VS. ADV. NO. 02-5167




This matter is before the court on the Plaintiff's Renewed Motion for Summary Judgment, filed herein on June 12, 2004. Defendant Altegra Credit Co. ("Altegra") filed a response on July 9, 2004, and the Plaintiff filed her reply on July 13, 2004. The matter was heard on July 15, 2004, and taken under submission. Federal Rule of Civil Procedure 56(c), made applicable in bankruptcy by Federal Rule of Bankruptcy Procedure 7056, provides that "[a] judgment shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." After considering the record herein, as well as the briefs and arguments of counsel, the court concludes that the Plaintiff should have summary judgment for the reasons set out below. This court has jurisdiction of this matter pursuant to 28 U.S.C.  1334(b); it is a core proceeding pursuant to 28 U.S.C.  157(b)(2)(K).

The record in this case shows that Debtors filed their Chapter 7 petition in this court on October 22, 2001. They had refinanced a loan with the CIT Group on their mobile home and real property on September 1, 1999, paying off several other lenders with the proceeds. The note was subsequently assigned to Altegra. Altegra's lien does not appear on the mobile home's Certificate of Title. The Plaintiff further asserts that Altegra's mortgage does not comply with KRS 426.130 in that it does not certify that the Debtors appeared before the person taking the acknowledgment and acknowledged that they executed the instrument, and that the Debtors were known to the person taking the acknowledgment, or that the person taking the acknowledgment had satisfactory evidence that the Debtors were the people described in and who executed the mortgage. KRS 423.130. The subject mortgage, filed as an exhibit to the Plaintiff's complaint, shows that immediately after the Debtors' signatures executing the mortgage there is a notary's certificate consisting only of the following statement: "The foregoing instrument was acknowledged before me on this 01 day of September, 1999."

The Plaintiff first contends that she may avoid Algegra's lien on the mobile home as a hypothetical lien creditor pursuant to 11 U.S.C.  544(a)(1). Kentucky law is clear that a lien on a mobile home must be noted on its Certificate of Title, and that such notation is the sole means of perfecting any security interest in the mobile home. KRS 186A.070; KRS 186A.190. Altegra's security interest in the mobile home does not appear on the mobile home's Certificate of Title, and it was therefore unperfected on the date of filing of the Debtor's petition. The Plaintiff's lien pursuant to  544(a)(1) was prior and superior on that date, and she may avoid the mortgage on that basis.

The Plaintiff also contends that she has priority as a bona fide purchaser pursuant to 11 U.S.C.  544(a)(3) because the mortgage did not meet the requirements of KRS 423.130 as set out above, and was therefore defectively acknowledged. Further, "[n]o . . . mortgage conveying a legal or equitable title to real property shall be valid against a purchaser for a valuable consideration, without notice thereof . . . until such deed or mortgage is acknowledged . . . according to law and lodged for record." KRS 382.270.

The Plaintiff points out that this issue has been addressed by the Sixth Circuit Court of Appeals in Rogan v. America's Wholesale Lender (In re Vance), No. 02-6537, 2004 WL 771484, at *2 (6th Cir. April 8, 2004), and further that the defect in the mortgage here is exactly the same as that in Vance. There the mortgage under consideration failed to include the information required by KRS 423.130 in the notary's certificate, and the notarial acknowledgment was found to be defective. The defective acknowledgment made the attempted conveyance invalid as against a bona fide purchaser for value pursuant to KRS 382.270. The trustee, standing in the position of a bona fide purchaser pursuant to 11 U.S.C.  544(a)(3), could therefore avoid the mortgage. Id.

Altegra argues that the acknowledgment is sufficient pursuant to the terms of KRS 423.150 which provides in part that "[t]he words 'acknowledged before me' mean: 1) [t]hat the person acknowledging appeared before the person taking the acknowledgment [and] 2) [t]hat he acknowledged he executed the instrument[.]" The Plaintiff maintains that this argument was offered and rejected in Vance, and that it should not be considered here. There is no record before the court indicating whether or not the Vance court considered this argument, but in light of the holding in Vance, this court does not find that KRS 423.150 provides Altegra any relief in regard to the defective acknowledgment of its mortgage.

In consideration of all of the foregoing, the court concludes that the Plaintiff is entitled to judgment as a matter of law that she may avoid Altegra's mortgage lien pursuant to 11 U.S.C.  544(a)(1) and (a)(3), and that it should be preserved for the benefit of the estate pursuant to 11 U.S.C.  551. An order in conformity with this opinion will be entered separately.

Copies to:

J.D. Kermode, Esq.

William P. Thurman, Esq.