Helbling v. Oberaitis et al

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
In re:
ANTHONY OBERAITIS,
Debtor.
___________________________
LAUREN HELBLING,
Plaintiff,
v.
ANTHONY OBERAITIS, et al.,
Defendants.
___________________________
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Case No. 09-16122
Chapter 7
Adversary Proceeding
No. 09-1292
Judge Arthur I. Harris
MEMORANDUM OF OPINION 1
This matter is currently before the Court on the motion for summary
judgment of the plaintiff-trustee, Lauren Helbling, and the brief in opposition of
defendant-creditor National City Mortgage Company. At issue is whether the
trustee is entitled to avoid a mortgage because the notary’s certificate of
1 This Memorandum of Opinion is not intended for official publication.
The court incorporates by reference in this paragraph and adopts as
the findings and orders of this court the document set forth below.
This document was signed electronically on February 12, 2010, which
may be different from its entry on the record.
IT IS SO ORDERED.
Dated: February 12, 2010
_____________________________
Arthur I. Harris
United States Bankruptcy Judge
__________________________________________________________________________________________
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acknowledgment failed to recite the name of the party whose signature was
acknowledged. For the reasons that follow, the Court holds that the mortgage was
not executed in accordance with Ohio’s statutory requirements and can be avoided
by the trustee. Accordingly, the trustee’s motion for summary judgment is granted.
FACTS AND PROCEDURAL BACKGROUND
On December 3, 2009, the plaintiff-trustee and defendant National City
Mortgage Company (“National City”) submitted the following stipulations:
1. 	Jurisdiction of this Court is proper and as set forth in Paragraph 1
of the Complaint.
2. 	This is a core proceeding as set forth in Paragraph 2 of the
Complaint.
3. 	Plaintiff is the duly appointed, qualified and acting Trustee of the
estate of the debtor.
4. 	A legal description for property known as 5271 West 52nd Street,
Parma, OH 44134 is shown as Exhibit A to the Complaint.
(“Property”).
5. 	The petition in this case was filed on July 2, 2009.
6. 	The Debtor’s interest in the Property is property of the bankruptcy
estate pursuant to 11 U.S.C. § 541.
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7. 	The debtor is the owner, in fee simple of the Property, by virtue
of 	a 	General 	Warranty 	deed 	filed 	in 	Instrument 	No.
200706111205 of the records of Cuyahoga County, Ohio.
8. 	National City Mortgage Company is the holder of a mortgage on
the Property, from the Debtor. On November 7, 2009, National
City Mortgage merged into PNC Mortgage, a division of PNC
Bank, N.A. (“PNC Mortgage”).
9. 	The PNC Mortgage lien was filed on June 11, 2007 as Instrument
No. 200706111206 in the records of Cuyahoga County, Ohio.
10. 	A true and exact copy of the PNC Mortgage lien is attached to the
Complaint as Exhibit B.
11. 	The acknowledgment provisions on PNC Mortgage’s mortgage
reads as follows:
State of Ohio, 	County ss:
This instrument was acknowledged before me this 8th day of
June, 2007 by
My Commission Expires: 	/s/ Janet Clegg
Notary Public
Stamp JANET CLEGG
NOTARY PUBLIC
STATE OF OHIO
My Comm. Exp. 4/28/09
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12. 	Debtor’s initials appear at the bottom of mortgage pages 1 through
13, and page 15.
On September 1, 2009, the trustee of the Chapter 7 estate initiated this
adversary proceeding seeking to avoid the mortgage of National City pursuant to
section 544(a)(3) of the Bankruptcy Code. The complaint named as defendants the
debtor, National City, and the Cuyahoga County Treasurer. National City and the
Cuyahoga County Treasurer filed answers to the complaint. On October 27, 2009,
the parties entered into an agreed order stipulating that the Cuyahoga County
Treasurer had a first lien on the property for real property taxes and assessments.
On January 21, 2010, the Court entered default judgment against the debtor. In the
meantime, the trustee and National City have completed briefing on the trustee’s
motion for summary judgment seeking to avoid the mortgage held by National
City.
JURISDICTION
Determinations of the validity, extent, or priority of liens are core
proceedings under 28 U.S.C. section 157(b)(2)(K). The Court has jurisdiction over
core proceedings under 28 U.S.C. sections 1334 and 157(a) and Local General
Order No. 84, entered on July 16, 1984, by the United States District Court for the
Northern District of Ohio.
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SUMMARY JUDGMENT STANDARD
Federal Rule of Civil Procedure 56(c), as made applicable to bankruptcy
proceedings by Bankruptcy Rule 7056, provides that a court shall render summary
judgment, if the pleadings, depositions, answers to interrogatories, and admissions
on file, together with affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to judgment as a matter of
law.
The moving party bears the burden of showing that “there is no genuine
issue as to any material fact and that [the moving party] is entitled to judgment as a
matter of law.” Jones v. Union County, 296 F.3d 417, 423 (6th Cir. 2002). See
generally Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the moving
party meets that burden, the nonmoving party “must identify specific facts
supported by affidavits, or by depositions, answers to interrogatories, and
admissions on file that show there is a genuine issue for trial.” Hall v. Tollett,
128 F.3d 418, 422 (6th Cir. 1997). See, e.g., Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 252 (1986) (“The mere existence of a scintilla of evidence in support
of the plaintiff’s position will be insufficient; there must be evidence on which the
jury could reasonably find for the plaintiff.”). The Court shall view all evidence in
a light most favorable to the nonmoving party when determining the existence or
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nonexistence of a material fact. See Tenn. Dep’t of Mental Health & Mental
Retardation v. Paul B., 88 F.3d 1466, 1472 (6th Cir. 1996).
DISCUSSION
Under the “strong arm” clause of the Bankruptcy Code, the bankruptcy
trustee has the power to avoid transfers that would be avoidable by certain
hypothetical parties. See 11 U.S.C. § 544(a). Section 544 provides in pertinent
part:
(a) The trustee shall have, as of the commencement of the case, and without
regard to any knowledge of the trustee or of any creditor, the rights and powers
of, or may avoid any transfer of property of the debtor or any obligation
incurred by the debtor that is voidable by –
. . . .
(3) a bona fide purchaser of real property, other than fixtures, from the
debtor, against whom applicable law permits such transfer to be
perfected, that obtains the status of a bona fide purchaser and has
perfected such transfer at the time of the commencement of the case,
whether or not such a purchaser exists.
11 U.S.C. §544. Any transfer under section 544 is preserved for the benefit of the
estate. See 11 U.S.C. § 551.
The mortgage provides that federal law and the law of the jurisdiction in
which the property is located will control. Because the real property in question is
located in Ohio, the Court will apply Ohio law to determine whether the trustee
can avoid the mortgage using the “strong arm” clause. See Simon v. Chase
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Manhattan Bank (In re Zaptocky), 250 F.3d 1020, 1024 (6th Cir. 2001)
(applicable state law governs determination whether hypothetical bona fide
purchaser can avoid mortgage).
Under Ohio law, a bona fide purchaser is a purchaser who “ ‘takes in good
faith, for value, and without actual or constructive knowledge of any defect.’ ”
Stubbins v. Am. Gen. Fin. Serv., Inc. (In re Easter), 367 B.R. 608, 612
(Bankr. S.D. Ohio 2007), quoting Terlecky v. Beneficial Ohio, Inc.
(In re Key), 292 B.R. 879, 883 (Bankr. S.D. Ohio 2003); see also
Shaker Corlett Land Co. v. Cleveland, 139 Ohio St. 536 (1942). The Bankruptcy
Code expressly provides that a bankruptcy trustee is a bona fide purchaser
regardless of actual knowledge. See In re Zaptocky, 250 F.3d at 1027 (“actual
knowledge does not undermine [trustee’s] right to avoid a prior defectively
executed mortgage.”). Because actual knowledge does not affect the trustee’s
strong-arm power, the Court need only determine whether the trustee had
constructive knowledge of the prior interest held by the defendant National City.
Ohio law provides that “an improperly executed mortgage does not put a
subsequent bona fide purchaser on constructive notice.” Zaptocky,
250 F.3d at 1028. Ohio courts have refused to allow a recorded mortgage to give
constructive notice when the mortgage has been executed in violation of a statute.
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See In re Nowak, 104 Ohio St. 3d 466, 469 (2004) (listing cases). The key
question, then, is whether the mortgage was executed in compliance with, or
substantially conforms to applicable statutory law.
The Mortgage Was Not Properly Executed
in Accordance with Ohio Revised Code § 5301.01
Ohio Revised Code § 5301.01, requires four separate acts to properly
execute a mortgage: (1) the mortgage shall be signed by the mortgagor; (2) the
mortgagor shall acknowledge his signing in front of a notary public, or other
qualified official; (3) the official shall certify the acknowledgment; and (4) the
official shall subscribe his name to the certificate of acknowledgment.
Ohio Rev. Code § 5301.01(A) (2004); see Drown v. GreenPoint Mortgage
Funding, Inc. (In re Leahy), 376 B.R. 826, 832 (Bankr. S.D. Ohio 2007) (listing
four requirements provided by Ohio Rev. Code. § 5301.01). 2 At issue in this case
is whether the certificate of acknowledgment, which omitted the name of the
2 In Zaptocky, the Sixth Circuit identified “three major prerequisites for the
proper execution of a mortgage: (1) the mortgagor must sign the mortgage deed;
(2) the mortgagor’s signature must be attested by two witnesses; and (3) the
mortgagor’s signature must be acknowledged or certified by a notary public.”
Zaptocky, 250 F.3d at 1024. The differences between Zaptocky’s three
requirements and Leahy’s four requirements are (A) the deletion in Leahy of
Zaptocky’s second requirement – attestation by two witnesses – due to a change in
the statute, and (B) the Leahy court’s breaking down of Zaptocky’s third
requirement – certification of acknowledgment – into three separate parts.
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borrower, satisfies the third requirement to proper execution of a mortgage.
Certification of an acknowledgment is governed by Ohio Revised Code
sections 147.53-147.58. Ohio Revised Code section 147.53 provides:
The person taking an acknowledgment shall certify that:
(A) The person acknowledging appeared before him and acknowledged he
executed the instrument;
(B) The person acknowledging was known to the person taking the
acknowledgment, or that the person taking the acknowledgment had
satisfactory evidence that the person acknowledging was the person
described in and who executed the instrument.
The Ohio Revised Code further provides that a certificate of
acknowledgment is acceptable in Ohio if it is in a form prescribed by the laws or
regulations of Ohio or contains the words “acknowledged before me,” or their
substantial equivalent. Ohio Rev. Code § 147.54. Ohio’s statutory short form
acknowledgment for an individual is as follows:
State of ________
County of ________
The foregoing instrument was acknowledged before me this (date) by
(name of person acknowledged.)
(Signature of person taking acknowledgment)
(Title or rank) (Serial number, if any)
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Ohio Rev. Code § 147.55(A).
The trustee argues that the mortgage was improperly recorded because the
certification of acknowledgment clause does not conform to section 5301.01 of
the Ohio Revised Code. Specifically, the trustee asserts that the clause fails to
identify the name of the party who acknowledged his own signature. The Court
agrees. Recent case law, including a 2008 decision from the Sixth Circuit BAP,
supports the trustee’s position that an acknowledgment is defective if it fails to
identify the person whose signature is being acknowledged. See In re Nolan,
383 B.R. 391, 396 (6th Cir. B.A.P. 2008); In re Sauer, 417 B.R. 523,
(Bankr. S.D. Ohio 2009); Daneman v. Nat’l City Mortg. Co. (In re Cornelius),
408 B.R. 704, 708 (Bankr. S.D. Ohio 2009) (“The absence of the name of the
mortgagee acknowledging election is the functional equivalent of no certificate of
acknowledgment and renders an acknowledgment insufficient.”); Drown v.
Coutrywide Home Loans, Inc. (In re Peed), 403 B.R. 525, 531 (Bankr. S.D. Ohio
2009) appeal docketed No. 2:09cv347 (S.D. Ohio May 1, 2009); Terlecky v.
Countrywide Home Loans, Inc. (In re Baruch), No. 07-57212, Adv. No. 08-2069,
2009 Bankr. Lexis 608 at *22 (Bankr. S.D. Ohio Feb. 23, 2009) (“An
acknowledgment clause containing nothing relative to the mortgagor’s identity is
insufficient; rather, an acknowledgment clause must either identify the mortgagor
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by name or contain information that permits the mortgagor to be identified by
reference to the mortgage.”); In re Leahy, 376 B.R. at 832. Accord Bank of
America, N.A., v. Corzin (In re Bergman), Case No. 5:09cv2520 (N.D. Ohio
Feb. 2, 2010) (affirming bankruptcy court’s decision allowing trustee to avoid
mortgage containing blank acknowledgment clause). See also Smith's Lessee v.
Hunt, 13 Ohio 260, 269 (1844) (holding that court was unable to infer name of
grantor when acknowledgment was blank as to the grantor and, thus, the mortgage
was defective and did not convey title).
The holdings in Nolan, Smith’s Lessee, and similar cases are also supported
by case law interpreting almost identical statutory provisions for acknowledgment
clauses in Kentucky and Tennessee. See, e.g., Gregory v. Ocwen Fed. Bank
(In re Biggs), 377 F.3d 515 (6th Cir. 2004) (affirming bankruptcy court’s decision
avoiding deed of trust under section 544 and Tennessee law when deed of trust
omitted names of acknowledging parties); Select Portfolio Servs. v. Burden
(In re Trujillo), 378 B.R. 526 (6th Cir. B.A.P. 2007) (affirming bankruptcy court’s
decision avoiding mortgage under section 544 and Kentucky law when debtor was
not named or identified in certificate of acknowledgment).
Nor did the execution of the mortgage “substantially comply” with the
statutory requirements. When the validity of a mortgage is challenged for failure
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to comply with the statutory mandates of Ohio Revised Code section 5301.01, a
court can “review the nature of the error and the balance of the document to
determine whether or not the ‘instrument supplies within itself the means of
making the correction.’ ” Menninger v. First Franklin Fin. Corp. (In re Fryman),
314 B.R. 137, 138 (Bankr. S.D. Ohio 2004) (quoting Dodd v. Bartholomew,
44 Ohio St. 171, 176 (1886)). This principle enunciated by the Dodd court
essentially allows a court to determine whether the execution of a mortgage is in
“substantial compliance” with section 5301.01. See In re Fryman,
314 B.R. at 138. Under Ohio law, a mortgage that substantially complies with
section 5301.01 will be considered valid. See Drown v. EverHome Mortg. Co.
(In re Andrews), 404 B.R. 275, 279 (Bankr. S.D. Ohio 2008) (citing
Mid-American Nat'l Bank & Trust, 451 N.E.2d 1243, 1245-46 ) (Ohio Ct. App.
1982)).
In the present case, although the debtor initialed each page of the mortgage,
the Court does not accept the argument that this is enough to constitute substantial
compliance with section 5301.01. See In re Peed, 403 B.R. at 534-36 (presence of
initials on each page of mortgage, including acknowledgment clause page, and
notary’s service as witness to mortgage execution did not substantially comply
with requirement that acknowledgment clause identify person whose signature is
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being acknowledged); accord Bank of America v. Corzin, Case No. 5:09cv2520 at
*16-20; In re Cornelius, 408 B.R. at 708; In re Andrews, 404 B.R. at 279.
Moreover, unlike the acknowledgment clause in Fryman, which contained the
recitation “that ‘they’ examined, read, and signed the instrument of ‘their’ free act
and deed,” with the plural pronouns “they” and “their” handwritten in by the
notary, 314 B.R. at 138, the acknowledgment clause in the present case simply
recites that the “instrument was acknowledged before me [this 8th day of June
2007] by [blank].”
Nor is the mortgage defect in the present case akin to the one this Court
addressed in Helbling v. Zabor (In re Zabor), 2009 WL 2256911, No. 08-15564,
Adv. No. 08-1312, (Bankr. N.D. Ohio July 22, 2009). In Zabor, this Court found
substantial compliance with section 5301.01 where the only defect was a missing
date in the acknowledgment clause and the debtor’s signature and date of
execution appeared directly above the acknowledgment clause. Rather, the Court
agrees with the analysis of Senior U.S. District Judge David D. Dowd, Jr., in Bank
of America v. Corzin, that a blank acknowledgment clause with the debtors’
initials on the same page does not constitute substantial compliance with section
5301.01. See Bank of America v. Corzin, Case No. 5:09cv2520 at*16-20.
Therefore, the mortgage was improperly executed because the certification
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of acknowledgment failed to indicate who appeared before the notary public as
required under Ohio Revised Code section 5301.01. The trustee is not charged
with constructive notice of the mortgage between the debtor and National City.
CONCLUSION
For the reasons stated above, the Court holds that the certificate of
acknowledgment is defective and the trustee can avoid the mortgage held by
National City. Accordingly, the trustee’s motion for summary judgment is
granted. Each party shall bear its own costs and attorney’s fees.
IT IS SO ORDERED.
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