Opinion
Case No. 10-33994 Adv. Pro. No. 11-3409
10-31-2012
In re: LEE R. JOHNSON, Debtor. Jeffrey M. Kellner, Ch. 13 Trustee, Plaintiff, v. US Bank Home Mortgage, Defendant.
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.
_________________
Lawrence S. Walter
United States Bankruptcy Judge
Chapter 13
Judge Lawrence S. Walter
DECISION AND ORDER GRANTING MOTION FOR SUMMARY JUDGMENT
OF US BANK N.A. AND DENYING MOTION FOR SUMMARY JUDGMENT
OF JEFFREY M. KELLNER, CHAPTER 13 TRUSTEE
This matter is before the court on Defendant U.S. Bank N.A.'s Motion for Summary Judgment [Adv. Doc. 19]; Plaintiff Chapter 13 Trustee's Response and Cross-Motion for Summary Judgment [Adv. Doc. 20]; and Defendant's Response to the Cross-Motion [Adv. Doc. 22]. The court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a) and 1334, and the standing General Order of Reference in this District. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(K).
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff Jeffrey M. Kellner, Chapter 13 Trustee (the "Trustee"), filed an amended adversary complaint requesting avoidance of the mortgage of Defendant U.S. Bank N.A. (the "Bank") on the residential real estate owned by Debtor Lee R. Johnson ("Debtor"). The mortgage is recorded with the Montgomery County, Ohio recorder's office, but is allegedly deficient because it contains a blank acknowledgement clause in contravention of Ohio's recording statutes. The Bank filed a foreclosure complaint in state court concerning its mortgage on Debtor's property in March of 2010. Debtor filed an answer to the foreclosure complaint on March 22, 2010, but before judgment was entered he filed his Chapter 13 bankruptcy case on June 21, 2010. The foreclosure case remains pending but is stayed.
The Bank does not actually admit in its answer or elsewhere that the mortgage is defective, although it tacitly admits it by failing to raise the validity of the mortgage as a basis for summary judgment or a defense to the Trustee's cross-motion. In any event, the copy of the recorded mortgage attached to the complaint clearly evidences the blank acknowledgment and the court assumes (as have the parties) that the mortgage is deficient as alleged.
The parties disagree on the exact date in March on which the foreclosure complaint was filed.
STANDARD FOR SUMMARY JUDGMENT
The appropriate standard to address the parties' motions for summary judgment is contained in Fed. R. Civ. P. 56 and incorporated in bankruptcy adversary proceedings by reference in Fed. R. Bankr. P. 7056. Rule 56(a) provides that summary judgment is to be granted by the court "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a).
In order to prevail, the moving party, if bearing the burden of persuasion at trial, must establish all elements of its claim. Celotex Corp. v. Catrett, 477 U.S. 317, 331 (1986). Thereafter, the opposing party "must come forward with specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (citations omitted); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-51 (1986). All inferences drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Matsushita, 475 U.S. at 586-88.
LEGAL ANALYSIS
At the outset, the court notes that the facts in this case are unremarkable and the law is virtually settled in this circuit with respect to the issue over which the parties contend. That issue is whether the Ohio doctrine of lis pendens provides constructive notice to the Trustee of the Bank's mortgage interest in the real estate thereby preventing the Trustee from avoiding the mortgage as a bona fide purchaser despite an alleged blank acknowledgment in the recorded mortgage.
Wisely, the parties chose not to spar over the more simple issue of the Trustee's ability to avoid defectively acknowledged mortgages. As noted by Judge Hoffman in a recent case, "It is well-established that trustees may avoid mortgages under § 544(a)(3) based on blank certificates of acknowledgment ... and there is no point in re-plowing that ground here." Rhiel v. Central Mortgage Company, (In re Kebe), 469 B.R. 778, 786 (Bankr. S.D. Ohio 2012). However, the parties have chosen to re-plow an issue that has already been decided by the Sixth Circuit Bankruptcy Appellate Panel and consistently analyzed in at least nine reported and unreported bankruptcy court decisions within the circuit within the past ten years, including six from this district. Treinish v. Norwest Bank Minnesota, N.A. (In re Periandri), 266 B.R. 651 (B.A.P. 6th Cir. 2001); In re Kebe, 469 B.R. at 778; Nelson v. Wells Fargo Bank, N.A. (In re Nolte), No. 11-1005, slip op. (Bankr. S.D. Ohio filed July 7, 2011); Helbling v. Cleary (In re Cleary), 2010 WL 2649949 (Bankr. N.D. Ohio June 1, 2010); Degirolamo v. Suntrust Mortgage, Inc. (In re Brode), 2010 WL 3489059 (Bankr. N.D. Ohio Sept. 3, 2010); Drown v. Kondaur Capital Corporation (In re Amadu), 443 B.R. 145 (Bankr. S.D. Ohio 2010); Ransier v. Countrywide Home Loans, Inc. (In re Seymour), 442 B.R. 652 (Bankr. S.D. Ohio 2010); Pees v. Countrywide Home Loans, Inc. (In re Frost), 384 B.R. 781 (Bankr. S.D. Ohio 2008); Johnson v. The Cit Group/Consumer Finance, Inc. (In re Franklin), 2006 WL 3876501 (Bankr. E.D. Ky. Jan. 25, 2006); Ransier v. Standard Federal Bank, FSG (In re Collins), 292 B.R. 842 (Bankr. S.D. Ohio 2003). The necessity of litigating the same issue again in front of another judge in this district is questionable, especially in the absence of any new legal theory or contrary case law. Because the issue has been so well explained and analyzed by these other decisions, a cursory summary of the law will suffice here.
Pursuant to 11 U.S.C. § 544(a)(3), a trustee has the status of a bona fide purchaser who may avoid a prepetition defectively executed mortgage under Ohio law "without regard to any knowledge of the trustee." 11 U.S.C. § 544(a); Simon v. Chase Manhattan Bank (In re Zaptocky), 250 F.3d 1020, 1027 (6th Cir. 2001). However, while a trustee's actual knowledge of a prior mortgage interest does not affect his bona fide purchaser status, constructive knowledge precludes avoidance. Zaptocky, 250 F.3d at 1027. The Sixth Circuit has clearly held that an improperly executed mortgage does not constitute constructive notice to a subsequent bona fide purchaser. Zaptocky, 250 F.3d at 1028. Nevertheless, constructive notice can be supplied in other ways.
The Ohio doctrine of lis pendens is one of those other ways by which constructive notice may be provided to a would-be bona fide purchaser. The Ohio statute states as follows:
See Periandri, 266 B.R at 659 ("The trustee's contention that the mortgage was improperly executed and is therefore invalid is an attack pursuant to the recording statutes—one form of constructive notice under Ohio law. Norwest defends the trustee's avoidance on the basis of lis pendens—another form of constructive notice under Ohio law and one we must respect.").
When a complaint is filed, the action is pending so as to charge a third person with notice of its pendency. While pending, no interest can be acquired by third persons in the subject of the action, as against the plaintiff's title.Ohio Rev. Code § 2703.26. The parties have stipulated that the foreclosure complaint was filed and that the case is still pending in state court. Furthermore, they do not dispute that lis pendens is applicable, disagreeing only as to its effect on the Trustee's right to avoid the mortgage.
The facts and legal issues in the leading case from the Sixth Circuit Bankruptcy Appellate Panel, Periandri, are in all salient respects the same as those before the court in the instant case. The BAP held that a bankruptcy trustee was precluded from bona fide purchaser status because he had received constructive notice of the mortgagee's interest in the real estate by virtue of lis pendens notwithstanding an apparent defective acknowledgment on the recorded mortgage document. Periandri, 266 B.R. at 656-59. As noted in the first paragraph of the instant decision, numerous cases in the Sixth Circuit, and particularly in this district, have confirmed and followed Periandri. While these cases address the issue to varying degrees, they are all in accord with Periandri's central holding. The Trustee has failed to effectively distinguish those cases or offer an alternative legal theory.
This court agrees with the reasoning and holding of Periandri and the cases following it in the Sixth Circuit. Consequently, no purpose is served by further explication of well- established law. The court therefore grants the Bank's Motion for Summary Judgment and denies the Trustee's Cross-Motion for Summary Judgment.
In his complaint, the Trustee also asserts a right to avoid the Bank's mortgage under 11 U.S.C. § 544(a)(1) as a hypothetical lien creditor, but does not address this issue on summary judgment. That cause would also be unavailing in that an equitable mortgage (the interest the Bank would have if the mortgage is defective) is not avoidable by a lien creditor. See, e.g., Brode, 2010 WL 3489059 at *2.
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SO ORDERED. Copies to: Wayne Novick, Attorney for Plaintiff, 2135 Miamisburg-Centerville Road, Centerville, OH 45459 Michelle Polly-Murphy, Attorney for Defendant, 923 East Broad Street, Columbus, OH 43205