Hardesty v. Mortg. Elec. Registration Sys., Inc. (In re Boothe)

• Decision Date: 27 March 2013
• Docket Number: Bankruptcy No. 11–55574.,Adversary No. 11–2347.
• Citation: 510 B.R. 154
• Parties: In re David A. BOOTHE, Rebecca Sue Boothe, Debtors. Clyde Hardesty, Trustee, Plaintiff, v. Mortgage Electronic Registration Systems, Inc., et al., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

510 B.R. 154

In re David A. BOOTHE, Rebecca Sue Boothe, Debtors.Clyde Hardesty, Trustee, Plaintiff,

v.Mortgage Electronic Registration Systems, Inc., et al., Defendants.

Bankruptcy No. 11–55574.

Adversary No. 11–2347.

United States Bankruptcy Court,

S.D. Ohio,

Eastern Division.

Filed March 27, 2013.

Brent A. Stubbins, Mark Stubbins, Zanesville, OH, for Plaintiff.

Benjamin D. Carnahan, Dinn, Hochman & Potter, LLC, Cleveland, OH, for Defendants.

CIT Group Consumer Finance Inc., pro se.

MEMORANDUM OPINION AND ORDER ON MOTIONS FOR SUMMARY JUDGMENT

C. KATHRYN PRESTON, Bankruptcy Judge.

This matter is before the Court upon the Motion for Summary Judgment (Doc. 29) (“Motion”) filed by Clyde Hardesty, Trustee (hereinafter “Plaintiff”), the response (Doc. 34) to Plaintiff's Motion filed by Litton Loan Servicing LP and Mortgage Electronic Registration Systems, Inc. (hereinafter collectively referred to as “Defendant”), the Motion for Summary Judgment (Doc. 30) (“Defendant's Motion”) filed by Defendant and the response (Doc. 33) to Defendant's Motion filed by Plaintiff. Plaintiff filed this adversary proceeding on August 5, 2011, naming Defendant and CIT Group Consumer Finance Inc.¹ (“CIT Group”) as defendants.

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334 and General Order No. 05–02 entered by the United States District Court for the Southern District of Ohio, referring all bankruptcy matters to this Court. This matter is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A), (F), (K) and (O). Venue is properly before this Court pursuant to 28 U.S.C. §§ 1408 and 1409.

This adversary proceeding stems from the Chapter 7 bankruptcy case of David Allen Boothe and Rebecca Sue Boothe (hereinafter “Debtors”). Plaintiff asserted five causes of action in his complaint (Doc. 1) (hereinafter “Complaint”) including: 1) Declaratory judgment to determine the extent and validity of Defendant's lien; 2) Avoidance of Defendant's mortgage pursuant to 11 U.S.C. § 544 and Ohio Rev.Code §§ 5301.01, et seq.; 3) Avoidance of Defendant's mortgage as a preference under 11 U.S.C. § 547; 4) Preservation of Defendant's mortgage for the benefit of the bankruptcy estate pursuant to 11 U.S.C. § 551; and 5) Recovery of property pursuant to 11 U.S.C. § 550. Although the Motion does not specifically so state, it appears to be requesting judgment only as to Count Two of the Complaint.

Plaintiff seeks to avoid Defendant's mortgage on the grounds that the mortgage contains a defective certificate of acknowledgement which is not in substantial compliance with the requirements of Ohio law and that Defendant's mortgage is, therefore, not properly recorded. Primarily, Plaintiff argues that the certificate of acknowledgment clause (hereinafter “Certificate of Acknowledgment”) in the mortgage failed to properly acknowledge who executed the instrument and that recordation of a defective mortgage is ineffective against a subsequent bona fide purchaser of real estate. Thus, Plaintiff, clothed with the status of a bona fide purchaser without notice of the lien, has the authority to avoid the mortgage.

Defendant counters that the mortgage is in substantial compliance with Ohio law. Defendant argues that the Certificate of Acknowledgment, taken together with the rest of the mortgage and the deposition testimony of Debtors, provides sufficient clarification to cure any ambiguities in the Certificate of Acknowledgment. Thus, according to Defendant, Plaintiff has constructive notice of the mortgage.

For the reasons stated below, the Court concludes that Plaintiff is entitled to summary judgment in the instant adversary proceeding.

I. Standard of Review for Motions for Summary Judgment

Rule 56 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings by Bankruptcy Rule 7056, provides that a court “shall grant summary judgment 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). The party seeking summary judgment bears the initial burden of “informing the ... court of the basis for its motion, and identifying those portions of the [record] which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

If the movant satisfies this burden, the nonmoving party must then assert that a fact is genuinely disputed and must support the assertion by citing to particular parts of the record. Fed.R.Civ.P. 56(c)(1). The mere allegation of a factual dispute is not sufficient to defeat a motion for summary judgment; to prevail, the non-moving party must show that there exists some genuine issue of material fact. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). When deciding a motion for summary judgment, all justifiable inferences must be viewed in a light most favorable to the non-moving party. Matsushita Elec Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Anderson, 477 U.S. at 255, 106 S.Ct. 2505.

The Sixth Circuit Court of Appeals has articulated the following standard to apply when evaluating a motion for summary judgment:

[T]he moving [party] may discharge its burden by “pointing out to the ... court ... that there is an absence of evidence to support the nonmoving party's case.” The nonmoving party cannot rest on its pleadings, but 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. Although we must draw all inferences in favor of the nonmoving party, it must present significant and probative evidence in support of its complaint. “The mere existence of a scintilla of evidence in support of the [nonmoving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [nonmoving party].”

Hall v. Tollett, 128 F.3d 418, 422 (6th Cir.1997) (internal citations omitted). A material fact is one whose resolution will affect the determination of the underlying action. Tenn. Dep't of Mental Health & Mental Retardation v. Paul B., 88 F.3d 1466, 1472 (6th Cir.1996). An issue is genuine if a rational trier of fact could find in favor of either party on the issue.

Schaffer v. A.O. Smith Harvestore Prods., Inc., 74 F.3d 722, 727 (6th Cir.1996) (citation omitted). “The substantive law determines which facts are ‘material’ for summary judgment purposes.” Hanover Ins. Co. v. American Eng'g Co., 33 F.3d 727, 730 (6th Cir.1994) (citations omitted). However, determination of credibility, weight of the evidence, and legitimate inferences from the facts remain the province of the jury. Anderson, 477 U.S. at 255, 106 S.Ct. 2505.

In the instant case, Plaintiff and Defendant agree that the material facts are not in dispute, and the only issues are those of law.

II. Findings of Fact

The facts upon which this matter may be decided are without dispute: David Allen Boothe and Rebecca Sue Boothe (“Debtors”) filed a voluntary petition under chapter 7 of the Bankruptcy Code on May 24, 2011 (the “Petition Date”). Plaintiff is the duly qualified and acting case Trustee in Debtors' bankruptcy case. Debtors jointly own a parcel of real property located at 6540 Lookout Drive, Nashport, Ohio 43830 (the “Real Property”) by virtue of a deed recorded December 17, 1985. On or about December 29, 2003, to secure a promissory note in the amount of $102,400, Debtors granted a mortgage on the Real Property (the “Mortgage”). The Mortgage was recorded January 7, 2004. Debtors' Schedule D reflects that Defendant Mortgage Electronic Registration Systems, Inc. holds the Mortgage as nominee for the lender, and that the outstanding balance under the promissory note is $96,406.

The primary dispute in this case is whether the Certificate of Acknowledgment in the Mortgage substantially complies with Ohio law. At the top of the Mortgage, a text box reads as follows:

Name and Address of Mortgagor(s):

David A. Boothe

&²

Rebecca Sue Boothe, husband + wife

6540 Lookout Dr.

Nashport, OH 43830

Marital Status: Husband and Wife

Stipulations of Fact (Doc. 26) (hereinafter “Stipulations”), Ex. 2 at 1. Near the bottom of the first page, Debtors signed the Mortgage. The signature block appears as follows:

/s/ David A. Boothe³ (seal)

DAVID A. BOOTHE

(Type name of Mortgagor)

/s/ Rebecca S. Boothe⁴ (seal)

REBECCA SUE BOOTHE

(Type name of Mortgagor)

Stipulations, Ex. 2 at 1. In the Certificate of Acknowledgment, the notary public did not identify by name the person(s) signing the Mortgage, but rather utilized the singular term “MORTGAGOR”:

ACKNOWLEDGEMENT

State of Ohio

County of MUSKINGUM

Before me, a notary public in and for the above County, personally appeared the above named MORTGAGOR who acknowledgedthat (he-she-they) did sign the foregoing instrument, and that the same is (his-her-their) free act and deed.

In testimony whereof, I have hereunto subscribed my name at

[Notary Public Seal] ⁵

6797 N HIGH ST STE 223 WORTHINGTON, OH

43085 on the 29th day of December, 2003

/s/ Rebekah A. Church ⁶

(Notary Public)

Stipulations, Ex. 2 at 1. The appropriate pronouns were not circled, boldened, underlined, italicized, or otherwise designated by the notary.

III. Analysis

Pursuant to the Bankruptcy Code, “[t]he 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 ... that is voidable by a bona fide purchaser of real property ... from the debtor....” 11 U.S.C. § 544(a)(3). Courts have uniformly interpreted 11 U.S.C. § 544 to allow the Trustee to “enjoy the status of a hypothetical bona fide purchaser, without regard to any actual knowledge of the Trustee.” First Southern Bank v. Stanphill (In re...