In re Wheeler

Full title: In re Patricia Wheeler. Eileen K. Field, Trustee, Appellee, v. Patricia…

Court: United States District Court, S.D. Ohio, Western Division

Date published: Jun 12, 2006

Case No. 1:05-CV-805 (S.D. Ohio Jun. 12, 2006)

Opinion

Case No. 1:05-CV-805.

June 12, 2006

ORDER

SANDRA BECKWITH, District Judge

Appellant ABN AMRO Mortgage Group, Inc. appeals from the judgment of the United States Bankruptcy Court for the Southern District of Ohio finding that pursuant to 11 U.S.C. § 544(a)(3), the Trustee, Appellee Eileen K. Field, is able to avoid a mortgage allegedly given to ABN AMRO by Defendant Patricia Wheeler. For the reasons set forth below, the judgment of the Bankruptcy Court is AFFIRMED.

I.

The facts in this case are not in dispute. On December 24, 2001, Harry Wheeler and Debtor Patricia Wheeler signed a mortgage in favor of Appellant ABN AMRO Mortgage Group, Inc. ("ABN") on a parcel of real property located in Cincinnati, Ohio. Ex. A. Both Debtor and Harry Wheeler signed the mortgage, although the definitions section of the instrument names only "Harry R. Wheeler, Married" as the borrower. There were two witnesses to their signatures, one of whom was also the notary public who executed the certificate of acknowledgment of the mortgage. The certificate of acknowledgment states:

STATE OF OHIO, HAMILTON County

On this 24^th day of December, 2001, before me, a Notary Public in and for said County and State, personally appeared Harry R. Wheeler, Married the individual(s) who executed the foregoing instrument and acknowledged that he/she/they did examine and read the same and did sign the foregoing instrument, and that the same is his/her/their free act and deed.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal.

s/Jack W. Wehmeier Notary Public

Id. at 2427. ABN recorded the mortgage in a timely fashion.

In November 2002, Debtor filed a petition for voluntary bankruptcy. The bankruptcy trustee, Appellee Eileen K. Field, then filed an adversary proceeding against Debtor and ABN to avoid the mortgage pursuant to her status as a hypothetical bona fide purchaser under 11 U.S.C. § 544(a)(3). The complaint contended that as to the Debtor, the mortgage in question was invalid because the certificate of acknowledgment did not comply with Ohio Rev. Code § 5301.01 ¹ in that the notary did not certify the acknowledgment of Debtor's signature. ABN conceded that there were "scrivener's errors" with respect to both completion of the mortgage instrument and execution of the certificate of acknowledgment, but contended that the mortgage was not avoidable because there was substantial compliance with § 5301.01. Alternatively, ABN argued that although defectively executed, the mortgage was sufficient to give bona fide purchasers notice that Debtor intended to mortgage her interest in the subject property. Therefore, ABN argued, the Trustee could not avoid the mortgage pursuant to § 544(a)(3).

1 At the time the mortgage in this case was executed, § 5301.01(A) provided:

A deed, mortgage, land contract as referred to in division (B)(2) of section 317.08 of the Revised Code, or lease of any interest in real property and a memorandum of trust as described in division (A) of section 5301.255 of the Revised Code shall be signed by the grantor, mortgagor, vendor, or lessor in the case of a deed, mortgage, land contract, or lease or shall be signed by the settlor and trustee in the case of a memorandum of trust. The signing shall be acknowledged by the grantor, mortgagor, vendor, or lessor, or by the settlor and trustee, in the presence of two witnesses, who shall attest the signing and subscribe their names to the attestation. The signing shall be acknowledged by the grantor, mortgagor, vendor, or lessor, or by the settlor and trustee, before a judge or clerk of a court of record in this state, or a county auditor, county engineer, notary public, or mayor, who shall certify the acknowledgment and subscribe his name to the certificate of the acknowledgment.

Ohio Rev. Code § 5301.01(A) (Baldwin 2001). The Ohio General Assembly amended this section to eliminate the two witness requirement effective February 1, 2002. Taylor v. Kemp, No. 05 BE 13, 2005 WL 3489759, at *4 (Ohio Ct.App. Dec. 12, 2005).

On cross-motions for summary judgment, the Bankruptcy Court ruled that the Trustee was entitled to avoid the mortgage. The Court first determined that there had not been substantial compliance with § 5301.01. In so holding, the Court distinguishedIn re Fryman, 314 F.R.D. 137 (S.D. Ohio 2004), a case with very similar facts, based on differences in the wording of the acknowledgment clauses at issue. Then, relying on cases from other jurisdictions which it concluded represented the majority view, the Court held that the defective mortgage was insufficient to give constructive notice to bona fide purchasers even though it was valid as to the non-debtor spouse and had been properly recorded.

ABN now appeals from the judgment of the Bankruptcy Court and presents the same issues for resolution: whether there was substantial compliance with § 5301.01 and if not, whether the mortgage as executed and recorded was sufficient to give constructive notice to bona fide purchasers such that the mortgage is not avoidable by the Trustee.

II.

This Court is bound by the Bankruptcy Court's findings of fact unless they are clearly erroneous. See In re Batie, 995 F.2d 85, 88 (6th Cir. 1993). The Court reviews the Bankruptcy Court's legal conclusions de novo. See id. "[I]f a question is a mixed question of law and fact, then we must break it down into the constituent parts and apply the appropriate standard of review for each part." Id. (citing In re Brown, 951 F.2d 564, 567 (3rd Cir. 1991)).

As there are no disputed issues of fact in this case, this appeal presents only questions of the law for this Court to review de novo.

III.

The so-called "strong-arm clause" of the Bankruptcy Code, 11 U.S.C. § 544(a), grants the trustee the rights and powers of a bona fide purchaser of real property and the consequent ability to avoid any transfer of property that would be avoidable by a bona fide purchaser. In re Fordu, 201 F.3d 693, 697 n. 3 (6th Cir. 1999). Whether the trustee qualifies as a hypothetical bona fide purchaser is determined by state law. In re Michigan Lithographing Co., 997 F.2d 1158, 1159 (6th Cir. 1993).

Thus, at the time the mortgage at issue was executed, there were three major requirements for a mortgage to be valid in Ohio: 1) the mortgagor must have signed the mortgage deed; 2) the mortgager's signature must have been attested by two witnesses; and 3) the mortgagor's signature must have been acknowledged or certified by a notary public (or other designated official). In re Zaptocky, 250 F.3d 1020, 1024 (6th Cir. 2001). A mortgage not meeting these requirements is not validly executed and can be avoided by a subsequent bona fide purchase without actual or constructive notice of the mortgage. Id. A mortgage will also be valid if there is substantial compliance with § 5301.01(A).Mid-American Nat'l Bank Trust Co. v. Gymnastics Int'l, Inc., 451 N.E.2d 1243, 1243 syl. 1 (Ohio Ct.App. 1982).

The Court believes that resolution of this case is controlled by the Supreme Court of Ohio's opinion in Citizen's Nat'l Bank in Zanesville v. Denison, 133 N.E.2d 329 (Ohio 1956). InDenison, a husband and wive executed a mortgage deed on a parcel of real estate. The notary public, however, did not witness Mrs. Denison's signature nor did she acknowledge her signature or signing to him in person or otherwise afterward.Id. at 331. A dispute later arose concerning the validity of the budget company's lien on the property. Construing § 5301.01, the Court held that not only was the mortgage deed improperly executed, and therefore invalid, it did not provide even constructive notice of the mortgage to subsequent mortgagees:

A mortgage by two persons is not properly executed in accordance with the provisions of Section 5301.01, Revised Code, and is not entitled to record under Section 5301.25, Revised Code, and the recording thereof does not constitute constructive notice to subsequent mortgagees, where there is a failure to follow the statutory requirements in that the mortgage is not signed and acknowledged by either mortgagor in the presence of two witnesses, and the signing by one mortgagor is not in fact acknowledged before a notary public.

Id. at 329 syl. 2; accord Mortgage Elec. Reg. Sys. v. Odita, 822 N.E.2d 821, 824-25 (Ohio Ct.App. 2004).²

2 The Court notes that one could question whether Denison is good law in Ohio. Westlaw's Key Cite indicates that Denison was superseded by Ohio Rev. Code § 5301.234. Section 5304.234, which was in effect in Ohio for about three years from 1999 to 2002, established a rebuttable presumption that any mortgage which was properly recorded was properly executed. This section also provided that the recording of a mortgage with defects in the witnessing or acknowledgment constituted constructive notice to bona fide purchasers. The Ohio General Assembly, however, repealed § 5301.234. Moreover, the Supreme Court of Ohio later ruled that § 5301.234 violated the Ohio constitution because its enactment was contrary to the one-subject rule. In re Nowak, 820 N.E.2d 335, 348 (Ohio 2004). Therefore, the Court concludes that Denison is still good law in Ohio.

This case presents the same facts as Denison. Debtor and her husband gave a mortgage on their real property but the Debtor did not acknowledge her signature before the notary. Or, more accurately, the notary did not certify Debtor's acknowledgment. Accordingly, the mortgage was not validly executed and does not provide actual or constructive notice to subsequent bona fide purchasers. ABN appears to rely on Wayne Bldg Loan Co. v. Hoover, 231 N.E.2d 873 (Ohio 1967), for the proposition that Debtor's signature in this case was properly acknowledged because she signed the mortgage before the notary, who witnessed her signature. In Hoover, the Court issued two syllabus holdings:

1. In the absence of evidence to the contrary, one who signs his name to a document in the presence of another thereby acknowledges his signing thereof to such other.

2. The mere signing of mortgage in the presence of an officer authorized to take an acknowledgment thereof may constitute a proper acknowledgment of such instrument within the meaning of Section 5301.01, Revised Code.

Id. at 874. At first blush, these holdings appear to support ABN's position — after all, the Debtor in this case did sign her name to the mortgage in the presence of the notary. Thus, it could be argued that by doing so she acknowledged her signature in conformity with § 5301.01.

The facts of the case, however, provide a different context for these syllabi because in Hoover, in contrast to this case, the notary did actually certify the acknowledgment of both mortgagors' signatures. See id. at 875. Although not explicitly explained in the opinion, it appears that in Hoover the mortgagors argued that their acknowledgments were invalid because the notary failed to verbally ask them before signing whether the conveyance was their voluntary act and deed. See Taylor v. Kemp, No. 05 BE 13, 2005 WL 3489759, at *3-*5 (Ohio Ct. App. Dec. 12, 2005) (explaining Hoover). Thus, Hoover appears to stand for nothing more than the common sense proposition that a verbal acknowledgment need not precede a written acknowledgment in order to comply with § 5301.01. As indicated, however, Hoover is distinguishable because the notary actually certified both mortgagors' acknowledgments whereas in this case the notary did not certify the Debtor's acknowledgment. In other words, the Court rejects ABN's contention that the Debtor's signing of the mortgage in the presence of the notary, but without his certification of acknowledgment, was in compliance with § 5301.01(A).

In conclusion, the mortgage at issue in this case is invalid under Ohio law because the notary public did not certify the acknowledgment of the Debtor's signature. Additionally, pursuant to Denison, the invalidly executed mortgage does not provide constructive notice to bona fide purchasers. Consequently, pursuant to 11 U.S.C. § 544(a)(3), the Trustee is entitled to avoid the mortgage as to the Debtor's interest in the property. Because the Court agrees that the Bankruptcy Court reached the correct result in this case, we need not address its analysis ofFryman or its extrapolation of a majority rule on constructive notice from other jurisdictions.

Accordingly, the judgment of the Bankruptcy Court is AFFIRMED.

IT IS SO ORDERED