May 1, 2008

Sixth Circuit Affirms the Bankruptcy Court in Mortgage Avoidance Action

In Geygan v. World Savings Bank, FSB, 2008 FED App. 0005P (6th Cir. B.A.P. Mar. 12, 2008), the Sixth Circuit BAP affirmed the bankruptcy court, holding that the mortgage’s certificate of acknowledgment, which included the phrase “witness my hand” next to the notary’s signature, did not comply with Ohio law, and that the Trustee was a bona fide purchaser pursuant to the U.S. Bankruptcy Code.

Prior to filing bankruptcy, the Debtors granted a mortgage to World Savings Bank (“WSB”) as security for certain real property, and signed a note in the amount of $327,600.00 also in favor of WSB. The notary public signed below the signature of the Debtors next to the handwritten phrase, “Witness my hand this 23rd day of May, 2000.” The notary’s name was handwritten below her signature. Additionally, the printed phrase, “ATTACH INDIVIDUAL NOTARY ACKNOWLEDGMENT,” was included below the notary’s signature next to the handwritten words, “See attachment.”

Approximately five years later, and after a couple of transfers of the subject property to the Debtors’ Family Trust, and then to the Debtor-Wife as Trustee of a trust by her name, the Debtors filed a joint voluntary petition of relief under Chapter 7 of the Bankruptcy Code. Pursuant to an adversary proceeding filed by the Trustee to avoid the mortgage, the bankruptcy court held that the mortgage was defective due to the phrase “witness my hand,” that the Trustee was a bona fide purchaser, and could avoid the mortgage lien of WSB.

On appeal by WSB, the Sixth Circuit BAP affirmed on the following bases:

• The purported acknowledgment, including only the phrase “witness my hand,” does not meet the requirements of Ohio Revised Code § 147.54, and was not in the form prescribed by Section 147.55, which requires the words, “acknowledged before me.”

• The phrase “witness my hand,” is not the substantial equivalent of “acknowledged before me,” because the latter is defined in the Ohio statutes. In contrast, “witness my hand” is not defined in the Ohio statutes and left to its ordinary meaning, indicates “only that the witnessing individual observed the signing of the document by another individual.”

• Also, “See attachment,” suggested that there was no intention to rely on the words “witness my hand,” and that the parties intended to attach a formal acknowledgment.

• Considering the document as a whole did not remedy the deficiencies, because there was no indication that the notary knew or had satisfactory evidence that the persons signing were the persons named in the instrument.

• Even if the phrase, “witness my hand” was the substantial equivalent of “acknowledged before me,” the acknowledgment would still be defective because the names of the borrowers were not recited.

• The document was not saved by calling it a jurat, which is defined as “a certificate of officer or person before whom writing is sworn to,” because a jurat does not satisfy the acknowledgment requirements under Ohio law.

This E-alert was prepared by Andria M. Beckham. Please contact any member of the Bricker & Eckler Creditor Rights & Bankruptcy group for more information.