In Re Diana M. Burns

435 B.R. 503

In re Diana M. BURNS, Debtor

Thomas R. Noland, Plaintiff

v.Diana M. Burns et al., Defendants

In re Tracey L. Alexander, Debtor

Thomas R. Noland, Plaintiff

v.Tracey L. Alexander, et al, Defendants.

Bankruptcy Nos. 08-32906, 08-32926.

Adversary Nos. 09-3198, 09-3199.

United States Bankruptcy Court,

S.D. Ohio,

Western Division, at Dayton.

Aug. 5, 2010.

Thomas R. Noland, Dayton, OH, Trustee Plaintiff.

Robert Ross, Dayton, OH, for Plaintiff.

Robert F. Brown, Cincinnati, OH, for Debtor/Defendant Tracey L. Alexander.

Michael J. Chapman, Cincinnati, OH, for Debtor/Defendant Tracey L. Alexander.

Eileen K. Field, Cincinnati, OH, for Debtor/Defendant Diana M. Burns.

Terrence L. Seeberger, Akron, OH, for Allied Home Mortgage Capital Corporation.

Amelia A. Bower, Nathan L. Swehla, Columbus, OH, for Defendant Wells Fargo Home Mortgage, Inc.

Christopher A. Watkins, Lebanon, OH, for Defendant Warren County Treasurer.

Gateway Funding Diversified Mortgage Services, LP, Fort Washington, PA, pro se.

Landing at Willow Pond Homeowners Association, Inc., c/o Amy Ferguson, Statutory Agent, Cincinnati, OH, pro se.

MaryAnne Wilsbacher, Office of the United States Trustee, Columbus, OH, Assistant United States Trustee.

Decision Granting Motions for Summary Judgment of Plaintiff, Thomas R. Noland, Chapter 7 Trustee

GUY R. HUMPHREY, Bankruptcy Judge.

I. Introduction

This decision concerns whether, under Ohio law, a debtor's granting of a mortgage on her real property can be avoided by a Chapter 7 trustee under a trustee's strong arm powers when the debtor is the only mortgagor and the acknowledgement clause states “[t]he foregoing instrument was acknowledged before me,” but it does not provide the name of the mortgagor within the acknowledgement clause or any other information identifying the debtor as the person appearing before the notary to acknowledge her signature. For the reasons set forth below, the court determines that such mortgages may be avoided by a trustee.

II. Findings of Fact and Procedural Backgrounds for the Adversary Proceedings

This decision addresses and resolves summary judgment motions which the Plaintiff, Thomas R. Noland (the “Trustee”), filed in two adversary proceedings (collectively the “adversary proceedings” and individually the “Burns adversary proceeding” or the “Alexander adversary proceeding”) in unrelated estate cases for which he is the Chapter 7 trustee. The adversary proceedings were both commenced by the Trustee when he filed complaints in the bankruptcy cases of Diana M. Burns and Tracey L. Alexander on July 17, 2009 against the mortgagees and other persons holding a lien against or an interest in the real property subject to the mortgages. The Trustee filed motions for summary judgment in both adversary proceedings on April 2, 2010 with responses having been filed by most of the defendants to the adversary proceedings (hereinafter the “Respondents”) and the motions have been briefed on essentially the same schedule. On June 9, 2010 the court heard oral argument on the motions from counsel for various parties in both adversary proceedings (the “oral argument”). During the oral argument counsel stated that they did not believe that there were distinguishing factual differences between the Burns and the Alexander adversary proceedings which could lead to a different legal result for the adversary proceedings. Nevertheless, the court will briefly outline the factual and procedural backgrounds of each proceeding.

A. Noland v. Burns

1. Findings of Fact. On May 21, 2003 Ms. Burns, granted a mortgage (the “Burns Mortgage”) in favor Gateway Funding Diversified Mortgage Services, LP. (“Gateway”) as security for a promissory note. The parties agree that the current servicer for the Burns Mortgage is Wells Fargo Bank N.A. The Burns Mortgage was granted by Ms. Burns on real property located at 1112 Wildflower Lane, Maineville, Ohio (the “Wildflower Property”). The Burns Mortgage was recorded in the Recorder's Office of Warren County, Ohio on May 28, 2003. The Burns Mortgage was signed by Ms. Burns on page 12 of the document and recorded at Book 3062, Page 733. On that same page, the document contains an acknowledgment clause signed and notarized by Brandon M. Moser. The acknowledgment clause states that “[t]he foregoing instrument was acknowledged before me this 21st of May, 2003 by __________________.” ( See Appendix A). All of these facts set forth in the Trustee's motion for summary judgment are agreed to by Wells Fargo (Doc. 36, p. 2) or are otherwise contained in the Burns Mortgage.

2. Procedural Background. The Trustee's complaint in the Burns adversary proceeding (Doc. 1) seeks a judgment declaring that the Burns Mortgage is invalid, avoiding the Burns Mortgage pursuant to 11 U.S.C. § 544(a)(3), ¹ and preserving the mortgagee's interest in the Wildflower Property for the bankruptcy estate. Answers have been filed by Ms. Burns, the Warren County Treasurer, and Wells Fargo (Docs. 12, 13 & 23). The Landing and Gateway did not answer, but the docket reflects both entities were served a summons as required by Federal Rule of Bankruptcy Procedure 7004. Following a pretrial conference, the court, in an order entered on November 18, 2009 (Doc. 30), fixed a discovery cutoff and dates for dispositive motions. On April 2, 2010 the Trustee moved for summary judgment against all the defendants (Doc. 33). ² Wells Fargo filed a response on April 22, 2010 (Doc. 36) (the “Wells Fargo Response”) and the Trustee filed a reply brief on April 30, 2010 (Doc. 37) (the “Burns Reply”).

B. Noland v. Alexander

1. Findings of Fact. On May 15, 2004 Ms. Alexander granted a mortgage in favor of Allied Home Mortgage Capital Corporation (“Allied”) as security for a promissory note (the “Alexander Mortgage” and collectively with the Burns Mortgage, the “Mortgages”) (Doc. 34, ¶ 1 & Exh. A). The servicer for the Alexander Mortgage is BAC Home Loan Servicing, LP (“BAC”). The Alexander Mortgage was granted on real property located at 6579 Black Forest Court, Morrow, Ohio (Doc. 34, Exh. A) (the “Black Forest Property” and collectively with the “Wildflower Property”, the “Properties”). The Alexander Mortgage was recorded in the Recorder's Office of Warren County, Ohio at Book 3815, Page 407. The Alexander Mortgage is signed by the grantor on a separate page from the acknowledgement clause (See Appendix B). The initials on the acknowledgment clause page are those of Ms. Alexander (Doc. 34, ¶ 5). The acknowledgment clause indicates that “[t]he foregoing instrument was acknowledged before me this 25th August, 2004 by _______________.” Id. All of these facts are undisputed.

2. Procedural Background. The Trustee's complaint in the Alexander adversary proceeding (Doc. 1) seeks a judgment declaring the Alexander Mortgage invalid, avoiding the Mortgage pursuant to § 544(a)(3), and preserve the mortgagee's interest in the Black Forest Property for the bankruptcy estate. Answers were filed by the Warren County Treasurer, BAC Home Loan Servicing, LP (fka Countrywide Home Loans) (“BAC”), and Ms. Alexander (Doc. 11, 14, & 49). Following a pretrial conference, the court, in an order entered on November 18, 2009 (Doc. 30), fixed a discovery cutoff and dates for dispositive motions. On April 2, 2010 the Trustee moved for summary judgment against all the defendants (Doc. 35). ³ Responses to the Trustee's motion were filed by Allied (Doc. 36) (the “Allied Response”), BAC (Doc. 37), and Ms. Alexander (Doc. 50) (the “Alexander Response”). The Trustee filed a reply brief on June 1, 2010 (Doc. 54) (the “Alexander Reply”).

III. Analysis and Legal ConclusionsA. Jurisdiction

This court has jurisdiction over the adversary proceedings pursuant to 28 U.S.C. § 1334 and the standing order of reference in this District. The adversary proceedings are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(A), (F) and (O).

B. Summary Judgment Standard

The standard to address the parties' filings is contained in Federal Rule of Civil Procedure (FRCP) 56(c) and is applicable to adversary proceedings through Bankruptcy Rule 7056 and states, in part, that a court must grant summary judgment to the moving party if:

the pleadings, the discovery and disclosure statements on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to a judgment as a matter of law.

In order to prevail, the moving party, if bearing the burden of persuasion at trial, must establish all elements of its claim. Celotex Corp. v. Catrett, 477 U.S. 317, 331, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the burden is on the non-moving party at trial, the movant must: 1) submit affirmative evidence that negates an essential element of the nonmoving party's claim or 2) demonstrate to the court that the nonmoving party's evidence is insufficient to establish an essential element of the nonmoving party's claim. Id. at 331-32, 106 S.Ct. 2548. Thereafter, the opposing party “must come forward with ‘specific facts showing that there is a genuine issue for trial.’ ” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citations omitted); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-51, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). All inferences drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Matsushita, 475 U.S. at 586-88, 106 S.Ct. 1348. ⁴

C. The Trustee May Avoid the Mortgages on the Properties Through the Trustee's Strong Arm Powers

The Trustee seeks to avoid the Mortgages on the Properties under the “strong arm” powers of § 544. By legal fiction, § 544(a)(3) allows a trustee to avoid a transfer of real property as “a hypothetical bona fide purchaser as of the commencement of the case.” Gemini Servs., Inc. v. Mortgage Elec. Regis. Sys., Inc. (In re Gemini Servs., Inc.), 350 B.R. 74, 81 (Bankr.S.D.Ohio 2006), citing ...