In re Collins, Bankruptcy No. 01-61393.

• Decision Date: 16 April 2003
• Docket Number: Bankruptcy No. 01-61393.,Adversary No. 02-2092.
• Citation: 292 B.R. 842
• Parties: In re Pauline Ann COLLINS, Debtor. Frederick L. Ransier, Trustee, Plaintiff, v. Standard Federal Bank, FSG, et al., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

292 B.R. 842

In re Pauline Ann COLLINS, Debtor Frederick L. Ransier, Trustee, Plaintiff, v. Standard Federal Bank, FSG, et al., Defendants.

Bankruptcy No. 01-61393.

Adversary No. 02-2092.

United States Bankruptcy Court, S.D. Ohio, Eastern Division.

April 16, 2003.

COPYRIGHT MATERIAL OMITTED

David A. Freeburg, Cleveland, OH, for Defendant Standard Federal.

Frederick L. Ransier, III, Tiffany Strelow Cobb, Vorys, Sater, Seymour and Pease, LLP, Columbus, OH, for Plaintiff.

ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

DONALD E. CALHOUN, Jr., Bankruptcy Judge.

This matter comes before the Court upon the Defendant Standard Federal Bank's Motion for Summary Judgment ("Defendant's Motion"), the Cross-Motion of Plaintiff Frederick L. Ransier, Trustee for Summary Judgment and Consolidated Memorandum in Support of Cross-Motion for Summary Judgment and in Opposition to Defendant's Motion for Summary Judgment ("Trustee's Motion"), and the Defendant Standard Federal Bank's Brief in Opposition to Plaintiff's Motion for Summary Judgment and Reply in Favor ("Defendant's Memo Contra").

I. STATEMENT OF JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the General Order of Reference entered in this district. This is a core proceeding under 28 U.S.C. § 157(b)(2)(K).

II. SUMMARY JUDGMENT STANDARD OR REVIEW

Rule 56(c) of the Federal Rules of Civil Procedure, incorporated by Bankruptcy Rule 7056 provides:

[Summary judgment] ... shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

The purpose of a motion for summary judgment is to determine if genuine issues of material fact exist to be tried. Lashlee v. Sumner, 570 F.2d 107, 111 (6th Cir.1978). The party seeking summary judgment bears the initial burden of asserting that the pleadings, depositions, answers to interrogatories, admissions and affidavits establish the absence of genuine issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479 (6th Cir.1989). The burden on the moving party is discharged by a "showing" that there is an absence of evidence to support a nonmoving party's case. Celotex Corp., 477 U.S. at 325, 106 S.Ct. 2548. Summary judgment will be appropriate if the nonmoving party fails to establish the existence of an element essential to its case, and on which it will bear the burden of proof. Celotex Corp., 477 U.S. at 322, 106 S.Ct. 2548. Thus, the ultimate burden of demonstrating the existence of genuine issues of material fact lies with a nonmoving party. Lashlee, 570 F.2d at 110-111.

The fact that the parties have filed cross motions for summary judgment does not change the standards upon which courts must evaluate summary judgment motions. Taft Broadcasting Co. v. United States, 929 F.2d 240, 248 (6th Cir.1991). Courts still must resolve each motion on its own merits drawing all reasonable inferences against the moving party in each instance. Mingus Constructors, Inc. v. United States, 812 F.2d 1387, 1391 (Fed.Cir.1987). Where genuine issues of material fact remain, neither motion should be granted. Id.

III. FACTS

It is undisputed that Debtor signed a mortgage in favor of Standard Federal Bank, FSB (Standard Federal) on a property located at 140 West Como Street, Columbus, Ohio. Plaintiff claims that Debtor signed the mortgage in her home before no witnesses and before no notary. The Plaintiff further claims that she signed the mortgage on or before May 28, 1999, and mailed it to Standard Federal. The mortgage was recorded in the Franklin County, Ohio Recorder's Office on June 10, 1999 at 1:04 p.m.

Standard Federal claims that it filed a foreclosure action against the Debtor on the same property, on February 22, 2001. Standard Federal filed the foreclosure action in the Franklin County, Ohio Court of Common Pleas. On May 23, 2001, the state court issued a decree of foreclosure.

On September 27, 2001, the Debtor filed her petition under Chapter 7 of the Bankruptcy Code. On February 12, 2002, the Trustee filed this adversary proceeding. In the adversary proceeding, Trustee alleged that the Standard Federal mortgage was not witnessed nor acknowledged in conformity with the laws of the State of Ohio. Trustee alleged, among other things, that the Standard Federal mortgage should be avoided pursuant to 11 U.S.C. §§ 544(a)(3) and (b)(1).

IV. ISSUES

At issue in this case is whether the Trustee may avoid the Standard Federal mortgage pursuant to 11 U.S.C. § 544(a)(3) and relevant Ohio law. Because the Ohio mortgage law recently has been amended, the Court first must determine which version of the relevant statutes applies to this Standard Federal mortgage.

Also at issue in this case is whether lis pendens applies to bar Trustee's claim under 11 U.S.C. § 544(a)(3). Standard Federal contends, based upon Treinish v. Norwest Bank Minnesota (In re Periandri), 266 B.R. 651 (6th Cir. BAP 2001), that its foreclosure complaint, containing a specific description of the real property bars Trustee's claims.

V. DISCUSSION

A. The Strong Arm Clause, 11 U.S.C. § 544(a)(3).

Trustee argues that the strong arm clause allows the estate to avoid the Standard Federal mortgage because it was not properly witnessed nor acknowledged pursuant to Ohio law. The strong arm clause provides as follows:

(a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or 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(a)(3) (2002). "Whether the [T]rustee has actual knowledge of the mortgage is irrelevant." Davis v. Ocwen Federal Savings Bank (In re Haviaras), 266 B.R. 792, 795 (N.D.Ohio 2001).

As set forth above, 11 U.S.C. § 544(a)(3) permits the Trustee to avoid any transfer of real property that would not be enforceable against a bona fide purchaser of the property at the time that a bankruptcy petition is filed. Williams v. Marlar (In re Marlar), 252 B.R. 743, 752 (8th Cir. BAP 2000). See also Yoppolo v. Household Realty Corp. (In re Winland), 276 B.R. 773, 780 (Bankr.N.D.Ohio 2001). The effect of 11 U.S.C. § 544(a)(3) is that any creditor who has their security interest avoided is treated as a general unsecured creditor. For purposes of this section, the Trustee's avoiding powers are subject to Ohio law.

B. Ohio Law.

There have been recent changes to Ohio's mortgage law. Ohio Revised Code § 5301.01 sets forth the requirements for proper execution of a mortgage, but this section has been recently amended. See Suhar v. Land (In re Land), 289 B.R. 71, 73 (Bankr.N.D.Ohio 2003). The recently amended version of Ohio Revised Code § 5301.01 became effective February 1, 2002.

Prior to February 1, 2002, Ohio Revised Code § 5301.01 sprang from Senate Bill 114. In re Land, 289 B.R. at 73. Under that version, for a mortgage to be properly executed, it: (1) had to be signed by the mortgagor; (2) the signature had to be acknowledged by the mortgagor in the presence of two witnesses; and (3) the mortgagor's signature had to be acknowledged or certified by a notary public or other designated individual. Id. Applying that version of Ohio Revised Code § 5301.01(A), "a mortgage failing to meet all of the aforementioned requirements is defectively executed and avoidable by third parties." Id.

All mortgages in Ohio must be recorded pursuant to Ohio Revised Code § 5301.25(A). For a recording to be effective, a mortgage must be properly executed. Without proper execution, the recording is ineffective and the mortgage is "fraudulent, so far as it relates to a subsequent bona fide purchaser having, at the time of purchase, no knowledge of the existence of such ... instrument." In re Land, 289 B.R. at 74 (quoting Amick v. Woodworth, 58 Ohio St. 86, ¶ 2, (syllabus), 50 N.E. 437 (1898)). Applying 11 U.S.C. § 544(a)(3), bankruptcy trustees have been permitted to stand in the place of a bona fide purchaser and avoid improperly executed mortgages. Simon v. Chase Manhattan Bank (In re Zaptocky), 250 F.3d 1020, 1028 (6th Cir.2001).

Ohio's legislature enacted Ohio Revised Code § 5301.234 on June 30, 1999. This section created an irrefutable presumption that all recorded mortgages were properly executed. Evidence of a defect in witnessing of mortgages was no longer evidence of fraud and did not rebut presumption of proper execution. Ohio Revised Code § 5301.234 (repealed 2002). However, this section's constitutionality was challenged. See In re Land, 289 B.R. at 74. Parties challenged Ohio Revised Code § 5301.234 arguing that it violated the single subject rule and that it improperly vested rights when applied retroactively. The Ohio Supreme Court held that this section could be applied retroactively in In re Stewart, 96 Ohio St.3d 67, 771 N.E.2d 250 (2002). However, Ohio Revised Code § 5301.234 was repealed on February 1, 2002 with House Bill 279.

House Bill 279 also amended Ohio Revised Code § 5301.01. See In re Land, 289 B.R. at 74-75. Effective February 1, 2002, Ohio Revised Code § 5301.01 no longer requires two witnesses for proper mortgage execution and declares that all mortgages, prior to February 1, 2002, are "deemed properly executed and ... presumed to be valid[,]" regardless of whether two witnesses were at the signing of the mortgage.

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