Mortgage Recording: What Happens When There Is An Extra “E”?

Weiss v. JPMorgan Chase Bank, N.A. (In re Thibault), 518 B.R. 635 (Bankr. D. Mass. 2014) –

A chapter 7 trustee sought to avoid a mortgage using his “strong-arm” powers on the basis that it was not properly recorded because the spelling of the debtor’s last name in the mortgage was not the “correct” spelling.

The debtor and her deceased husband acquired real property by a deed that spelled their last name including an “e”:  Thibeault.  The deed was recorded in 1964.  In 1992 they recorded a “Certificate of Correction in Name of Owner of Real Estate” that referenced ownership of property under the name “Thibeault” and stated that “our present name is ‘George and Yvette Thibault’” (i.e. without the “e”).  The certificate was recorded only under the name Thibault, and not under Thibeault.

Between 1992 and 2004 five mortgages, four mortgage discharges and a declaration of homestead were recorded.  In each case the debtors’ last name was spelled “Thibeault” (with an e), with the sole exception that a mortgage recorded in 1993 and its related discharge identified the mortgagors as “George Thibault a/k/a George Thibeault and Yvette Thibault a/k/a Yvette Thibeault.”

A search of the registry of recorded documents using “Thibeault” identified the original deed, all of the mortgages and discharges, and the declaration of homestead.  In contrast, a search using the name “Thibault” disclosed only the certificate of correction and the mortgage and discharge that included both spellings.

When the debtor filed her bankruptcy petition, she identified the “Name of Debtor” as “Thibault.”  In the section requiring a debtor to list all names used within the last eight years she listed “AKA Yvette Thibeault.”  She also produced a driver’s license at the initial meeting of bankruptcy creditors that spelled her name without the e.

A trustee’s strong-arm powers include the ability to avoid a transfer that could be avoided under state law by a hypothetical bona fide purchaser of real estate on the commencement of the bankruptcy.  The trustee is not held responsible for any actual knowledge of facts, but is subject to constructive notice.  Generally a properly recorded document provides constructive notice of its contents.  Consequently, as is often the case, the arguments boiled down to whether the outstanding mortgage recorded in 2004 was properly recorded so that it provided constructive notice of the mortgage lien.

The trustee argued that to be properly recorded, the mortgage must contain the “legally correct” surname.  The mortgagee countered that the “mistake” or “scribenor’s error” was not material and thus the mortgage was properly recorded.  The court took issue with both of their arguments, commenting that they both proceeded from the assumption that there is only one correct name.

However, that was not the case under applicable state law:  “unless adopted for fraudulent or other nefarious reasons, the persons’ chosen name – i.e., a name they regularly use, has legal effect.”  At common law a person could change his or her name at will by simply adopting a new name.  Further, a person could use more than one name (assuming no fraud).

In other words, there was no such thing as a single “true,” “correct,” or “legal” name.  In that regard the state supreme court specifically decided that documents such as drivers’ licenses do not determine what constitutes a legal name.  Rather the issue is a question of fact regarding whether a person is “known” or choses to use a particular name.

The facts in this case were clear that the debtor used both spellings – both before and after the certificate of correction.  In response to the concern that this means it would be difficult to search the record given the potential variations of a name, the bankruptcy court quoted a state supreme court statement that:

where deeds or other instruments requiring to be recorded are given or received by persons or corporations known by different names, the records may fail to furnish exact and literal information; and yet, where the instrument itself is a genuine one, and has been executed in good faith, the record has been held sufficient to furnish constructive notice of the real estate transaction.

Consequently, the mortgage was sufficient to provide constructive notice, and could not be avoided.

There have been similar issues with Uniform Commercial Code financing statements for individuals.  Unlike corporations and other similar entities, it can be difficult to determine the right name to use for an individual.  In an effort to bring more  certainty to the process, the most recent amendments to Article 9 of the UCC provide alternatives that either require use of the name on an individual’s driver’s license (or other state identification card) or provide that use of the name is a safe harbor.

In an interesting footnote, the court comments that under current law an instrument is considered “‘recorded in due course’ only if ‘so recorded in the registry of deeds…. as to be indexed in the grantor index under the name of the owner of record.’”  The court concludes that this means that the name appearing in the vesting deed must be used to provide constructive notice.

Although this interpretation could help provide more certainty to the process of identifying relevant documents (i.e., start by looking for the vesting deed and then use that name for a search), it is unclear what happens under this approach if the initial name changes for some reason – for example, merger of one corporation into another.  Perhaps record a deed from the owner using the old name to the owner using the new name?

Vicki R. Harding, Esq.

About BankruptcyRealEstateInsights

Vicki R. Harding was a partner in the Detroit office of Pepper Hamilton LLP who moved to Arizona seeking warmer weather. Ms. Harding continues to handle commercial transactions with an emphasis on real estate and bankruptcy issues (but no longer owns a snow shovel).
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