UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
COVINGTON DIVISION
IN RE:
FLOYD HERBERT ROTHACRE
NICOLE C. ROTHACRE
DEBTORS
CASE NO. 05-20139
L. CRAIG KENDRICK, TRUSTEE
PLAINTIFF
VS.
ADV. NO. 05-2010
FLOYD HERBERT ROTHACRE and
NICOLE C. ROTHACRE; BLUEGRASS
MORTGAGE SERVICES, INC.;
MORTGAGE
ELECTRONIC REGISTRATION SYSTEMS, INC. DEFENDANTS
MEMORANDUM OPINION
This matter constitutes another chapter in the
continuing saga of trustee challenges to residential real estate
mortgages. The Plaintiff and Defendants
Bluegrass Mortgage Services, Inc. (“BMS”) and Mortgage Electronic Registration
Systems, Inc. (MERS”) filed cross-motions for summary judgment (the Defendants
together filed a motion). The Plaintiff
also filed a motion for an order allowing him to sell the real estate in
question pending resolution of these issues (“Motion to Sell Subject Property
Pending Adjudication”). The matter was
heard on June 14, 2005, and taken under consideration for decision at that
time. 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).
1. Factual and procedural background
The Debtors acquired the subject property, 1232 West
Spring Street, Covington, Kentucky on November 9, 1998. The Debtors refinanced their existing
mortgage to Countrywide Home Loans, Inc. by executing a note to BMS and a
mortgage in which MERS was the named mortgagee. This mortgage (the “Mortgage”) was recorded in Official Record
Book C1349, page 176 of the Kenton County Clerk’s records in Covington,
Kentucky. After the closing and
disbursement of funds, Countrywide Home Loans, Inc. recorded a “Satisfaction of
Mortgage” with the Kenton County Clerk.
The Mortgage, at paragraph F, provides that “Property
means the property that is described below under the heading ‘Transfer of
Rights in the Property.’” At that
heading the Mortgage further provides:
This
Security Instrument secures to Lender: (i) the repayment of the Loan, and all
renewals, extensions and modifications of the Note; and (ii) the performance of
Borrower’s covenants and agreements under the Security Instrument and the
Note. For this purpose, Borrower does
hereby mortgage, grant and convey to MERS (solely as nominee for Lender and
Lender’s successors and assigns) and to the successors and assigns of MERS,
with power of sale, the following described property located in the County of
Kenton:
Following
this language is a space into which a property description is apparently to be
inserted. No legal description is
inserted there, but following the space the Mortgage goes on to provide: “Tax
parcel ID number [blank space] which currently has the address of 1232 West
Spring St, Covington, Kentucky 41016 (‘Property Address’).” After the pages containing the Debtors’
signatures and acknowledgment, a page marked “Exhibit A” is attached which
contains a legal description of the subject property and a valid source of
title.
2. Legal discussion
The Plaintiff maintains that he is entitled to summary
judgment that he may avoid the Mortgage as a bona fide purchaser pursuant to
Bankruptcy Code section 544(a)(3) because it has a fatal defect, i.e., it does
not include a legal description of the property within the confines of the
signed document, and that such defect makes the Mortgage unrecordable. He points to KRS 446.060(1) which provides:
“When the law requires any writing to be signed by a party thereto, it shall
not be deemed to be signed unless the signature is subscribed at the end or
close of the writing.” KRS 446.060(1). The Plaintiff therefore contends that only
the pages of the Mortgage that appear before the Debtors’ signatures can be
considered in making a determination that the Mortgage did or did not provide
constructive notice to third parties and that the legal description which
follows the signatures is of no moment.
The Kentucky statute of frauds, KRS 371.010, requires
that contracts be in writing and signed.
Conveyances of property are required to be in writing. “The owner may convey any interest in real
property not in the adverse possession of another; but no estate of inheritance
or freehold, or for a term of more than one (1) year, in real property shall be
conveyed, except by deed or will.” KRS 382.010. No Kentucky statute has been cited that
requires the inclusion of a legal description of property in a mortgage, or any
other instrument of conveyance.
The Plaintiff cites Loeb v. Conley,
169 S.W. 575, 579 (Ky. 1914), in support of the proposition that a legal
description is an essential part of any instrument conveying an interest in
land, and that if the description is insufficient or not included, the
instrument is void as to third parties.
The Plaintiff argues that a “mailing address” does not suffice as a
property description. The Mortgage
itself identifies the address noted there as the “Property Address.” In any event, the Loeb court had the
following to say about the description of land:
The description in the lease was of course
not accurate or full, nor was it necessary that it should be in order to give
notice of the land covered by the lease.
When a deed or other like recorded instrument furnishes on its face
marks by which the land intended to be embraced in it can be identified, or
marks sufficient to put an intended purchaser upon notice, it will be deemed
sufficient to estop the purchaser from asserting that the description was too
indefinite or insufficient to give notice of the land conveyed by the
instrument. . . . .
Id. at 579.
The court ruled that a lease to Conley furnished inquiry notice to the
Loebs where it provided that it touched the western boundary of another
party. Id. This reasoning suggests to this court that a property address is sufficient to put
third parties on at least inquiry notice of a mortgagee’s interest in
property. In Rogan v. America’s
Wholesale Lender (In re Vance), 99 Fed.Appx. 25 (6th Cir. 2004), the
trustee could not be charged with either constructive or inquiry notice of a
defective, and unrecordable, mortgage, even though it was recorded (“In this
case, there are no facts that can be constructively charged to the
trustee.”). Id. at 28. Here, assuming the Mortgage was recordable,
and the court believes that it was, the Plaintiff is charged with notice of the
fact that MERS has an interest in property in Kenton County with the address
1232 West Spring St, Covington, Kentucky 41016.
In American Nat.
Bank v. John Van Range Co., 278 S.W. 133 (Ky. 1925), the court addressed
the issue of the sufficiency of a description of property:
It is axiomatic that a deed or mortgage
must contain such a certain and definite description of the property encumbered
as to make it the subject of the charge created. . . . . Of course, the
description may be made certain by reference to other papers and maps, but in
the absence of such additional papers or maps the mortgage itself must contain
a description sufficient to identify the property, or sufficient to enable
the court, by the aid of extrinsic evidence, to identify the property intended
to be covered by the mortgage.
Id. at 134 (citation omitted; emphasis
added). As stated by the court in Murphy
v. Provident Bank (In re Miller), 260 B.R. 158 (Bankr. D. Idaho 2001), a
case with the same fact pattern as the matter before this court,
[A] sufficient description need not itself
identify the property; rather, it need only provide a reasonable means of
identification, either on the face of the instrument or by reference to
extrinsic evidence. . . . [U]sing the information contained on the face of the
instrument, and by reference to extrinsic evidence, the legal description of
[the] property can be found.
Id. at 164.
The same is true here; using the information found on the face of the
Mortgage and by reference to extrinsic evidence, the legal description of the
subject property may be found.
The Plaintiff has
also alleged that the Mortgage is defective in that it does not contain an
immediate source of title. The
Plaintiff contends that without a source of title, the Mortgage is unrecordable
pursuant to KRS 382.110(2). As set out
more completely, that section states in pertinent part:
(1)
All deeds, mortgages and other instruments required by law to be
recorded to be effectual against purchasers without notice, or creditors, shall
be recorded in the county clerk’s office of the county in which the property
conveyed, or the greater part thereof, is located.
(2)
No county clerk or deputy county clerk shall admit to record any deed of
conveyance of any interest in real property equal to or greater than a life
estate, unless the deed plainly specifies and refers to the next immediate
source from which the grantor derived the title to the property or the interest
conveyed therein.
(3)
If the source of title is a deed or other recorded writing, the deed
offered for record shall refer to the former deed or writing, and give the
office, book and page where recorded, and the date thereof. . . . .
. . . .
(5)
No grantor shall lodge for record, and no county clerk or deputy shall
receive and permit to be lodged for record any deed that does not comply with
the provisions of this section.
The Plaintiff’s position in regard to this
section appears to be based on the premise that a mortgage conveys an ownership
interest in property. A deed of
conveyance and a mortgage are not the same thing. A mortgage is an instrument which secures the payment of a sum of
money to the mortgagee; it does not confer rights of ownership upon the
mortgagee absent a foreclosure and sale but merely gives the mortgagee a lien
on the property.
In Mercantile
Trust Co. of New York v. South Park Residence Co., 22 S.W. 314(Ky. 1893),
the Court of Appeals stated:
It is insisted that the mortgage ... passed
the fee to the trust company, and that it was thus seised in fee, and empowered
to convey in satisfaction of its covenant.
It is true that in some comparatively late cases ... it is said that ‘a
mortgage passes the legal title to real estate to the mortgagee,’ which follows
the old doctrine. But in all the late
cases ... the principle is announced that ‘substantially, under the
adjudications in this state, the legal title to the mortgaged premises, both at
law and in equity, remains in the mortgagor during the life of the
mortgage.’ A mortgage is a mere
security for debt, and substantially, both at law and in equity, the mortgagor
is the real owner of the property mortgaged.
Id. at 315 (citations omitted). Since a mortgage conveys no estate, KRS
382.110(2) addresses deeds only, and does not apply to mortgages. The Mortgage was not unrecordable under KRS
382.110(2).
It is therefore the
opinion of this court that the Plaintiff has not demonstrated that he is
entitled to judgment as a matter of law that he may avoid the Mortgage as a
bona fide purchaser pursuant to Bankruptcy Code section 544(a)(3). The court will therefore enter a separate
order overruling his Motion for Summary Judgment and granting the Defendants’
Motion for Summary Judgment, and further overruling the Plaintiff trustee’s
Motion to Sell Subject Property Pending Adjudication.
Copies
to:
Debra
S. Pleatman, Esq.
Donald
W. Mallory, Esq.
Stuart
P. Brown, Esq.