In re Gray

• Decision Date: 14 August 2009
• Docket Number: Bankruptcy No. 08-52470.,Adversary No. 08-2136.
• Citation: 410 B.R. 270
• Parties: In re Mikki Sue GRAY, Debtor. William B. Logan, Jr., Plaintiff, v. WMC Mortgage Corp., Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

Page 270

410 B.R. 270

In re Mikki Sue GRAY, Debtor William B. Logan, Jr., Plaintiff, v. WMC Mortgage Corp., Defendant.

Bankruptcy No. 08-52470.

Adversary No. 08-2136.

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

August 14, 2009.

Kenneth M. Richards, Columbus, OH, for Plaintiff.

Philomena S. Ashdown, Cincinnati, OH, for Defendant.

MEMORANDUM OPINION ON MOTIONS FOR SUMMARY JUDGMENT

JOHN E. HOFFMAN, JR., Bankruptcy Judge.

I. Introduction

In this adversary proceeding, William B. Logan, Jr., the Chapter 7 trustee ("Trustee") for the bankruptcy estate of Mikki Sue Gray ("Debtor" or "Ms. Gray"), seeks to avoid a first mortgage now held by WMC Mortgage, LLC ("WMC") on the Debtor's real property.¹ The Trustee requests this relief under 11 U.S.C. § 544(a) for two reasons. First, the notary public responsible for certifying the acknowledgment of Ms. Gray's signature originally omitted her name from the certificate of acknowledgment. Second, although the notary public later corrected his certificate by adding Ms. Gray's name, he did so after the mortgage had already been recorded and caused the mortgage to be re-recorded without having Ms. Gray re-acknowledge her signature.

WMC concedes that the original mortgage is avoidable due to the omission of Ms. Gray's name from the notary public's certificate of acknowledgment. The Court concludes that the rerecorded mortgage also is avoidable because the notary public lacked the authority to alter the record by re-recording the mortgage without re-acknowledgment by Ms. Gray. The Court therefore grants summary judgment in favor of the Trustee.

II. Jurisdiction

The Court has jurisdiction to determine this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. See 28 U.S.C. § 157(b)(2)(K).

III. Background

The Debtor filed a voluntary Chapter 7 petition on March 21, 2008 ("Petition Date"). Thereafter, the Trustee filed his complaint commencing this adversary proceeding and, after a pretrial conference, filed an amended complaint ("Amended Complaint") (Doc. 11), to which he attached copies of the mortgages. By the Amended Complaint, the Trustee, pursuant to § 544(a),² seeks to avoid a first mortgage lien held by WMC³—which is evidenced by two separately recorded mortgage instruments—and preserve the lien for the benefit of the Debtor's bankruptcy estate under § 551 of the Bankruptcy Code.⁴ The parties have filed competing summary judgment motions (Docs. 16 & 17) and responses thereto (Docs. 19, 20 & 21). They also have filed a Stipulation of Facts ("Stipulations") (Doc. 13), from which the following findings of fact are derived.

Prior to the Petition Date, Ms. Gray bought real property located at 311 Simpson Road, London, Ohio ("Property") with funds loaned by WMC Mortgage Corp., the predecessor in interest to WMC, pursuant to a promissory note dated September 10, 2004 ("Note"). Richard E. Flax ("Mr.Flax"), the attorney for the title agency responsible for the closing, was the notary public before whom the Debtor signed the original mortgage ("Original Mortgage"). During the closing, Ms. Gray provided Mr. Flax with her identification so he could ensure that she was the person signing the Note and the Original Mortgage. At that time, Mr. Flax also took the acknowledgment of Ms. Gray and subscribed his name to the Original Mortgage. Mr. Flax, however, omitted Ms. Gray's name and the date of her signature from the certificate of acknowledgment.

The Original Mortgage was recorded on September 15, 2004 in the Recorder's Office for Madison County, Ohio, ("Recorder"). Approximately eight months later, Mr. Flax—after being advised by WMC that his certificate of acknowledgment had not included the date of signature or Ms. Gray's name—caused the omitted information to be typed on a copy of the recorded Original Mortgage. In addition, the following hand-written notation was placed on the first page of the Original Mortgage: "Re-recorded to add date and name of mortgagor, p. 13." Mr. Flax then caused this copy of the mortgage ("Re-Recorded Mortgage") to be recorded on May 6, 2005. Ms. Gray did not re-sign the Re-Recorded Mortgage.⁵ WMC does not allege that Ms. Gray re-acknowledged her signature.

IV. Arguments of the Parties

WMC disputes the Trustee's contention that the omission of the signature date from the certificate of acknowledgment rendered the certificate defective, but concedes that the omission of Ms. Gray's name had that effect. See Reply of Defendant WMC Mortgage, LLC to Trustee's Motion for Summary Judgment ("Reply") (Doc. 19) at 1. WMC, however, contends that the inclusion of the omitted information in the Re-Recorded Mortgage makes that mortgage valid and unavoidable. The Trustee disagrees. According to the Trustee, Mr. Flax's corrective actions were of no effect because "[t]he alterations, made without the Debtor's knowledge, change the mortgage [from] one that is defective under Ohio law and avoidable by the Trustee into one which is valid under Ohio law and not avoidable by the Trustee." Plaintiffs Motion for Summary Judgment (Doc. 16) at 4.

WMC counters with the argument that, despite the deficient certification, the Original Mortgage was always effective between WMC and the Debtor. Further, WMC contends, the addition of Ms. Gray's name and the date of signing "neither abrogated the rights of any intervening third party, nor did it improperly increase or decrease the scope of the mortgage." Motion of Defendant WMC Mortgage, LLC for Summary Judgment at 5 ("WMC Motion") (Doc. 17); Reply at 2-3. According to WMC, "all that is required is that the acknowledgment be taken after the execution of the instrument, during the time the instrument is effective, and while the person taking the acknowledgment is authorized to do so." WMC Motion at 4-5 (footnotes omitted). WMC contends that the Trustee cannot avoid the Re-Recorded Mortgage because it met each of the requirements for the proper execution of a mortgage and did so prior to the Petition Date.

V. Legal Analysis

A. This Matter is Appropriate for Summary Judgment.

Under Fed.R.Civ.P. 56(c), made applicable in this adversary proceeding by Fed. R. Bankr.P. 7056, summary judgment is appropriate where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Novak v. MetroHealth Med. Ctr., 503 F.3d 572, 577 (6th Cir.2007). "`[A]s to materiality, the substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted.'" Niecko v. Emro Mktg. Co., 973 F.2d 1296, 1304 (6th Cir.1992) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). "Entry of summary judgment is appropriate `against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.'" Novak, 503 F.3d at 577 (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)); see also Ransier v. Standard Fed. Bank (In re Collins), 292 B.R. 842, 845 (Bankr.S.D.Ohio 2003). The filing of cross-motions does not alter the standards governing the determination of summary judgment motions. See Taft Broad. Co. v. United States, 929 F.2d 240, 248 (6th Cir. 1991). But "`cross motions for summary judgment do authorize the court to assume that there is no evidence which needs to be considered other than that which has been filed by the parties.'" Schafer v. Rapp (In re Rapp), 375 B.R. 421, 428 (Bankr. S.D.Ohio 2007) (quoting Greer v. United States, 207 F.3d 322, 326 (6th Cir.2000)).

Here, the parties agree, and the Court finds, that no genuine issue of material fact exists. Summary judgment, therefore, is appropriate.

B. The Trustee May Avoid Both Mortgages.

Applicable state law—here, the law of Ohio—governs the validity and priority of mortgages as against bankruptcy trustees seeking to avoid the mortgages in their capacities as hypothetical bona fide purchasers and judicial lien creditors. See Kildow v. EMC Mortgage Corp. (In re Kildow), 232 B.R. 686, 693 (Bankr. S.D.Ohio 1999) (citing Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979)); Drown v. Countrywide Home Loans, Inc. (In re Peed), 403 B.R. 525, 530 (Bankr.S.D.Ohio 2009). Under Ohio law, only properly executed mortgages take priority over bona fide purchasers and judgment lien creditors. See Van Thorniley v. Peters, 26 Ohio St. 471, 474 (Ohio 1875) ("An unrecorded mortgage, or a defectively executed mortgage, whether recorded or not, does not vest in the mortgagee any interest in the premises, either legal or equitable, as against subsequent purchasers or judgment creditors of the mortgagor.").

To determine whether a mortgage governed by Ohio law is properly executed, the Court looks to Ohio Revised Code § 5301.01(A), which provides as follows:

A ... mortgage ... shall be signed by the ... mortgagor.... The signing shall be acknowledged by the ... mortgagor ... 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 acknowledgement and subscribe the official's name to the certificate of the acknowledgement.

Ohio Rev.Code Ann. § 5301.01(A) (West 2009).⁶ Under this statute, four requirements must be met, two by the mortgagor and two by the presiding public official (in this case, a notary public): the mortgagor must sign the mortgage and acknowledge the signing before the notary public, and the notary public...