UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

PIKEVILLE DIVISION

IN RE:

BRANDON RONDAL WILLIAMS

LETITIA WILLIAMS

DEBTORS                                                                                        CASE NO. 05-71462

PHAEDRA SPRADLIN, TRUSTEE                                                              PLAINTIFF

VS.                                                                                                    ADV. NO. 06-7111

U.S. BANK NATIONAL ASSOCIATION, N.D.                                             DEFENDANT

MEMORANDUM OPINION

           This matter is before the court on the Motion for Summary Judgment and Counterclaim filed by the Defendant and the Motion for Summary Judgment filed by the Plaintiff Trustee. The Trustee’s Complaint challenges the validity of a mortgage based on an allegedly defective acknowledgment and on the failure of the mortgage to state the county and post office address of the person or corporation owning or holding the note or other evidence of indebtedness, or liable for the payment of taxes thereon. The Trustee seeks to avoid the Defendant’s allegedly unperfected lien and preserve it for the benefit of the estate. This court has jurisdiction of this matter pursuant to Judicial Code section 1334(b); it is a core proceeding pursuant to Judicial Code section 157(b)(2)(K).

           1.        Factual and procedural background

           On July 17, 2006, the parties entered into the following Joint Stipulations regarding factual allegations pertinent to the matter now before the court:

           8.        The Debtors financed a mortgage (“Mortgage”) with U.S. Bank, National Association, N.D. (“U.S. Bank”) on the real property located at 2915 Rockhouse Frk, Sidney, Kentucky.

           9.        On the day Brandon Rondal Williams and Letitia Williams (“Debtors”) signed the Mortgage, the Notary , Anna W. Allen was not present to certify that Brandon and Letitia Williams appeared before her. (Exhibit 1).

           10.      Subsequent to the Debtors signing the Mortgage, Debtors mailed the Mortgage to the Defendant at which time notary Anna W. Allen signed her name to the Mortgage acknowledgment.

           11.      The subject Mortgage does not state the county of residence of the corporation holding the note or other indebtedness therein.

           12.      The subject Mortgage does not state the post office address of the residence of the corporation holding the note or other indebtedness therein. However, the physical address of U.S. Bank, specifically, 4325 17th Avenue South, Fargo, ND 58103, is set forth on the face of the Mortgage.

           13.      The Mortgage was executed by Debtors, in favor of U.S. Bank, and recorded in Book 652, Page 542 of the Official Records of Pike County, Kentucky, on or about June 8, 2005.

Joint Stipulations of Plaintiff Phaedra Spradlin, Trustee, and Defendant U.S. National Bank Association, N.D., ¶¶ 8-13. The Debtors filed their Chapter 7 case in this court on October 14, 2005.

           2.        Discussion

                       a.        The Summary Judgment Standard

           Federal Rule of Civil Procedure 56(c), made applicable in bankruptcy by Bankruptcy Rule 7056, provides that summary judgment is appropriate and “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 a judgment as a matter of law.” The Supreme Court has observed that

this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.

As to materiality, the substantive law will identify which facts are material. Only disputes over facts which might affect the outcome of the suit under governing law will properly preclude the entry of summary judgment.

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-248, 106 S. Ct. 2505, 2510 (1986)(emphasis in original).

           The summary judgment standard is set out in Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2552-53 (1986):

[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party’s case, on which that party will bear the burden of proof at trial. In such a situation, there can be “no genuine issue as to any material fact,” since a complete failure of proof concerning an essential element of the nonmoving party’s case necessarily renders all other facts immaterial.

The Sixth Circuit has opined that “[r]ead together, Liberty Lobby and Celotex stand for the proposition that a party may move for summary judgment asserting that the opposing party will not be able to produce sufficient evidence at trial to withstand a directed verdict motion.” Street v. J.C. Bradford & Co., 886 F.2d 1472, 1478 (6th Cir. 1989).

                       b.        The Mortgage was not properly acknowledged

           The Defendant has admitted that the Mortgage was not properly acknowledged in that the notary was not present to certify that the Debtors appeared before her when they signed the Mortgage. This requirement is set out in KRS 423.130 which states:

The person taking the acknowledgment shall certify that:

(1) The person acknowledging appeared before him and acknowledged he executed the instrument; and

(2) The person acknowledging was known to the person taking the acknowledgment or that the person taking the acknowledgment had satisfactory evidence that the person acknowledging was the person described in and who executed the instrument.

KRS 423.130. The issue of what is required for a valid certificate of acknowledgment 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 (6^th Cir. April 8, 2004). 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 (“BFP”) pursuant to KRS 382.270. The trustee, standing in the position of a BFP pursuant to Bankruptcy Code section 544(a)(3), could therefore avoid the mortgage. Id.

           The Defendant argues that the Trustee may not avoid the Mortgage pursuant to KRS 382.270, as recently amended. That statute now provides:

No deed or deed of trust or mortgage conveying a legal or equitable title to real property shall be lodged for record and, thus, valid against a purchaser for a valuable consideration, without notice thereof, or against creditors, until such deed or mortgage is acknowledged or proved according to law. However, if a deed or deed of trust or mortgage conveying a legal or equitable title to real property is not so acknowledged or proved according to law, but is or has been, prior to the effective date of this Act, otherwise lodged for record, such deed or deed of trust or mortgage conveying a legal or equitable title to real property or creating a mortgage lien on real property shall be deemed to be validly lodged for record for purposes of KRS Chapter 382, and all interested parties shall be on constructive notice of the contents thereof. As used in this section ‘creditors’ includes all creditors irrespective of whether or not they have acquired a lien by legal or equitable proceedings or by voluntary conveyance.

KRS 382.270, as amended. This court has recently ruled in Michael L. Baker, Trustee v. The CIT Group/Consumer Finance, Inc., et al. (In re Hastings), ___ B.R. ___, 2006 WL 3078989 (Bankr. E.D. Ky. October 30, 2006) that amended KRS 382.270 does not apply retroactively to deprive the Trustee of his status as a BFP as of the date of filing of the bankruptcy case. The Defendant therefore may not prevail upon this defense, and the Trustee may avoid the Mortgage as having been defectively acknowledged.

           Having determined that the Trustee may avoid the Mortgage on the basis of its having been defectively acknowledged, it is not necessary for the court to rule upon the issue of whether the Defendant complied with the requirements of KRS 382.430 that the Mortgage state the county and post office address of the person or corporation owning or holding the note or other evidence of indebtedness, or liable for the payment of taxes thereon. An order in conformity with this opinion will be entered separately.

Copies to:

Ryan R. Atkinson, Esq.

Jeremy R. Mason, Esq.