In re Haviaras
| Decision Date | 06 September 2001 |
| Docket Number | No. 1:01CV0214.,1:01CV0214. |
| Parties | In re Nick HAVIARAS and Mary Haviaras, Debtors. Steven S. Davis, Chapter 7 Trustee, Plaintiff-Appellant, v. Ocwen Federal Savings Bank, FSB, et al., Defendants-Appellees. |
| Court | U.S. District Court — Northern District of Ohio |
COPYRIGHT MATERIAL OMITTED
Nick and Mary Haviaras purchased a home located at 10700 Ronald Drive in Parma, Ohio on July 14, 1990. They obtained a loan and executed a mortgage on the property in favor of Freedom Mortgage Corporation for $76,970 in principal on August 29, 1990. Freedom Mortgage Corp. then filed this mortgage with the Recorder of Cuyahoga County on August 30, 1990, and it was recorded in Mortgage Volume 90-5248, page 9, in the Cuyahoga County Recorder's Office. Through a series of assignments, Appellee Ocwen Federal Savings Bank, FSB ("Ocwen") now holds the mortgage.
On April 24, 1998, Ocwen commenced foreclosure proceedings against the Haviarases1 in the Cuyahoga County Court of Common Pleas. Ocwen then obtained a judgment decree on December 9, 1999. A sheriff's sale for this property was scheduled for February 22, 2000 at 10:00 a.m., but the sale was stayed by the Haviaras' filing of bankruptcy under Chapter 7 of the Bankruptcy Code earlier that day.
The Office of the United States Trustee appointed Appellant Steven S. Davis ("Trustee") to act as trustee in the Haviaras' bankruptcy case. Trustee filed this action in bankruptcy court to set aside Ocwen's mortgage, asserting that the mortgage was improperly executed because one of the attesting witnesses was not present when the mortgage was signed, and therefore the mortgage was avoidable under the "strong arm" powers of 11 U.S.C. § 544(a)(3).
The bankruptcy court granted Ocwen's motion for summary judgment, refusing to set aside the mortgage on two grounds: (1) that due to the pendency of a foreclosure action in state court at the time the underlying bankruptcy case was filed, the doctrine of lis pendens prevents Trustee from obtaining bona fide purchaser status; and (2) that Ohio Revised Code § 5301.234 applies to the proceeding because the bankruptcy case was filed after the statute became effective and therefore creates an irrebuttable presumption that the mortgage was properly executed. Trustee now appeals.
For the reasons stated below, this Court AFFIRMS the bankruptcy court's decision.
This matter is an appeal from a final order of the United States Bankruptcy Court for the Northern District of Ohio. Therefore, jurisdiction is proper in this Court under 28 U.S.C. § 158(a).
This Court reviews the bankruptcy court's grant of summary judgment under a de novo standard. See Simon v. Chase Manhattan Bank (In re Zaptocky), 250 F.3d 1020, 1023 (6th Cir.2001). Summary judgment is appropriate if there is "no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In this case, neither party disputes the material facts regarding the mortgage, so this Court must determine if summary judgment was appropriate as a matter of law.
The "strong arm" clause of the Bankruptcy Code allows a trustee to avoid transfers of property that would be avoidable by a hypothetical bona fide purchaser.
(a) The 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 or any obligation incurred by the debtor that is voidable by — . . . (3) a bona fide purchaser of real property . . . 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. Whether the trustee has actual knowledge of the mortgage is irrelevant. Since the property in question in this case is located in Ohio, the law of Ohio governs this inquiry. See In re Zaptocky, 250 F.3d at 1024.
For a mortgage to be properly executed in Ohio, (1) the mortgagor must sign the mortgage deed; (2) the mortgagor must acknowledge his signature before two attesting witnesses; and (3) the mortgagor's signature must be acknowledged or certified by a notary public of other designated individual. Ohio Rev.Code § 5301.01. Prior to the enactment of Ohio Rev.Code § 5301.234, a defect in any of the these elements rendered the mortgage execution invalid and therefore avoidable by a subsequent bona fide purchaser who has neither actual nor constructive knowledge of the prior mortgage. See In re Zaptocky, 250 F.3d at 1024.
Because a number of mortgages in Ohio involved situations where only one of the two named witnesses was actually present when the mortgagor affixed his signature to the mortgage, the Ohio General Assembly feared that many otherwise valid and enforceable mortgages could be avoided by bankruptcy trustees (or other third parties) on the basis of this technical defect in execution. In response to this concern, it enacted Ohio Rev.Code § 5301.234:
This statute irrebuttably presumes once a mortgage is recorded that, in the absence of actual fraud, the mortgage is validly executed and all persons, including bona fide purchasers, have constructive notice of its existence and validity. See Helbling v. Williams (In re Williams), 240 B.R. 884, 885 (Bankr.N.D.Ohio 1999). Ohio Rev. Code § 5301.234 became effective on June 30, 1999, after the date on which the Haviaras' mortgage was recorded, but prior to the initiation of the bankruptcy proceedings in this case.
The parties to this appeal differ as to whether Ohio Rev.Code § 5301.234 prevents Trustee from using his powers under 11 U.S.C. § 544 to set aside the mortgage held by Ocwen. Appellant Trustee contends that this statute may only be applied prospectively and that it, accordingly, only governs the validity of mortgages recorded after the effective date of the statute. Appellee-Ocwen, while acknowledging that the statute may only be applied prospectively, contends that prospective application of the statute includes application of its terms to all mortgages challenged in bankruptcies which are initiated after the act's effective date, even where the mortgage was actually recorded before passage of Ohio Rev.Code § 5301.234.
While the Ohio General Assembly used Ohio Rev.Code § 5301.234 to address the perceived threat that bankruptcy trustees, among others, might seek to avoid otherwise wholly valid mortgages by invoking defects in their execution, the General Assembly did not explain in precise terms which mortgages it intended to immunize from such attacks. Because the Court finds that the language of the statute is capable of more than one meaning, the Court turns to the statutory construction aids contained in the Revised Code for guidance. See In re Adoption of Baby Boy Brooks, 136 Ohio App.3d 824, 829, 737 N.E.2d 1062, 1065 (Ohio Ct.App.2000).
When confronted with an ambiguity in a statute, Ohio Revised Code § 1.49 directs a court to consider and attempt to carry out the intention of the legislature and sets forth a number of factors that it may consider when doing this:
The "paramount concern," however, remains the intent of the General Assembly when it enacted the statute. See State ex rel. Cincinnati Post v. Cincinnati, 76 Ohio St.3d 540, 543, 668 N.E.2d 903, 906 (Ohio 1996).
Upon consideration of the act and its purpose, the Court agrees with the bankruptcy court below that Ohio Rev.Code § 5301.234 prevents a bankruptcy trustee in a bankruptcy action filed after the effective date of the statute from using his avoiding powers to set aside a previously recorded mortgage, regardless of when the recording occurred. See Logan v. Citifinancial, Inc. (In re Stewart) 256 B.R. 259 (Bankr.S.D.Ohio 2000) ().
The Ohio General Assembly intended to prevent exactly the situation at issue here — a bankruptcy trustee seeking to avoid an otherwise valid mortgage based upon a technical defect with an attesting witness. Since the vast number of recorded mortgages were recorded prior to the effective date of this statute, the corrective measure employed by the General Assembly in Ohio Rev.Code § 5301.234 would have little immediate effect if this statute only applied to mortgages recorded after the effective date. Limiting the...
To continue reading
Request your trial