|IN RE: BRIAN KEITH CHARLES AMY LYNN CHARLES CASE NO. 04-70204 ORDER ADV. NO. 04-7017|
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
|CASE NO. 04-70204|
|PHAEDRA SPRADLIN, trustee||PLAINTIFF|
|VS.||ADV. NO. 04-7017|
PAUL STUMP and
adversary proceeding is before the court following trial on August 24, 2004.
(See Document # 27.) Prior
to trial the parties filed joint exhibits (Document # 22).
FINDINGS OF FACT:
July 28, 1999 Gregory Paul Stump and Geneva Dawn Stump (“the Stumps”)
executed a deed of conveyance titled “General Warranty Deed with Lien” to
the debtor Brian Keith Charles (“Charles”) and Jamie Keene (“Keene”).
(Joint Exhibit 3, Document # 22).
The conveyance was “for and in consideration of the sum of $180,000,
secured by a promissory note of even date hereof, payable pursuant to said
note, the last payment being due and payable on or before October 1, 2009, and
other good and valuable consideration, receipt of which is hereby
acknowledged.” A paragraph in
the body of the deed reads, “A LIEN is hereby retained on the above
described property to secure the unpaid purchase price.”
The deed, signed by the Stumps, is followed by Certificate of
Consideration which says in pertinent part, “We, the undersigned, hereby
certify pursuant to KRS Chapter 382, [sic] that the above stated consideration
in the amount of $180,000 is true, correct and full consideration paid for the
property herein conveyed” and is signed by both the sellers and the
purchasers. Their signatures are
followed by notary entries which state that the deed was “acknowledged” by
the Stumps, as grantors, and that the Certificate of Consideration was
“subscribed and sworn to” by the Stumps, as the grantors, and by Charles
and Keene, as the grantees. The
deed was recorded that same day.
dated July 28, 1999 is “Promissory Note” signed by Charles and Keene which
states that they promise to pay the Stumps $150,000 plus interest in monthly
installments of $1,665.31 beginning October 1, 1999
“until paid, the last payment being due on September 1, 2009.” (Joint Exhibit 2, Document # 22).
addition, the Stumps and Phelps BP Mart, Inc., as the sellers, and Charles,
Keene, and their wives, as the purchasers, entered into “Contract of Sale
and Purchase of Business Assets,” dated July 28, 1999, for the purchase of
personalty and the real estate described in the deed referenced above.
In paragraph 2(b) of that contract, designated PAYMENT OF PURCHASE
PRICE, Purchasers were to pay $150,000 in equal monthly installments of
$1,665.31 “beginning October 1, 1999 and ending in September 1, 2009.”
(Joint Exhibit 5, Document # 22).
March 1, 2004 Brian Keith Charles and Amy Lynn Charles filed a petition for
relief under chapter 7 and listed the July 28, 1999 transaction on Schedule G,
Executory Contracts and Unexpired Leases.
(Joint Exhibit 1, Document # 22).
On April 28, 2004 the Stumps filed a proof of claim, alleging that they
have a secured claim in the amount of $100,483.73 based on “Note and lien
retained on purchase of real estate.” Attached
to their Proof of Claim is a copy of the July 28, 1999 Promissory Note and
General Warranty Deed with Lien. (Joint
Exhibit 4, Document # 22).
11 U.S.C. § 544 in her complaint, the plaintiff-trustee seeks to avoid the
Stumps’ lien on the real property as unperfected against the trustee as a
hypothetical bona fide purchaser and/ or a hypothetical judicial lien
creditor, alleging that the deed fails to properly retain a lien on the
property and that acknowledgment in the deed is deficient under Kentucky law.
(Document # 1). Essentially,
the trustee asserts that under Kentucky law the deed was an unrecordable
instrument which therefore did not give constructive or inquiry notice to the
trustee so may be avoided. The
Stumps respond, in essence, that the discrepancies between the deed and
promissory note as to the amount of the debt ($180,000 and $150,000) and the
date of final payment (October 1, 2009 and September 1, 2009) were
scrivener’s errors and that under Kentucky law a deed, including one with a
vendor’s lien, does not have to be signed by the purchaser with the
signature then acknowleged by a notary.
CONCLUSIONS OF LAW:
U.S.C. § 544(a) provides:
trustee shall have, as of the commencement of the case, and without any regard
to any knowledge of the trustee or of any creditor, the rights and powers of,
or may avoid any transfer of property of the debtor or any obligation incurred
by the debtor that is voidable by– (1) [a judicial lien creditor] or (2) [ a
bona fide purchaser].
Thus, the Bankruptcy Code creates the
status, but state law defines that status.
Stated another way, if a hypothetical judicial lien creditor or bona
fide purchaser, as defined by state law, can avoid an obligation of the
debtor, then the trustee may avoid that obligation.
Practice Series, Methods of Practice
(3d ed. 1989) is helpful for its summary of Kentucky law.
Volume 3, Section 10.5, Real Estate Transactions, Requisites
of a Valid Deed, provides in part:
speaking, it is essential to every deed of conveyance that there be a grantor,
a grantee and a thing granted, and that the instrument pass a present interest
and be based on good and valuable consideration.
A “general warranty deed” must not only be in writing in proper
form and signed by the grantor, but he must acknowledge it before an
officer who must make and sign the official certificate, and it must then be
delivered to the grantee before it becomes effective.
ROBERT W. KEATS ET AL., KENTUCKY PRACTICE SERIES, METHODS OF PRACTICE § 10.5
(3d ed. 1989)
Sixteen “generally recognized parts and
provisos of a deed” are listed with some discussion of each. Signatures, number 8, referencing Kentucky’s statute
of frauds Kentucky Revised Statute (“KRS”) 371.010(6), provides that the
grantor’s signature is essential to the validity of the deed. Acknowledgment or Attestation, number 9, provides that
the grantor’s signature must be acknowledged according to law, KRS
382.130(1), (2). Recordation,
number 11, states that an unrecorded deed is good as between the parties to
the deed but an unrecorded deed is invalid as to a purchaser for valuable
consideration without notice. Purchase
Money Mortgage/ Vendor’s Lien, number 14, provides:
some person or institution other than the seller finances a real estate
purchase it is the normal practice for the purchaser to execute a note secured
by a mortgage upon the land. No
mention of the financing needs to be made in the deed.
However, when the seller is to be paid in installments he has the
option of taking a mortgage or of reciting the terms of the debt in the deed
itself. Should he fail to do
either, the seller forfeits his right to a lien upon the land against
subsequent bona fide creditors and purchasers.
Referenced here is KRS 382.070, No lien
unless unpaid consideration stated.
A Consideration Certificate, statement of consideration or market
value, also is required. It must be notarized and signed by the grantor and the
grantee. KRS 382.135.
law regarding conveyances and encumbrances further provides in KRS 382.270
that instruments are not valid against purchasers or creditors unless they are
Lastly, KRS 382.330 provides that an instrument is not to be recorded
unless the date of maturity for any indebtedness is shown.
Kentucky statutory law; the cases cited by both sides, the published ones as
well as the unpublished one; and two bankruptcy cases out of the western
district of Kentucky which have addressed KRS 382.330,
in light of the particular facts of this case, the court finds that the deed in
question complies with Kentucky law regarding acknowledgement and that it gave
adequate notice of the Stumps’ lien. The
deed is clearly titled “General Warranty Deed with Lien” and states that the
consideration is “secured by a promissory note of even date hereof.”
Set out in a separate paragraph is the statement that a lien is retained
to secure the unpaid purchase price. Although
the amount of indebtedness shown is incorrect, it is less than the actual
amount of indebtedness, which by common sense is the amount secured.
Although the final maturity date shown is incorrect, it is off by one
payment, one month. In sum, the
deed is sufficient to defeat the claim of the trustee.
the trustee’s complaint is dismissed with prejudice.
There being no just reason for delay, this is a final and appealable
R. Atkinson, Esq.
When any real
property is conveyed, and any part of the consideration remains unpaid, the
grantor shall not have a lien for the unpaid consideration against bona fide
creditors and purchasers unless the deed states what part of the
consideration remains unpaid.
KRS 382.270 in pertinent part:
deed or deed of trust or mortgage conveying a legal or equitable title to
real property shall be 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 and lodged for
KRS 382.330 in pertinent part:
county clerk shall record a deed or deed of trust or mortgage covering real
property by which the payment of any indebtedness is secured unless the deed
or deed of trust or mortgage states the date and the maturity of the
obligations thereby secured which have been already issued or which are to
be issued forthwith.
Citizens Fid. Bank & Trust Co. v. Blieden, 49 B.R. 386 (Bankr.
W.D.Ky. 1985) (recorded mortgage which erroneously stated “a promissory
note of even date” when there were 11 promissory notes, but which did
state principal sum owing, payable with interest on demand, and maturity,
satisfied statutory requirements); In re Taylor, 18 B.R. 128 (Bankr.
W.D.Ky. 1982) (recorded mortgage which failed to recite maturity date but
provided for specific amount of monthly payments “until paid in full”
was sufficiently perfected)