In re Nowak, Bankruptcy No. 07-53167.

• Decision Date: 25 September 2009
• Docket Number: Bankruptcy No. 07-53167.,Adversary No. 08-2231.
• Citation: 414 B.R. 269
• Parties: In re Matthew B. NOWAK and Cynthia J. Nowak, Debtors. Thomas McK. Hazlett, Plaintiff, v. Chase Home Finance, LLC, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

414 B.R. 269

In re Matthew B. NOWAK and Cynthia J. Nowak, Debtors Thomas McK. Hazlett, Plaintiff, v. Chase Home Finance, LLC, Defendant.

Bankruptcy No. 07-53167.

Adversary No. 08-2231.

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

September 25, 2009.

COPYRIGHT MATERIAL OMITTED

Thomas McK. Hazlett, Saint Clairsville, OH, for pro se.

Michelle Polly-Murphy, Wilmington, OH, Nathan L. Swehla, Cincinnati, OH, for Chase Home Finance, LLC.

Mortgage Electronic Registration Systems, Inc., Flint, MI, pro se.

MEMORANDUM OPINION ON MOTIONS FOR SUMMARY JUDGMENT

JOHN E. HOFFMAN, JR., Bankruptcy Judge.

I. Introduction

Chapter 7 trustee Thomas McK. Hazlett ("Trustee") seeks to avoid a lien evidenced by a mortgage ("Mortgage") recorded in favor of Chase Home Finance, LLC ("Chase"). The certificate of acknowledgment on the Mortgage identifies the certifying official as a broker, not as a notary public or other public official qualified to certify acknowledgments. As a result, the Trustee contends, the Mortgage is defective under Ohio law and avoidable under 11 U.S.C. § 544(a)(3). For the reasons stated below, the Court concludes that the Mortgage was defective in its execution and grants summary judgment in favor of the Trustee.

II. Jurisdiction

The Court has jurisdiction to hear and 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

Although the parties have not filed stipulations, they also have not disputed the few facts that are material to the Court's decision in this adversary proceeding. On February 18, 2003, Matthew B. Nowak and Cynthia J. Nowak ("Nowaks" or "Debtors") signed the Mortgage, thereby granting Chase Manhattan Mortgage Corporation, the predecessor of Chase, a lien on the real property located at 67311 Warnock-St. Clairsville Road, St. Clairsville, OH ("Property"). The Mortgage was recorded in the Recorder's Office for Belmont County, Ohio on February 27, 2003. The certificate of acknowledgment on the Mortgage ("Certificate of Acknowledgment") provides:

                  State of Ohio
                  County of Belmont
                

The foregoing instrument was acknowledged before me this 2/18/2003 by Matthew B. Nowak and Cynthia J. Nowak

                Jeanne V. Sayre
                  (Signature of person taking acknowledgment)
                  (Title or rank)
                  (Serial number, if any) Broker
                

The text reproduced above in bold was set forth in legible handwriting; the remaining text was printed in one or more typefaces. Jeanne V. Sayre ("Ms.Sayre") held a notary commission at the time she subscribed her name to the Certificate of Acknowledgment, but was identified therein as a broker, not as a notary public. The Certificate of Acknowledgment does not include Ms. Sayre's notarial seal, nor is her status as a notary public identified anywhere within the Mortgage.

On April 27, 2007, the Debtors filed a joint voluntary Chapter 7 petition, thereby giving rise to the Trustee's capacity as a hypothetical bona fide purchaser under § 544(a)(3) of the Bankruptcy Code.¹ The Trustee seeks to avoid the lien evidenced by the Mortgage under § 544(a)(3) and preserve it for the benefit of the Debtors' jointly administered but separate bankruptcy estates under § 551.² Chase has filed a motion for summary judgment ("Chase Motion") (Doc. 15), as has the Trustee ("Trustee Motion") (Doc. 16).

IV. Arguments of the Parties

The Trustee states that "[t]he issue in this case is a simple one, whether or not the [M]ortgage is properly acknowledged pursuant to Section 5301.01." Trustee Motion at 3. According to the Trustee, the Mortgage "was not properly acknowledged as required by Ohio law[,]" Id. at 1, because the Certificate of Acknowledgment "contains absolutely no indication that Jeanne Sayre held a notary commission or, even more importantly, that she was signing the document in her capacity as notary rather than in her capacity as broker, which the document specifically indicates." Plaintiff's Response to Defendant's Motion for Summary Judgment at 1 (Doc. 18). The broker/notary public distinction matters, the Trustee contends, because the applicable statutory short form of acknowledgment set forth in Ohio Revised Code § 147.55³ includes a space for the certifying official to identify his or her title or rank. Based on this form, the Trustee argues that an acknowledgment taken by a notary public is effective only if the notary public identifies herself as such. Trustee Motion at 3. According to the Trustee, the Certificate of Acknowledgment is defective for the additional reason that Ohio Revised Code § 5301.01(A)⁴ requires acknowledgments to be taken before certain specified categories of public officials, including notaries public, but not before private individuals such as brokers. Id. at 3-4.

Chase agrees that the issue in this adversary proceeding is acknowledgment, but contends that the acknowledgment was effective because § 5301.01(A) "only requires that the official certifying the acknowledgement subscribe his or her name to the certificate [and] says nothing about disclosing the official's capacity or affixing his or her seal." Chase Motion at 6. According to Chase, "the additional information that the notary was also the `Broker' does not negate the fact [that] Jeanne V. Sayre is a notary commissioned by the State of Ohio and authorized by law to certify the acknowledgment." Id. Chase also relies on the statement in § 5301.071(B) of the Ohio Revised Code that mortgages are not defective merely because the notary public failed to affix his or her seal to the certificate of acknowledgment.⁵ With respect to the Trustee's reliance on § 147.55 and its statutory short forms of acknowledgment, Chase notes that the section expressly "states that it does not preclude the use of other forms" and also argues that, "[a]lthough [Ohio Revised Code] § 147.55 offers a place in the acknowledgement for [disclosing the title of the person taking the acknowledgment], it does not require such be provided." Chase Home Finance, LLC's Opposition to the Trustee's Motion for Summary Judgment (Doc. 17) at 2.

V. Legal Analysis

A. Summary Judgment is Appropriate.

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 the Mortgage Under § 544(a)(3).

1. Application of Ohio Law

Applicable state law—here, the law of Ohio—governs the validity and priority of mortgages against bankruptcy trustees asserting their rights as hypothetical bona fide purchasers under § 544(a)(3). See Reinhardt v. Vanderbilt Mortgage & Fin., Inc. (In re Reinhardt), 563 F.3d 558, 563 (6th Cir.2009) ("Where the [Bankruptcy] Code does not specifically address an issue that arises in bankruptcy, the bankruptcy court looks to state law, to the extent that it does not conflict with the [B]ankruptcy [C]ode[.]") (internal quotation marks omitted) (citing Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979)). Under Ohio law, only mortgages that were properly recorded have priority over the interests of bona fide purchasers. See Ohio Rev. Code Ann. § 5301.25(A).⁶ There is no dispute that the Mortgage was recorded. To be properly recorded, however, the Mortgage must be an "instrument[] of writing properly executed for the conveyance or encumbrance of lands, tenements, or hereditaments. ..." Ohio Rev.Code Ann § 5301.25 (emphasis added). See Simon v. Chase Manhattan Bank (In re Zaptocky), 232 B.R. 76, 81 (6th Cir. BAP 1999) ("By providing that only properly executed instruments may be recorded and that an unrecorded instrument is fraudulent as to any subsequent bona fide purchaser taking without notice, the statute protects subsequent purchasers from improperly executed instruments and properly executed but unrecorded instruments alike."), aff'd, 250 F.3d 1020 (6th Cir.2001). Thus, "[o]nly properly executed mortgages take priority over a bona fide purchaser under Ohio law." Kovacs v. First Union Home Equity Bank (In re...