UNITE EASTERN DISTRICT OF KENTUCKY FRANKFORT DIVISION |
IN RE:
BRIAN D. PATTON and CASE
NO. 05-30605
JENNIFER L.
PATTON
DEBTORS CHAPTER
7
JAMES W. GARDNER, TRUSTEE PLAINTIFF
For the
Bankruptcy Estate of Brian D. Patton
and Jennifer L.
Patton
VS. ADVERSARY
NO. 05-3037
CHASE HOME FINANCE, LLC DEFENDANT
MEMORANDUM
OPINION
This matter is before the Court on
cross motions for summary judgment filed by the Plaintiff James W. Gardner,
Trustee (“Trustee”) (Doc. #10) and the Defendant Chase Home Finance, LLC
(“Chase”) (Doc. #8). Trustee initiated
the subject adversary proceeding seeking to avoid Chase’s mortgage in real
property owned by the Debtors Brian and Jennifer Patton (“Debtors”) in order to
recover the property and sell it free and clear of Chase’s mortgage for the
benefit of the bankruptcy estate. As
grounds for his complaint and motion for summary judgment, Trustee alleges that
Chase’s mortgage is invalid as to him, a hypothetical bona fide purchaser for
value without notice, due to a defective notarial acknowledgment.
Chase disagrees, claiming that the
acknowledgment comports with Kentucky law and alternatively, that a lis pendens
notice Chase caused to be filed of
record in the county where the property is located, and where a foreclosure
suit was pending against the Debtors, provides inquiry notice of Chase’s prior
equitable interest in the property. The
parties agree that the facts are not in dispute and that the matter is
appropriate for summary disposition.
Upon review of the record and consideration of both parties’ positions,
including briefs and argument of counsel, the court grants Chase’s motion for
summary judgment and overrules Trustee’s motion for summary judgment. In so doing, the court relies on its
decision in Johnson v. The CIT Group/Consumer Finance, Inc., et al. (In
re Franklin, no. 05-50953), AP # 05-5110, Memorandum Opinion and Order
of Summary Judgment entered January 25, 2006.
The 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).
In March, 2002, the Debtors executed a note
and mortgage whereby Performance Mortgage was granted an interest in real
estate located at 1825 Jonesville Road, KY Hwy. # 36, Owenton, Kentucky. The Debtors’ signatures appear on page 16 of
the subject Mortgage and the notarial acknowledgment follows on page 17, providing
that “[t]he foregoing instrument was acknowledged before me this March 14,
2002.” The names of the Debtors are not
contained within the acknowledgment, and there is no certification that the
Debtors appeared before the person taking the acknowledgment, that the Debtors
acknowledged that they executed the instrument or that the Debtors were known
to the person taking the acknowledgment.
Finally, there is no certification that the person taking the acknowledgment
had satisfactory evidence that the Debtors were the persons described in and
who executed the mortgage.
Performance Mortgage assigned the mortgage to
Chase and both mortgage and assignment were lodged for record in the office of
the Owen County Clerk on March 20, 2002.
The Debtors ultimately failed to make timely payments on the note and
Chase filed suit against them to foreclose on the mortgage in the Owen Circuit
Court, Civil Action No. 04-CI-00171.
Chase filed its Lis Pendens in the Owen County Clerk’s Office so as to
notify all interested parties of the pending foreclosure action and its
interest in the subject real property.
The Debtors filed their Chapter 7 Petition in bankruptcy on July 19,
2005, whereupon the Trustee initiated the instant adversary proceeding.
Chase utilizes a substantial number of pages
in its Motion for Summary Judgment and Memorandum in Support arguing that its
acknowledgment was in accordance with Kentucky law, therefore not rendering the
mortgage unrecordable and causing Chase’s interest to be inferior to the
interest of the Trustee. However, the
court agrees with the Trustee that the unpublished decision of the U.S. Court
of Appeals for the Sixth Circuit In re Vance, 99 Fed.Appx. 25,
2004 WL 771484 (6th Cir. 2004) controls. Citing KRS 423.130, the Sixth Circuit court held that, to be in
compliance with Kentucky law, a person taking an acknowledgment shall certify
that the person acknowledging appeared before him and acknowledged he executed
the instrument and the person acknowledging was known to the person taking the
acknowledgment or that the person acknowledging was the person described in and
who executed the instrument. Id.,
at 27. An acknowledgment
failing to include such information in the certification fails to “comport with
Kentucky law.” Id. Moreover, in Kentucky, a defective
acknowledgment of a mortgage that is recorded cannot provide constructive
notice of a mortgage and cannot provide protection from a bankruptcy trustee’s
status as a hypothetical bona fide purchaser lacking actual knowledge. Id., 27-28.
But for this court’s recent decision in Johnson
v. The CIT Group/Consumer Finance, supra, the Trustee’s motion for
summary judgment would be well taken.
However, under the analysis set forth in that decision, the court finds,
in this case, that Chase’s properly executed and recorded lis pendens notice,
filed of record prior to the Chapter 7 proceeding, provides constructive notice
to subsequent purchasers and creditors, hypothetical and otherwise, including this
Trustee, of its own contents and inquiry notice of the prior equitable interest
of Chase in the subject property. As
the court recognized in Johnson, the very purpose of a lis
pendens notice in Kentucky is to provide inquiry notice of the claimed interest
in the property by the party filing it.
Ben Williamson & co.
V. Hall, 290 Ky. 672, 161 S.W.2d 905 (1942). Accordingly, the Trustee’s action to avoid Chase’s mortgage and
sell the Debtors’ real estate for the benefit of the bankruptcy estate must fail.
The court will enter a separate order
sustaining Chase’s motion for summary judgment and overruling the Trustee’s
motion for summary judgment.
Copies to:
James W. Garner,
Esq.
Brandy F. Baird,
Esq.
Kimberly D. Ross,
Esq.
Shannon Egan, Esq.