In the Matter of Gysin, Case No. 07-32739 HCD (Bankr.N.D.Ind. 3/24/2009)
| Decision Date | 24 March 2009 |
| Docket Number | Proc. No. 08-3018.,Case No. 07-32739 HCD. |
| Parties | IN THE MATTER OF TIMOTHY ERIC GYSIN and DONNA ELIZABETH GYSIN, Chapter 13, Debtors. DEBRA L. MILLER, Plaintiff, v. LaSALLE BANK NATIONAL ASSOCIATION as Trustee in Trust for the Holders of MERRILL LYNCH MORTGAGE INVESTORS TRUST SERIES 2002-AFCI, and ALLIANCE FUNDING, a Division of Superior Bank, FSB, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Indiana |
Rebecca Hoyt Fischer, Esq., Laderer & Fischer, P.C., 310, South Bend, Indiana 46601; attorney for plaintiff Trustee, and
Mark R. Galliher, Esq., Doyle & Friedmeyer, P.C., Indianapolis, Indiana 46204, attorney for defendant LaSalle Bank National Association.
Before the court are cross-motions for summary judgment filed by the plaintiff Debra L. Miller, Chapter 13 Trustee ("Trustee"), and by the defendant LaSalle Bank National Association, in Trust for the Holders of Merrill Lynch Investors Trust Series 2002-AFCI ("LaSalle" or "defendant"). The Trustee initiated this adversary proceeding by asking the court, pursuant to her strong arm powers under 11 U.S.C. § 544(a), to avoid the mortgage the debtors executed and gave to LaSalle's predecessor in interest Alliance Funding, a division of Superior Bank, FSB. The issue is whether the improper acknowledgment in the mortgage invalidates the lien and allows the Trustee to avoid the mortgage, in light of the Indiana legislature's recent amendments to the statute concerning recorded mortgages, Indiana Code 32-21-4-1.
Pursuant to 28 U.S.C. § 157(a) and Northern District of Indiana Local Rule 200.1, the United States District Court for the Northern District of Indiana has referred this case to this court for hearing and determination. After reviewing the record, the court determines that the matter before it is a core proceeding within the meaning of § 157(b)(2)(K) over which the court has jurisdiction pursuant to 28 U.S.C. §§ 157(b)(1) and 1334. This entry shall serve as findings of fact and conclusions of law as required by Federal Rule of Civil Procedure 52, made applicable in this proceeding by Federal Rules of Bankruptcy Procedure 7052 and 9014. Any conclusion of law more properly classified as a factual finding shall be deemed a fact, and any finding of fact more properly classified as a legal conclusion shall be deemed a conclusion of law.
The facts are not in dispute. On April 25, 2001, the debtors executed and delivered to LaSalle's predecessor a mortgage on their home in Peru, Indiana, to secure payment of a promissory note. However, the mortgage document did not identify, in the acknowledgment (sometimes called the notary jurat), the individuals who appeared before the notary and executed the document. See R. 1, Ex. B. Instead, the appropriate line for the names of the mortgage signors was left blank. Nevertheless, the mortgage was filed in the office of the Recorder of Miami County, Indiana, on May 1, 2001. The debtors filed their voluntary petition for relief under chapter 13 on October 18, 2007, and Debra L. Miller was named the chapter 13 Trustee in the case.
The Trustee filed a complaint to avoid the defendant's mortgage on the ground that, under Indiana Code 32-21-2-3, an improperly acknowledged mortgage was defective and thus was not entitled to be recorded. "Under this statute, a mortgage is eligible to be recorded if it is `(1) acknowledged by the grantor or (2) proved before a (A) judge . . . [or] (E) notary public . . . .'" Fifth Third Bank, Indiana v. Edgar County Bank & Trust, 482 F.3d 904, 906 (7th Cir. 2007). According to the Trustee, this unacknowledged mortgage did not serve as constructive notice of the lienholder's interest to a bona fide purchaser and should be avoided pursuant to 11 U.S.C. § 544(a). LaSalle responded that the Trustee was precluded from asserting her claim because Indiana Code 32-21-4-1 was amended to provide that a mortgage which fails to comply with Indiana Code 32-21-2-3 will nevertheless be effective to provide constructive notice to later buyers as long as the mortgage has been recorded.
Each party filed a Motion for Summary Judgment. The parties agree and the record shows that "there is no genuine issue as to any material fact," but each claims entitlement to judgment as a matter of law. Fed. R. Civ. P. 56(c); Fed. R. Bankr. P. 7056; see Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). When, as in this case, the parties have filed cross motions for summary judgment, the court must examine the evidence and "construe all facts and inferences therefrom in favor of the party against whom the motion under consideration is made." The First State Bank of Monticello v. Ohio Cas. Ins. Co., 555 F.3d 564, 567 (7th Cir. 2009) (citations, internal quotations omitted). The issue before the court, the effect of the 2007 amendment to Indiana Code 32-21-4-1 on the Trustee's avoidance claim, is a question of law.
A trustee's avoidance powers arise under § 544(a) of the Bankruptcy Code, which grants a trustee the power to avoid any transfer of the debtor's property that is voidable. The trustee obtains the status of "a bona fide purchaser of real property" ("BFP") on the date the debtor filed the petition commencing the bankruptcy case. The trustee's BFP status allows her to use applicable state law to avoid certain transfers or encumbrances when they would be voidable by a BFP. See Sandy Ridge Oil Co., Inc. v. Centerre Bank Nat'l Ass'n. (In re Sandy Ridge Oil Co., Inc.), 807 F.2d 1332, 1333 (7th Cir. 1986). The parties do not question this Trustee's strong arm powers. She asserts those powers in this case to avoid the mortgage lien held by LaSalle which, she claims, is invalid. LaSalle argues, however, that the Trustee is divested of those powers pursuant to the 2007 amendment to Indiana Code 32-21-4-1.
The court begins by considering the validity of the mortgage under Indiana law prior to the enactment of the 2007 amendment. The conveyance and recording requirements for real property in Indiana are found in Title 32, Article 21 of the Indiana Statutes. The parties focus on two of those statutes. Indiana Code 32-21-4-1 sets forth mortgage recording requirements and priority rules for properly recorded mortgages; and Indiana Code 32-21-2-3 requires that, in order for a mortgage to be eligible to be recorded, the mortgage must be acknowledged by the grantor or proved before a notary public or other authorized official. Therefore, to provide constructive notice to subsequent purchasers, a mortgage "must be properly acknowledged and recorded." Camp v. Select Portfolio Servs. Inc. (In re Camp), 2007 WL 2257653 at *4 (N.D. Ind. 2007). Camp describes the state's long-standing principle, as seen in its judicial interpretations:
"[T]he recording of a document not entitled to be recorded does not afford constructive notice." In re Sandy Ridge Oil Co., Inc., 510 N.E.2d 667, 669 (Ind. 1987) (collecting cases). Following this rule, courts have held, for example, that recording a mortgage with a defective acknowledgment does not provide constructive notice. See In re Baldin, 135 B.R. [586] at 602 [Bankr. N.D. Ind. 1991]; in re Stubbs, 330 B.R. 717, 731 (Bankr. N.D. Ind. 2005), aff'd, No. 2:05-CV-439, 2006 WL 2361814, at *5 (N.D. Ind. 2006).
Id. at *5. Indiana bankruptcy cases consistently have followed Sandy Ridge, Stubbs and Baldin. See, e.g., In re Canaday, 376 B.R.260, 265-68 (Bankr. N.D. Ind. 2007). They have found that mortgages that do not identify who appeared before the attesting official (a) are deficient, (b) do not meet the requirements of the recording statute, (c) are not entitled to be recorded, (d) do not provide constructive notice to third parties, and (e) can be avoided by a trustee under § 544(a) for the benefit of creditors. See, e.g., Groves v. Citifinancial Mtg. Co., Inc. (In re Groves), No. 07-40144, Adv. No. 07-4020, Decision at *2 (Bankr. N.D. Ind. June 6, 2008). Therefore, a long line of state and federal decisions has established that the defective acknowledgment in the debtors' mortgage held by LaSalle did not meet the requirement of the recording statute and therefore that the mortgage was not eligible to be recorded. Even though it was in fact recorded, it does not provide notice to third parties. See In re Stubbs, 2006 WL 2361814 at *5 (). The mortgage therefore is invalid under those cases and is subject to avoidance by the Trustee under 11 U.S.C. § 544(a).
However, the statute governing the "priority of recorded transactions, " Ind. Code 32-21-4-1, was amended in 2007. Before July 2007, the statute provided:
(a) The following must be recorded in the recorder's office of the county where the land is situated:
(1) A conveyance or mortgage of land or of any interest in land.
(2) A lease for more than three (3) years.
(b) A conveyance, mortgage, or lease takes priority according to the time of its filing. The conveyance, mortgage, or lease is fraudulent and void as against any subsequent purchaser, lessee, or mortgagee in good faith and for a valuable consideration if the purchaser's, lesee's, or mortgagee's deed, mortgage, or lease is first recorded.
Ind. Code 32-21-4-1. On July 1, 2007, the amended statute, with its added subsection (c), took effect:
(c) This subsection applies only to a mortgage. If:
(1) an instrument referred to in subsection (a) is recorded; and
(2) the instrument does not comply with the:
(A) requirements of:
(i) IC 32-21-2-3; or
(ii) IC 32-21-2-7; or
(B) technical requirements of IC 36-2-11-16(c);
the instrument is validly recorded and provides constructive notice of the contents of the instrument as of the date of filing.
Ind. Code 32-21-4-1(c) (effective July 1, 2007). LaSalle contended...
To continue reading
Request your trial