DEBTOR CASE NO. 04-30307
JAMES GARDNER, Trustee PLAINTIFF
VS. ADV. NO. 04-3022
CENTURY BANK OF KENTUCKY, INC. DEFENDANT
James W. Gardner (the "Trustee"), the trustee for the estate of Ronnie Dennis (the "Debtor"), is before the court on the Motion for Judgment on the Pleadings that he filed in the above-styled adversary proceeding on September 3, 2004, and Century Bank of Kentucky, Inc. (the "Bank") is before the court on the Motion for Judgment on the Pleadings that it filed in this proceeding on September 20, 2004. The Bank's motion asks that it be considered contemporaneously with the Trustee's motion and did not schedule a separate hearing thereon. The court conducted a hearing on the Trustee's motion on September 13, 2004, at which counsel for the Trustee and for the Debtor appeared but the attorney for the Bank did not. The court entered an order affording the Bank a further opportunity to file a response to the Trustee's motion and the Trustee an opportunity to file a reply, the court thereafter taking the matter under submission. The memorandum accompanying the Bank's motion was apparently intended to serve, in part, as a response to the Trustee's motion; the Trustee filed a reply on September 28, 2004. Having considered the motions, the briefs, and the arguments of the attorneys for the Trustee and the Debtor and having afforded counsel for the Bank an opportunity to be heard, the court will sustain the Trustee's motion and overrule the Bank's motion.
The only fact pertinent to this matter, set forth in the complaint initiating this proceeding and admitted by the Bank, is that the mortgage executed by the Debtor in favor of the Bank did not recite the maturity date of the indebtedness secured thereby. Section 382.330 of the Kentucky Revised States provides that a mortgage may not be recorded unless it states the date and maturity of the obligation secured. The bank's response is that the mortgage was, in fact, recorded. While an improperly recorded mortgage may give actual notice to one searching the title records, see State St. Bank & Trust Co. v. Heck's, Inc., 963 S.W.2d 626, 630 (Ky. 1998), a bankruptcy trustee, by statute, has the rights and avoidance powers of a judicial lien creditor and bona fide purchaser "without regard to any knowledge of the trustee or of any creditor," 11 U.S.C. § 544(a). Indeed, the Sixth Circuit recently held that a "defectively acknowledged security interest that is recorded does not provide protection from a subsequent party who lacks notice of the interest." Rogan v. America's Wholesale Lender (In re Vance), 99 Fed. Appx. 25, 27 (6th Cir. 2004). KRS Section 382.330 is even clearer than Section 382.270, applied in Vance: while the latter provides that a mortgage without the required acknowledgment is not valid against a BFP or creditors, the statute upon which the Trustee relies in this case prohibits the recordation of a mortgage without the maturity date. Trio Realty Co. v. Queenan, 360 S.W.2d 747, 749 (Ky. 1962).
An improperly recorded mortgage does not give third parties constructive notice of the mortgage, State St. Bank & Trust Co., 963 S.W.2d at 630, and the Bank's mortgage was not properly recorded. For those reasons and because, as a matter of federal bankruptcy law, a trustee cannot have actual notice or knowledge, the Trustee has the right and power to avoid the mortgage. Accordingly, the court will enter separate orders and a judgment granting the Trustee's Motion for Judgment on the Pleadings, overruling the Bank's Motion for Judgment on the Pleadings, avoiding the Bank's mortgage, disallowing the Bank's claim as a secured claim, and directing the Bank to release its lien of record.
J.D. Kermode, Esq.
Walter Patrick, Esq.
James F. Gibbs, Jr., Esq.