Agin v. Mortgage Electronic Registration Systems, Inc. et

OCR transcription for search; preserved printed pages are authoritative

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UNITED STATES BANKRUPTCY COURT
FOR THE
DISTRICT OF MASSACHUSETTS

In re
MATTHEW H. GIROUX, Chapter 7
Debtor Case No. 08-14708-JNF

paid Pet oe . + pep et i nf et es tm

WARREN E. AGIN, CHAPTER 7 TRUSTEE,
Plaintiff
v. Adv. P. No. 08-1261
MORTGAGE ELECTRONIC REGISTRATION
SYSTEMS, INC. and COUNTRYWIDE
HOME LOANS, INC,,
Defendants

Pere r 9 - - re el ad et at Pad ed nt et

MEMORANDUM

I. INTRODUCTION

The matters before the Court are Cross-Motions for Summary Judgment filed by the
Chapter 7 Trustee of the estate of Matthew H. Giroux (the “Debtor”) and the Defendants,
Mortgage Electronic Registration Systems, Inc. (“MERS”) and Countrywide Home Loans,
Inc, (“Countrywide")(collectively, the “Defendants”). The Court heard the Movions on
February 18, 2009 and took them under advisement. The issue presented concerns the
ramifications of an.acknowledgment ona mortgage granted by the Debtor to MERS, which

does not contain a specific reference to the Debtor as the person appearing be‘ore the

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notary public.
The material facts necessary to resolve the issue are not in dispute, and the matter
is ripe for summary judgment. See Fed. R.. Civ. P. 56(c), made applicable to this preceeding

by Fed. R. Bankr, P, 7056. See also Desmond v. Varrasso (In re Varrasso), 37 F.3d 760, 763

(1st Cir. 1994).
Il, FACTS

The Debtor executed a mortgage in favor of MERS on December 19, 2005 with
respect to property located at 949 Somerset Avenue, North Dighton, Massachusetts. The
mortgage was recorded at the Registry of Deeds on the same day at 4:00 p.m. Countrywide
asserts a first mortgage interest in the property as MERS’s assignee.

The Debtor filed a voluntary Chapter 7 petition on June 27, 2008. He listed the
property on Schedule A-Real Property with a value of $294,000, subject to two mortgages
held by Countrywide. Qn September 9, 2008, Countrywide filed a Motion for Relief from
the Automatic Stay in which it asserted that the outstanding balance on its first mortgage
loan, as of September 3, 2008, was $282,782.40, and that, consistent with the Debtor's
Schedule A, the fair market value of the Debtors property was $294,000.

On September 24, 2008, the Trustee filed a four-count Complaint against the
Defendants, seeking a determination of MERS’s secured status pursuant to 11 U.S.C. §
506(d) and avoidance of the mortgage pursuant to 11 U.S.C, §.544,.as well as counts under
11 U.S.C. § 550(a)(1) and (2). The Trustee’s Complaint and the dispute between the parties

revolve around whether the mortgage contains a material defect in the acknowledgment.

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The acknowledgment, which appears on the same page as the Debtor’s signature and that
of the witness, who was also the notary public completing the acknowledgment, sats forth
the following:
Commonwealth of Massachusetts, County ss: Bristol

On this 19" day of December 2005, beforé me personally appeared

a

to. me known to be the person (or persons) described in and who executed the foregoing
instrument, and acknowledged that he/she/ they executed the same as his/her/ their free
act and deed.

/s/ Todd M. Sullivan
Todd M. Sullivan Notary Public

My commission expires: 10/28/16
As is evident from the foregoing, the Debtor's name does not appear in the blank space
provided.
Ill. POSITIONS OF THE PARTIES

A. The Chapter 7 Trustee

The Chapter 7 Trustee makes three arguments. First, he maintains that the mortgage
contains a materially defective acknowledgment and is therefore void. He relies upon
Mass. Gen, Laws ch. 183, § 29 which provides in pertinent part the following: “INo deed
shall be recorded unless a certificate of its acknowledgment or of the proof o! its due
execution, made as hereinafter provided, is endorsed upon or annexed to it, and such
certificate shall be recorded at length with the deed to which it relates ....” He also relies
upon Mass. Gen. Laws ch. 183, § 30, which provides:

The acknowledgment of a deed or other written instrument required to be

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acknowledged shall be by one or more of the grantors or by the attorney
executing it. The officer before whom the acknowledgment is made shall
endorse upon or annex to the instrument a certificate thereof. Such
acknowledgment may be made - -

(a) If within the commonwealth, before ajustice of the peace or notary public.

Based upon those statutes, the Trustee maintains that the notary public was required

to name the Debtor in the acknowledgment. He further asserts that the acknowledgment

is not merely an administrative detail. Citing McOuatt v. McOuatt, 320 Mass, 411} (1946),

he states that it “furnishes formal proof of the authenticity of the execution of the

instrument when presented for recording.” Id, at 413-14. See also Gordon v. Gordon, 8

Mass. App. Ct. 860, 862 (1979).
The Trusteé further asserts that, unlike a spelling or other scrivener’s error, the
acknowledgment attached to the mortgage executed by the Debtor contains a ‘material

defect. Again, relying upon McQuatt, he concludes that the mortgage omits the officer’s

statement regarding the identity of the person who appeared before him to sign the
mortgage and, thus, omits evidence that the acknowledgor who executed the mortgage did
so as his free act and deed.

The Trustee maintains that an unacknowledged deed, or, as in this case, an
acknowledged mortgage with a material defect, should not be recorded. He states that, if
such a deed or mortgage were recorded, it does not operate as constructive notice, citing

Graves v. Graves, 72 Mass. 391 (1856)(“instrument of defeasance, not being acknowledged,

was improvidently admitted to registration [and] does not operate as constructive notice.
of the execution of assignment. . .”). The Trustee, accordingly, asserts that his strong-arm

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powers prevent Countrywide from curing the defective acknowledgment and aliow him
te avoid the mortgage.

The Trustee notes that Mass. Gen. Laws ch. 184, § 24 contains a “ grandfather” clause,
which validates recorded instruments containing defects at the expiration of a ven year
period, unless within that period “a proceeding is‘commenced on account of thé defect,
irregularity or omission, and. notice thereof is duly recorded in said registry of deeds and
indexed and noted on the margin thereof under the name of the signer of the instrument
and; in the everit of such proceeding, unless relief is thereby in due course ganted.”
Because ten years have not elapsed since the Debtor executed the mortgage and neither
MERS nor Countrywide took steps to correct the defect in the acknowledgment, the
Trustee claims it is too late for Countrywide to cure the defect and that he is entitled to

avoid the mortgage pursuant to 11 U.S.C. § 544(a).

The Trustee relies upon Stern v. Continental Assurance Co. (In re Ryan), #51 F.2d
502 (1st Cir. 1988), a case in which the United States Court of Appeals for the Firs: Circuit
affirmed the decision of the district court which had concluded that a mortgage dzed that
lacked the signature of two.statutorily-required witnesses was defective under Vermont
law and could not serve as constructive or inquiry notice to a future purchaser, thus
enabling the bankruptcy trustee, as a hypothetical bona fide purchaser, to avoid the
mortgage. Applying the reasoning in Ryan to the present case, the Trustee states:

[T]he Mortgage fails to give the Trustee constructive notice of Countrywide's

interest, and the strong-arm powers conferred upon him by 11 U'S.C.§544(2)

subordinate Countrywide’s mortgage interest to his. Countrywide’s

mortgage interest, which it acquired by assignment, is not void - not a.

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nullity. Rather, it is voidable by the Trustee’s strong-arm powers and

subordinated to the estate’s interest.

Finally, in his Complaint, the Trustee relies upon 11 U.S.C. §550(a) in seeking “ ...
to recover, for the benefit of the estate, the Property transferred or the value of the Property
transferred by the Mortgage.”

B. The Defendants

The Defendants argue that the notary clause, on its face, does not support the
Trustee’s position. Asa result, they maintain that there is no evidence establishing that the
clause is defective. Although there is a blank space on the acknowledgment form followed.
by.a comma, the Defendants argue that the Trustee’s assertion that the mortgage i3 devoid
of any language identifying the person executing the instrument and devoici of any
language evidencing that the execution of the mortgage was the free act and deed of the
person executing the mortgage is “factually inaccurate as the notary clause in the instant
case does in fact identify the mortgagor as the party executing the Mortgage and does
indicate that the mortgagor acknowledged that he executed the instrument as his free act
and deed.”

Additionally, the Defendants claim that the notary clause complies with
Massachusetts statutes, title standards, an Executive Order of the Governor of the
Commonweaith of Massachusetts, Deed Indexing Standards. and both state anc: federal
case law. They specifically reject the Trustee’s reliance upon In re Ryan, stating that “the
first circuit case is distinguishable as no such statute exists in Massachusetts whica would
render the notary clause in the Mortgage defective and therefore improperly recorded.”

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Referencing the Executive Order entitled “Standards of Conduct for Notaries
Public,” which took effect on May 15, 2004, see Revised Executive Order No. 455 (04-04)(the
“Executive Order),’ the Defendants point out that the Executive Order defines “)ersonal
Knowledge of Identity” as “familiarity with an individual resulting from interactions with
that individual over'a period of time sufficient to ensure beyond doubt that the individual
has the identity claimed.”

The Defendants also point to Massachusetts Deed Indexing Standards, in perticular,

Standard 4-2’, as well as REBA Title Standard No. 16,’ both of which provide that failure

The Executive Order is available at: |
http:// www.mass.gov/ Agov3/docs/EO455finalrevised.doc.

? The standard provides:

Failure to comply with the strict requirements of Executive Order 455
(03-13) shall not prevent a document from being recorded. A
non-conforming acknowledgement [sic] purported to be taken within
Massachusetts must contain, at a minimum, the original signature and
printed. or typed name of the officer making the acknowledgement [sic],
the expiration date of the officer’s commission and some language that
indicates that the parties intended such signature to constitute an
acknowledgement [sic].

Deed Indexing Standard 4-2.
* The standard provides:
An acknowledgment the:form of which substantially conforms with
M.G.L. c. 183 §§ 29, 30, 33. and.42 or M.G.L. c, 222 § 11 and applicable case

law but does not strictly comply with Executive Order 455 (03-13) is not
on that account defective.

REBA Title Standard No. 16.

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to strictly comply with the requirements of Executive Order 455 will not prevent a

document from being recorded and will not result in it being considered defective.

IV. DISCUSSION

The Executive Order defines “ Acknowledgment” in Section 2 as “a notar:al act in
which an individual, ata single time and place:

(a) appears in person before the notary public and presents a document;

(b) is identified by the notary public through satisfactory evidence of
identity; and

(c) indicates ta the notary public that the signature on the document wus
voluntarily affixed by the individual for the purposes stated within the document
and, if applicable, that the individual had authority to sign in a particuler.
representative capacity.

(emphasis supplied).
The Executive Order further provides in Section 5: Scope and Description of
Duties, at section (f}, the following:

A notary shall witness.a signature in substantially the following form in
notarizing a signature or mark to confirm that it was affixed in the
notary’s presence without administration of an oath or affirmation:

On this day of 20__, before me, the undersigned notary

public, personally appeared (name of document
Signer), proved to me through satisfactory evidence of identification, which were

, to be the person whose name is signed on the preceding or
attached document in my presence.

(official signature and seal of notary)

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The acknowledgment utilized by the notary in this case did not conform t9 the
template set forth in the Executive Order. Rather, the notary utilized the form set forth
in the appendix to Mass. Gen. Laws ch. 183. See Mass. Gen. Laws ch. 183, § 42 (“The
forms set forth in the appendix to this chapter for taking acknowledgments to deeds
and other instruments and ‘for certifying the authority of officers taking proofs for
acknowledgments may be used; but this shall not prevent use of any other forms
heretofore lawfully used.”). That form provides:

(Caption specifying the state and place where the acknowledgment is taken)

Onthis dayof 19, before me personally appeared AB (or AB and CD), to me known:
to be the person (or persons) described in and who executed the foregoing instrument, and
acknowledged that he (or they) executed the same as his (or their) free act and deed.

(Signature and title of the officer taking acknewledgment. Seal, if required.)

The form used by the notary in this case is virtually the same as the one set forth in the
Appendix:to Mass. Gen. Laws ch. 183. Although the form set forth in the Executive Order
requires a recitation of the evidence presented to the notary establishing the identizy.of the
person making the acknowledgment, the Executive Order, through the definition of
“Acknowledgment,” and the form set forth in the Appendix to Mass. Gen. Laws ch. 183
require the notary to establish that the execution of the instrument by a grentor or
mortgagor was done “voluntarily” or was their “free act and deed.”

In this case, the notary omitted the name of the Debtor in completing the
acknowledgment. An examination of theacknowledgment plainly reveals that it contained
a space followed by a comma where the name of the Debtor should have been inserted.
Accordingly, the Defendants’ assertion that there is no defect in the acknowledgment is

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without basis in fact. The issue for the Court is whether that defect is material, warranting
the conclusion that the mortgage should not have been accepted for recordation. See Mass.
Gen. Laws ch. 183, §.29.

Numerous federal courts have ruled that the omission of the grantor’s narie or the
mortgagor's name inan acknowledgmentisa material defect in the acknowledgment, and,
as a consequence, those courts have permitted estate representatives to avoid improperly

acknowledged mortgages under 11 U.S.C. §544. See Burden y. CIT Group/ Consumer Fin.,

Inc. (In_re Wilson), No. 07-6447, 2009 WL 723197 (6th Cir. March 19, 2009)\(mortgage.
improperly acknowledged under Kentucky law did not previde constructive notice to
subsequent purchasers or creditors and was subject to avoidance under 11 U.S.C. § 544);
Grego

v. Ocwen Fed. Bank (In re Biggs), 377 F.3d 515 (6th Cir. 2004)(same under

Tennessee law); Countrywide Home Loans, Inc. v. Gardner (In re Henson), 391 B.R. 210
(B.A.P. 6th Cir. 2009) (trustee can avoid mortgage and preserve it for the benetit of the
debtor's. estate because mortgage did not provide constructive notice to subsequent
purchasers or creditors under Kentucky law when mortgagor's signature was not properly

acknowledged as acknowledgment did not contain the identity of the mortgagor), Geygan

v. World Savs. Bank (Inre Nolan), 383 B.R. 391,396 (B.A.P. 6th Cir. 2008) (acknowledgment
defective under Ohio law because the names of the borrowers were:not recited and for

other reasons); Select Portfolio Servs., Inc. v. Burden (In re Trujillo), 378 B.R. 526, 537

(B.A.P. 6th Cir. 2007)(“ ... the name or identity of the person acknowledging the mortgage

was omitted from the notary’s certificate of acknowledgment. Under the Kentucky

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acknowledgment and notice statutes . . . the certificate of acknowledgment is defective.”);

MG Investments v. Johnson (In re Cocanougher), 378 B.R. 518 (B.A.P. 6th Cir. 2007)

(following Biggs); Greenpoint Credit, LLC v. Gigandet (In re Chandler), No. 3:05-1564, 2005

WL 3263331 (M.D. Tenn. Nov. 30, 2005) (adopting holding in Biggs); Drown v. Peed (Inre
Peed), B.R. __, 2009 WL 817242 (Bankr. S.D. Ohio March 27, 2009) (acknowled gment’s
failure:to identify the name of the person acknowledging the signing of the mortgages
rendered the mortgages defective, even thoughthe notary public and the witness were the.
same person; mortgages did not substantially comply with the Ohio statute governing the
acknowledgment of deeds and mortgages and thus were invalid; defective mortgages did
not take priority over a hypothetical bona fide purchaser such as the trustee); Drown v.

GreenPoint Mortgage Funding, Inc. (In re Leahy), 376 B.R. 826 (Bankr. S.D. Otio 2007)

(same); Stubbs v. Chase Manhattan Mortgage Corp. {In re Stubbs), 330 B.R. 717 (Bankr.
N.D. Ind. 2005), affd, 2006 No. 2:05-CV-439, WL 2361814 (N.D. Ind. Aug. 14, 2006)
(acknowledgment which failed to specifically state who it was that had appeared before
attesting officer to acknowledge his/her execution of mortgage was not valid
acknowledgment under Indiana law, so that the recording of mortgage that conta:ned this.
defective acknowledgment did not provide constructive notice to bona fide purchaser of
mortgagee’s interest in property, and mortgage lien was.avoidable); Baldin v. Calumet

Nat'l Bank (In re Baldin), 135.B.R. 586.(Bankr. N.D. Ind. 1991)(recording of a docurnent not

entitled to be recorded does not afford constructive notice). Cf Sensenich v. Countrywide

Home Loans, Inc. (In re Willis), No. 07-1008, 2008 WL 444547 at *7 (Bankr. D. Vt. Feb. 15,

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2008) (if an incorrect name is inserted in the blank space in the acknowledgment, the defect
is fatal and the mortgage can be avoided under 11 U.S.C. § 544 as it does not provide a

subsequent purchaser with. constructive notice). But see In re Rick's Auto Qutlet of

Monticello, 327 B.R. 650, 652 (B.A.P. 8th Cir. 2005) (under Mississippi law, “‘[a] liberal
interpretation of acknowledgments encompasses examination of the body of the
instrument itself, and an acknowledgment will not necessarily be deemed fatal for an
omission which can be supplied from the body of the instrument itself.’”); Greater

Providence Deposit Corp. v. Barnacle, 623 A.2d 445 (R.I. 1993) (duly recorded mortgage:

acknowledged by one of two mortgagors sufficient to provide constructive notice); Farm.

Bureau Fin. Co., Inc. v. Carney, 100 Idaho 745, 515 (1980)("technical deficiencivs.in the

certificate of acknowledgment will not render the certificate defective if the alleged
deficiency can be cured by reference to the instrument itself, in this case, the deed of trust.
... the omission of the acknowledger’s name in the blank space in the certificate will not
render the certificate ineffective if his name can be ascertained from other sources as from
the face of the instrument itself or from other parts of the certificate.”). See also_CBanion

yv. Morris Plan Industrial Bank, 201 Okl. 256, 204 P.2d 872 (1949); Gardner v. Inc, City of

McAlester, 179 P.2d 894 (OkI.1946); Coates v. Smith, 81 Or. 556, 160 P. 517 (1916).
This Court is perstaded by the reasoning of the Sixth Circuit in In re Biggs. That

case is both factually and procedurally indistinguishable from the instant case.‘ Ir: the first

“In Biggs, the Sixth Circuit recited the following pertinent facts:
On April 9, 2001, the debtors filed a bankruptcy petition under Chapter 7.
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place, the form of acknowledgment employed by the notary in Biggs is virtually the same

as that at issue in the instant case, see Tenn. Code Ann, § 66-22-107,° and the defect in the

after which the bankruptcy court assigned Jeanne Burton Gregory to be
the trustee. As trustee, Gregory obtained the rights of “a bona fide
purchaser of real property . . . from the debtor [who] has perfected such
transfer at the time of the commencement of the case, whether or not such
a purchaser exists.” 11 U.S.C. § 544(a)(3). Believing that the
acknowledgment was defective and that her status as a bona fide
purchaser gave her a superior interest in the debtors’ home under
Tennessee law, Gregory filed a complaint in the bankruptcy court to avoid
the deed of trust held by Qcwen.

The parties moved for summary judgment, and the bankruptcy court
granted Gregory’s motion. In the absence of the debtors’ names, the
bankrupt¢y court reasoned, the acknowledgment was “not in substantial
compliance [with Tennessee law] and that in order for a notarization to be
effective, it must include the names of the people who appear before the

notary.”

377 F.3d at 517. According to the Sixth Circuit, the district court, in affirming the
decision of the bankruptcy court, stated that the omission of the names in the
acknowledgment, “‘cannot be viewed , . . as [a] harmless or minor deviation] ] from the
standard form language set out in the statutes. It is at the core of what an
acknowledgment is meant to do.’” Id.

* The form used by-the notary in Biggs provided the following:
STATE OF TENNESSEE County ss: Davidson
On this 6 day of November 1997, before me personally appeared
__ [blank]
to me known to be the person(s) described in and who executed the foregoing instrumert,
and who acknowledged the execution of the same to be [blank] free act and deed. Witness
my hand and official seal.
My Commission Expires: Indefinite

(illegible signature and notary seal)
Notary Public

377 F.3d at 516-17.

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acknowledgment, namely the omission of the name of the party appearing beiore the
notary to.acknowledge the mortgage, is the same.

The Sixth Circuit in Biggs noted that the Tennessee legislature, like the
Massachusetts legislature, has said that “‘no specific form or wording [is] requirec. in such
certificate ‘and [ ]the ownership of property, or the determination of any other right or
obligation, shall not be affected by the inclusion or omission of any specific worcls.’” 377
B.3d at 518 (citing Tenn. Code Ann, § 66-22-114(b)), See Mass, Gen. Laws ch. 183, § 42. The
Sixth Circuit also noted that Tennessee, unlike Massachusetts, “specifically ‘orgives
defective acknowledgments that in either “substance” or “intent” comply with the

requirement.” Id. (citing Tenn, Code Ann. §§ 66-26-113 and 66-22-114(b)).° See Mzss. Gen.

® Section 66-26-113 (the “substantial compliance savings statute”) provides:

“The unintentional omission by the clerk or other officer of any words in
a certificate of an acknowledgment, or probate of any deed or other
instrument, shall in nowise [sic] vitiate the validity of such deed, but the
same shall be good and valid to all intents ‘and purposes, if the substance
of the authentication required by law is in the certificate.”

Biggs, 377 F.3d at 518.
Section 66-22-114(b)(the “intent savings statute”) provides:

“Any certificate clearly evidencing intent to authenticate, acknowledge o1
verify a document shall constitute a valid certificate of acknowledgment.
for purposes of this chapter and for any other purpose for which such
certificate may be used under the law. It is the legislative intent that no
specific form or wording be required in such certificate and that the
ownership of property, or the determination of any other right or
obligation, shall not be affected by the inclusion or omission of any

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Laws ch, 184, § 24.’ According to the Sixth Circuit, the defect in an acknowledgment,
caused by the omission of the identity of the parties acknowledging the deed of trust,
cannot be salvaged with reference to either the substantial compliance savings s:atute or

the intent savings statute reproduced in footnote 6, Notably, the Sixth Circuit, in setting

specific words.”

Biggs, 377 F.3d at 518.

” Section 24 provides the following:

When any owner of land the title to which is not registered, or of ary
interest in such land, signs an instrument in writing conveying or
purporting to convey his land or interest, or in any manner affecting or
purporting to affect his title thereto, and the instrument, whether or not
entitled to record, is recorded, and indexed, in the registry of deeds for the
district wherein such land is situated, and a period of ten years elapses
after the instrument is accepted for record, and the instrument or the
record thereof because of defect, irregularity or omission fails to comply in
any respect with any requirement of law relating to seals, corporate or
individual, to the validity of acknowledgment, to certificate of
acknowledgment, witnesses, attestation, proof of execution, or time of
execution, to recitals of consideration, residence, address, or date, to the
authority of a person signing for a corporation who purports to be the
president or treasurer or a principal officer of the corporation, such
instrument and the record thereof shall notwithstanding any or all of such
defects, irregularities and omissions, be effective for all purposes to the
same extent as though the instrument and the record thereof had
originally not been subject to the defect, irregularity or omission, unless
within said period of ten years a proceeding is commenced on account of
the defect, irregularity or omission, and notice thereof is duly recorded in
said registry of deeds and indexed and noted on the margin thereof under
the name of the signer of the instrument and, in the event of such
proceeding, unless relief is thereby in due course granted.

Mass. Gen. Laws ch. 184, § 24.

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forth its reasoning, addressed the same arguments made by the Defendants. It stated:

[T]he authentication of a deed of trust is not a purposeless formality. The
procedure serves to verify the identity of the individual signing the
instrument and to establish a fraud-free system for recording the ownership
of real property-a necessary prerequisite to any free market. See Figuers y.
Fly, 137 Tenn. 358, 193 S.W. 117, 120 (1917) (“A certificate of
acknowledgment is an act which must in the ‘nature of things be relied cn
with confidence” by buyers and sellers.). In this instance, the integrity of the
acknowledgment is placed in doubt because it omits the most important
information on the acknowledgment form: who, if anyone, is doing the
acknowledging? Failing to name the individuals who signed the deed of trust
bears directly on the ability of a subsequent purchaser of real property to
verify that the instrument was signed by the true property owners. Without
it, a purchaser is left to wonder who appeared before the notary, if indeed
anyone appeared before the notary, to acknowledge their signatures. In this
sense, the missing names “lend [] uncertainty about the legal effectiveness
of the instrument,” Inze Crim, 815.W.3d at 768, and for that reason alone the
acknowledgment fails substantially to comply with Tennessee law. The

“substantial compliance” test “addresses the unintentional omission cf
words by the officer taking an acknowledgment,” In re Akins, 87 S.W.3d at
493 (emphasis added), not the unintentional omission of the names of the
acknowledging individuals.

... Oewen argues, the form-printed phrase in this acknowledgment-“to me
known to be the person(s) described in and who executed the foregoing
instrument” -adequately identifies the debtors as the people whose names can
be found on the deed of trust and excuses the failure to include their names
on the acknowledgment.

Inte Grable, | 8 B.R. 363 (Bankr, E.D,Tenn. 1980)] ... misapprehends the roie
of an acknowledgment. To permit the names in the deed of trust to satisty
the names-in-the-acknowledgment requirement is to eliminate the
acknowledgment requirement. No one doubts that the names of tke
individuais on the deed of trust are the names of the individuals who should
appear on the acknowledgment. The very point of the acknowledgmentis to
have their signatures confirmed in the présence of a notary. When notaries,
however, merely take pre-printed forms and ‘purport to. notarize ther
without stating whose signatures they have notarized and who, if anyone,
appeared before them, they not only-undermine the Tennessee legislature s

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salutary purpose in creating statutorily-approved forms. but also fail <o
accomplish the signal reason for having an acknowledgment in the first
place. Under Ocwen’s reading of Tennessee law, a notary merely could
notarize a statutorily-approved form-without filling in a single blark
space-and that alone would suffice to satisfy the requirement. Far from beir.g
a finicky exaltation of form over substance, the requirement that the
grantors’ names appear on the acknowledgment is essential to giving the
acknowledgment statute the modest substance that the Tennessee legislature
thought it deserved.

Ocwen fares no better under the “intent” test. For many of the same reasons
that it cannot satisfy the “substantial compliance” test, it fails to satisfy this
one.as well.

The “intent” test looks to “the intent of the person signing a document to
properly acknowledge his or her signature.” In.re Akins, 87 S.W.3d at 4¢3
(emphasis added). As In re Akins indicates, the statute “requires only that a
certificate of acknowledgment clearly evidence the signer’s intent 10
authenticate, acknowledge or verify a document,” .. . The intent at issu,
then, goes to the person or persons named in the acknowledgment. Because
the notary in this instance named no one in the certificate of
acknowledgment and we cannot determine who, if anyone, intended to
acknowledge the signatures on the deed of trust, Ocwen cannot satisfy this
test.

Conceding that “naming [the individuals] in the acknowledgment is a
sufficient-indeed, the best-means of identifying the signers,” .. . Ocwen
repeats. its argument that the phrase “the person(s) described in and who
executed the foregoing instrument” adequately establishes the debtors’
intent to acknowledge their signatures. Other than In re Grable, however,
Ocwen. offers no case support for this argument, and in this setting the
argument has even less to recommend it than it does in the “substantial
compliance” setting. Words froma pre-printed form, even words purporting
to incorporate a document that the debtors have signed (namely, the deed af
trust), do not establish an intent to acknowledge their signatures when the.r
names nowhere appear on the acknowledgment. |

377 F.3d. at 519- 21. See also Rogan v. Am.’s Wholesale Lender (In re Vance), 99 Fed. Appx.

25, 27 (6th Cir.2004) (per curiam) (“The notary failed to include [the individuals’ names]

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in the certification. Therefore, the district court was correct in finding that the
acknowledgment failed to comport with Kentucky law.”).

Because there are no Massachusetts decisions which directly address the issue of
whether the omission of a grantor’s or mortgagor’s name in the acknowledgment form is
a material defect, this Court must predict how the Massachusetts Supreme Judicial Court
would resolve the issue with reference to Mass. Gen. Laws ch. 183, §§ 29,30. See In re
Melber, 315 B.R. 181, (Bankr. D. Mass. 2004) (citing Caron v. Farmington Nat'l Bank (In re
Caron), 82 F.3d 7,9 (1st Cir. 1996)). In view of the decision of the Supreme Judicial Court

in McOuatt v. McOuait,320 Mass. 410 (1946), the statutes cited above, and Executive Order

455, this Court predicts that the Massachusetts Supreme Judicial Court would view the
omission. of the Debtor’s name from the acknowledgment as a material defect in the
acknowledgment of the Debtor‘s signature on the mortgage document.

In McQuatt, the Supreme Judicial Court construed an acknowledgment attached to.

a deed from the grantor to his spouse while the grantor was on his death bed. According
to the court,

McOuatt told the physician that he knew what he was about to do, that he
was to sign papers to protect his wife, and that he had been intending to do
this for some time. The defendant obtained a deed which the attorney had
prepared and brought it to the hospital. She told her husband what it was,
and in her presence a hospital clerk, who was a notary: public, asked him if
he knew what he was about to sign. He said that he did and that he was
turning over his property to his wife. He executed the deed by making an X
with the assistance of the notaty public. Atsome time thereafter he requested
the defendant to have the deed recorded, which she did. He died some eight
hours after he executed the deed.

320 Mass. 411-12. The Supreme Judicial Court, following review of a master’s report,

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added:

[T]here is no finding that McOuaitt, after he signed the deed, ever said a word

to the one who made out the certificate of acknowledgment. On the other

hand, there is an express finding that he did not say anything indicating that

he acknowledged the instrument as his free act and deed. The master has-set

forth all the subsidiary findings relative to this matter of acknowledgmert.

We are unable to discover anything in his report that would justify a

conclusion that McOuatt acknowledged the instrument of conveyance to ke

his free act and deed. The only conclusion that can be reached from the

reportis that the deed was not duly acknowledged ‘as required by the statuts.
Id. at 414, In so holding, the Supreme Judicial Court signaled its adherence to a stringent
requirement, namely that a grantor ot mortgagor expressly state to the notary that the
execution of the instrument was his or her free act or deed. The Massachuse:ts court
recognized, as did the Sixth Circuit in Biggs, that “[a]n acknowledgment is the formal
statement of the grantor to the official authorized to take the acknowledgment that the
execution of the instrument was his free act and deed. No particular words are n2cessary
as long as they amount to an admission that he has voluntarily and freely exec.ited the
instrument.” McOuatt, 320 Mass. at 414. (citations omitted, emphasis supplied). Thus,
unlike many courts, Massachusetts requires, in addition to the other formalities associated
with acknowledgments, an affirmative declaration by the grantor or mortgagor. The court
in Poole v. Hyatt, 344 Md. 619 (1997), observed that “[sjo far as we can tell, only
Massachusetts and Texas have imposed such a requirement. ...” Id. at 632. Indeed, the

court in Poole refused to adopt the Massachusetts requirement finding it “unnecessarily

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rigid and formalistic.”*

This Court concludes that the Supreme Judicial Court would find the decision of the
Sixth Circuit in Biggs compelling. Because Tennessee has both a substantial corapliance
savings statute and an intent savings statute, the law of Tennessee is more liberal than
Massachusetts law. Yet, in Biggs the omission of the mortgagor’s name in the.
acknowledgment resulted in affirmance of a decision permitting the Chapter 7 trustee to
avoid the mortgage under 11 U.S.C. § 544(a)(3). Although Massachusetts has a curative
provision, see Mass. Gen. Laws ch. 184, § 24, that statute requires a lapse of ten years for the
instrument to be effective for all purposes, “unless a proceeding is commenced on account
of the defect, irregularity or omission, and notice thereof is duly recorded .. . indexed and
noted in the margin thereof under the name of the signer of the instrument... -.

Accordingly, this Court concludes that it is unlikely that the Massachusetts Supreme

8 It stated:

[A]|though a clear oral expression is preferable because it provides direct
evidence of the signatory’s knowledge and intent, when a signatory (1)
appears personally before a notary for the purpose of having the notary
witness and attest to his or her signature, (2) the signatory appears to'be
alert arid is under no apparent duress or undue emotional or intoxicating
influence, (3) it is clear from the overall circumstances that the signatory
understands the nature of the instrument he or'she is about to sign, and
(4) he or she signs the instrument in the presence of the notary with the
apparent intent of making the instrument effective, the signatory is:
effectively acknowledging to the notary that the instrument is being
signed voluntarily and for the purpose contained therein.

Id. at 636-37.

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Judicial Court would find that the omission of the Debtor’s name was an omission that
could be cured with reference to the notary’s role in witnessing the Debtor's signature on
the mortgage.

The Court’s conclusion is buttressed by Executive Order 455, which was
promulgated in. part because the Governor of the Commonwealth determined that
“notaries public lacked specific guidance as to the nature and scope of their duties.” The
Order mandated compliance with its provisions, which include the requiremer:: to keep
an active journal setting forth the date, time and type of notarial acts performed, as well
as the signature, printed name and address of each principal and witness and “a
description of the satisfactory evidence of each person” by May 15, 2004. Moreover, as
noted above, the Executive Order defines “acknowledgment” to include a deterrnination
by the notary that “the signature on the document was voluntarily affixed by the
individual for the purposes stated within the document... .”

Based upon the foregoing requirements, the acknowledgment attached to the
mortgage executed by the Debtor in this case cannot be construed to satisfy the
requirements of Massachusetts law. Although the notary witnessed the Debtor’s signature,
that alone is not enough. The notary was required to obtain satisfactory evidence of the
Debtor's identity and to ascertain that his signature on the mortgage was voluntarily

affixed, The acknowledgment, because of its patent defect, cannot permit that in‘erence.’

* Some courts have determined that “[a]bsent an allegation of fraud or forgery, a
recorded acknowledgment that is complete and proper on its face is prima facie
evidence of the due execution of the mortgage. Jones v. The Money Store (In re ‘ones),

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Having determined that the acknowledgment contains a patent and material defect
that should have prevented it from being recorded, the Court must determine the
consequences of its recordation. In this regard, the Trustee’s position is consistent with
settled law in Massachusetts. Generally, “[a] conveyance of an estate [in land... .] shali not
be valid as against any person, éxcept the grantor . . . his heirs and devisees.and persons
having actual notice of it, unless it is recorded in the registry of deeds for the county or
district in which the land to which it relates lies.” Mass. Gen. Laws ch. 183, § 4.

In Graves v. Graves, 72 Mass. 391 (1856), the Supreme Judicial Court held that an

“instrument of defeasance, not being acknowledged, was improvidently admitted to
registration, and the record does not operate as. constructive notice of the execution of the
assignment of the equity of redemption, as against anattaching creditor of the equity; and
therefore the title of the attaching creditor, though subsequent in time, takes precedence

of the assignment.” Id, at 392-93. Similarly, in Dole v. Thurlow, 53 Mass. 157, 1846 WL

4099 (Mass. 1846), the Supreme Judicial Court stated:

[lt appears to-us, that the revised statutes do not alter the law.in this respect.
By the former St. of 1783, c. 37, and the decisions under it, the law was, that
by the execution and delivery of a deed, the estate passed, as between
grantor and grantee, and the grantee became seized. But to give it full effect,
as against purchasers and creditors of the grantor, recording was necessary;
and as a prerequisite to recording, acknowledgment, or proof by one or more
subscribing witnesses, was necessary. Actual recording, without one of these
prerequisites, would not give effect to the deed.

284 B.R. 92, 95 (Bankr. E.D. Pa. 2002), aff'd 308 B.R. 223 (E.D. Pa. 2003). But see Fisher v.
Advanta Fin. Corp. (In re Fisher), 320 B.R. 52 (E.D. Pa. 2005). In this case, the
acknowledgment was not complete on its face and thus canriot be considered prima
facie evidence.

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1846 WL 4099 at *4 (citations omitted).
Although the Bankruptcy Code arms the Trustee with the rights and powers of a
bona fide purchaser, see 11 U.S.C.§ 544(a)(3), those rights and powers are defined by state

law, Gray v. Burke {In re Coletta Bros. of North Quincey, Inc.}, 172 B.R. 159, 162 (Bankr, D.

Mass. 1994)(citing Butner v. United States, 440 U.S. 48 (1979)), and Stern v. Conitinental

Assurance Co. (In re Ryan), 851 F.2d 502 (1st Cir. 1988)). As set forth above, under

Massachusetts law, because the mortgage was not properly acknowledged it did not
provide constructive notice to a subsequent purchaser for value.
In the context of a mistakenly recorded discharge of a mortgage fromthe debtor, the

bankruptcy court in Collins v. Bank of New England West, N.A. (In re Dayligit Dairy

Products, Inc.), 125 B.R. 1 (Bankr. D. Mass. 1991), explained the interaction of state law

” The facts in Daylight Dairy Products are as follows:

On November 12, 1975, the Debtor granted a mortgage to the Bank en real
property located at 694-696 and 700-702 Summer Avenue, Springfield,
Massachusetts which was duly recorded. On February 25, 1987, the loan
documents were amended to increase the mortgage amount. At the same
time, the Bank agreed to release several properties other than the Summer
Avenue property. On March 31, 1987, through clerical inadvertence and
error, the Bank executed and acknowledged a discharge of the mortgage
on the Summer Avenue property. For some unexplained reason, the
discharge was not recorded until November 3, 1987.

On July 29, 1987, Agri-Mark recorded its mortgage from the Debtor
covering a number of properties including 700-702 Summer Avenue.
Agri-Mark’s mortgage provides that the “premises are subject to” the
Bank’s mortgage.

On March 10, 1989, the Debtor filed a Chapter 11 petition.

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and § 544(a). It stated:

Section 544(a) ... empowers the Trustee to avoid a transfer of an interest in
real property of the Debtor to the extent a bona fide purchaser of the
property may avoid the transfer. The Trustee has these powers “without
regard to the knowledge of the [T]rustee or of any creditor.” {11 U.S.C. §
544(a)] The Trustee nevertheless takes the property subject to ary
constructive knowledge imposed upon creditors and purchasers under
applicable state law. McCannon v. Marston, 679 F.2d 13 (3d Cir.198)
(trustee. subject to constructive notice ef unrecorded deed recognized in
Pennsylvania law from purchaser's possession). Cf. Stern v. Continental
Assurance Co. (In re Ryan), 851 F.2d 502 (1st Cir.1988) (trustee takes free of
constructive notice of improperly witnessed and recorded mortgage where
Vermont law denies constructive notice effort to such a mortgage). The
Trustee is also subject to whatever inquiry notice may be. imposed by state
law under the particular facts. Maine Nat'l Bank v.
B.R. 52 (1st Cir. BAP 1983) (trustee subject to mistakenly discharged mortgage
where Maine law would impose a duty to inquire concerning certificate of
foreclosure recorded after recording of discharge). .

125 B.R. at 3. The bank in Daylight Dairy Products asserted that the Trustee was put on
inquiry notice because of a reference in a subsequent mortgage to its mortgage. The
bankruptcy court rejected that argument, stating:

Inquiry notice of another's property interest is a corollary of both “actuai”
and “constructive” notice. In re Ryan, supra, at 507. Where recognized, it
involves a duty of investigation imposed upon one who has actual or
constructive. knowledge of facts which would lead a prudent person to
suspect that another has an interest in the property. Id.

There are two flaws in the Bank’s argument. First, Massachusetts law does
not recognize inquiry notice of unrecorded deeds ot mortgages. In
Massachusetts, an unrecorded deed or mortgage is valid only against tte
grantor, his heirs and devisees and “persons having actual notice of it”

Mass. Gen. L. ch. 183, § 4. The phrase “actual notice” is interpreted by the
Massachusetts courts to exclude inquiry notice even when there is a reference
to a party’s property interest in the records which should be examined in a

125 B.R. at 2.
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title search. . . .

Id. at 3 (citing Tramontozzi v. D’Amicis, 344 Mass. 514, 183 N.E.2d 295 (1952), and

McCarthy v. Lane, 301 Mass. 125, 16 N-E.2d 683, 685 (1938). The bankruptcy court further

observed:

There is no contention that the Trustee had actual notice of the continued

vitality of the Bank's mortgage. Evenif the Trustee had such notice, it would

not be imputed to the bankruptcy estate; § 544(a) grants the Trustee righ:s

and powers “without regard to any knowledge of the Trustee or of any

creditor.”

Second, the reference in Agri-Mark’s mortgage to the Bank’s mortgage,

coupled with the earlier execution date of the discharge of the Banks

mortgage, would not provide inquiry notice even if Massachuset:s
recognized the doctrine of inquiry notice.
Id. at 4.

Based upon the foregoing authorities, the Court concludes that the Trustee’s
position is well supported under Massachusetts law and rejects the position advenced by
the Defendants, as it is predicated upon a misapprehension of the effec! of the
acknowledgment. Thus, the Trustee may avoid the mortgage pursuant to his strong arm
powers under § 544.

The Trustee also seeks relief under §550{a). That section permits him to recover “for
the benefit of the estate, the property transferred, or, if the court so orders, the value of such
property, from-{1) the initial transferee of such transfer or the entity for whose benafit such
transfer was made; or (2) any immediate or mediate transferee of such initial transferee.”
11 U.S.C. §.550(a)(emphasis supplied). Because Countrywide, the immediate transferee of
the initial transferee (MERS), obtained relief from the automatic stay on October 2, 2008 to

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foreclose the mortgage, the Trustee secks the value of the mortgage lien, not the value of
the property transferred. Although the Trustee sets forth that amount as $294,00, that
figure represents the value the Debtor ascribed to the property in Schedule A. The actual
value of the lien preserved for the benefit of the estate under 11 U.S.C. § 551 may or may
not equal $294,000.
V. CONCLUSION

In view of the foregoing, the Court shall enter an order granting the Trustee's
Motion for Sammary Judgment, in part, and denying the Defendants’ Motion for Summary
Judgment. The Court shall schedule a hearing to determine the vaiue of the lien preserved
for the benefit of the estate pursuant to 11 U.S.C. § 551.

By the Court,

Joan N. Feeney

United States Bankruptcy Judge
Dated: May 21, 2009 . .
cc: Jeffrey J. Cymrot, Esq., Christine Murphy, Esq., Warren E. Agin, Esq., Brian F.. Lewis,
Esq.

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