part thereof, all as the case requires, of each tract, parcel, or lot of land described
in [the mortgage].” Ohio Rev. Code Ann. § 317.18 (LexisNexis 2003). Here the Mortgage was
recorded. A search of the grantor/grantee index, or a search of the records by permanent parcel
number, however, would simply lead the investigator back to a mortgage that is silent as to
specifically what it covers. As noted by one authority:
It is the object and purpose of the record to furnish notice to
the world of the existence and contents of the mortgage, and it will
be deemed to do so; consequently, the record of a mortgage will be
deemed to constitute constructive notice of the existence and contents
of the mortgage, even though the person charged with such notice has
no actual notice in such respect. The record will be considered as
furnishing constructive notice, however only when its examination
will furnish actual notice. Accordingly, the recording of a mortgage
will not afford constructive notice as to property either not described
or so misdescribed as to be unidentifiable.
69 Ohio Jur. 3d Mortgages § 124 (2007).
A recent case from this Court addresses an issue similar to the one at hand—whether a
trustee had constructive notice of a lien where the mortgage, although recorded, contained a
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4 In explaining the insufficiency of a street address and parcel number as a property
description, the court reasoned that
[a] real estate legal description is generally a detailed, exact, specific
description. In Ohio, the street address and parcel number are not
part 	of 	the 	[p]roperty’s 	legal 	description; 	inclusion 	of 	that
information is not statutorily mandated, but is often included for the
convenience of the parties. These identifiers can be changed by the
governmental authorities.
367 B.R. at 614.
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defective legal description. In Stubbins v. American General Financial Services, Inc. (In re Easter),
367 B.R. 608 (Bankr. S.D. Ohio 2007), the debtors granted a mortgage on real property, intending
to carve out from that mortgage two small parcels of a larger tract of land. The legal description
mistakenly included the two excepted parcels and failed to include the remainder of the land that
was intended to secure the obligation. In addition to the erroneous legal description, the mortgage
contained a street address and a permanent parcel number.4 Contrasting the facts before it to the
facts before the Court in Little Key (which held that a single digit typographical error in an otherwise
accurate legal description did not defeat constructive notice of the lien), the Easter court found the
legal description “woefully incomplete [and] wholly fail[ing] to describe the Property on which the
Defendant sought to obtain a mortgage . . . .” Id. at 613. Judge Preston ruled that without the correct
legal description, the “street address and parcel number in the Mortgage did not put the Trustee on
notice of a potential encumbrance such that he lost his status as a bona fide purchaser.” Id. at 614.
The mortgage could not, therefore, be reformed because “the right of reformation cannot be invoked
to abrogate the rights of an innocent intervening third party[,]” id. at 615, and the Trustee was
permitted to avoid the mortgage.
The Easter court relied, in part, on the holdings of cases from bankruptcy courts in Alabama,
Kansas and Utah. 	In First Southern Bank v. Stanphill (In re Stanphill), 312 B.R. 691, 694–95
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(Bankr. N.D. Ala. 2004), the court held that a mortgage that failed to include a legal description did
not provide constructive notice to a subsequent purchaser, and the mortgagee’s request for
reformation was denied as prejudicial to the trustee. In Hamilton v. Washington Mutual Bank, FA
(In re Colon), 2005 Bankr. LEXIS 2376 at *19 (Bankr. D. Kan. Dec. 2, 2005), the court found that
the incorrect lot number in a legal description deprived a bona-fide purchaser of constructive notice
of a mortgage. 	In a later decision expanding on its reasoning, the same court rejected the
mortgagee’s argument that because there were three parts to the property description—the street
address, tax parcel ID number and lot number—a typographical error in the lot number should not
be fatal. See Hamilton v. Washington Mut. Bank, FA (In re Colon), 2007 WL 2726857 at* 5 (Bankr.
D. Kan. Jan. 26, 2007), aff’d, 2007 WL 2713560 (B.A.P. 10th Cir. Sept. 19, 2007). The court found
that Kansas register of deeds offices do not index or maintain records by street address or tax parcel
ID numbers, and that such numbers can and do change over time, while legal descriptions rarely
change. 	Further, the court noted that an indexed legal proceeding is required to change a legal
description. Id. n.28. The Hamilton court concluded that there was “nothing within the four corners
of the instrument that would put an innocent purchaser researching the title to this property on notice
that he needed to check further . . . .” Id. at *6. Hamilton was upheld on appeal. Hamilton, 2007
WL 2713560 at *3.
The Easter court also looked to Chase Manhattan Mortgage Corp. v. Bird (In re Hiseman),
330 B.R. 251 (Bankr. D. Utah 2005), in which the court avoided a deed of trust containing an
erroneous legal description, although the street address and tax serial number contained in the deed
of trust were correct. The court ruled that “constructive notice of a recorded document extends only
to the legal description in the document[,]” id. at 258, while rejecting the mortgagee’s argument that
the trustee should have researched the tax identification number to see that the property was
encumbered. The Hiseman court added: “These arguments are unavailing because tax identification
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numbers are discretionary with each county recorder and may not be considered part of the legal
description.” Id. at 256.
The logic and holding of the Easter decision apply with equal force here. The presence of
a street address and permanent parcel number, in the absence of a legal description, is not sufficient
to provide the Trustee, as a hypothetical lien creditor, with constructive notice of AMC’s
encumbrance. Further, as noted above, the Mortgage contains no reference to a deed, map or other
instrument containing a legal description. Relying on Ohio law, the court in Monnie v. Field (In re
Bross), 2006 WL 2381542 (S.D. Ohio Aug. 16, 2006), addressed a case in which a bankruptcy
trustee sought avoidance of an unsigned mortgage. While holding that an unsigned mortgage does
not comply with Ohio Revised Code § 5301.01 and is thus avoidable, the court noted that “[t]he
Ohio Supreme Court established long ago that a court must review the nature of an error and look
to the balance of the document to determine whether the instrument supplies within itself the means
of making the correction.” Id. at *3 (internal quotation marks omitted). The Mortgage here does not
contain within its four corners the means by which the missing legal description of the Property may
be supplied.
Likewise unavailing is AMC’s argument that the Mortgage should be reformed to supply the
legal description. AMC asserts that it was the mortgagee’s intent to attach the legal description to
the Mortgage, and it has provided the uncontested affidavit of Curtis Knapp, president of Polaris
Title Agency, to that effect. See unnumbered exhibit to Motion. According to AMC, § 2719.01 of
the Ohio Revised Code permits reformation of a mortgage:
[w]hen there is an omission, defect, or error in an instrument in
writing . . . by reason of the inadvertence of . . . a party . . . so that it
is not in strict conformity with the laws of this state, the courts of the
state may give full effect to such instrument . . . according to the true,
manifest intention of the parties thereto.
Ohio Rev. Code Ann. § 2719.01 (LexisNexis 2000).
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In support of its position, AMC relies on Kildow, where the court permitted two mortgages
to be reformed to comply with the intent of the parties by supplying the missing portion of a legal
description in one and a corrected description in the other. 	As noted by the court in Easter,
however, the right of reformation cannot be invoked to defeat “the rights of an innocent intervening
third party[,]” such as a bankruptcy trustee, who has the status of a hypothetical, good-faith
purchaser. Easter, 367 B.R. at 615. It is noteworthy that in Kildow, the court found that the debtor
had no standing to avoid consensual mortgage liens. Kildow, 232 B.R. at 693. Thus, there was no
intervening third party whose rights would be impaired by the reformation of the mortgages as there
is in this case. Further, if a mortgagee were routinely allowed to reform a mortgage to correct the
precise deficiencies that negate constructive notice, the very purpose of § 544(a)(3) would be
defeated.
VII. Conclusion
For the foregoing reasons, the Court finds that the Trustee is entitled to judgment as a matter
of law. AMC’s Motion is therefore DENIED and the Trustee’s Cross-Motion is GRANTED. The
Mortgage is avoided pursuant to § 544(a)(3).
A separate judgment entry in accordance with this Memorandum Opinion will be entered.
IT IS SO ORDERED.
Copies to:
William Todd Drown, Chapter 7 Trustee/Plaintiff, 112 N. Main Street, Mt. Vernon, OH 43050
Amelia A. Bower, Attorney for AMC, 300 E. Broad Street, Suite 950, Columbus, OH 43215
Michelle M. Bunn, Debtor/Defendant, 8707 Shear Drive, Powell, OH 43065
Lloyd D. Cohen, Attorney for Debtor, 824 S. High Street, Columbus, OH 43206
Office of the U.S. Trustee, 170 N. High Street, Suite 200, Columbus, OH 43215
# # #
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