A chapter 7 trustee sought to avoid a mortgage – alleging that there was a defective acknowledgment certificate based on a failure to state that the acknowledgment was voluntary. The bankruptcy court found in favor of the trustee, and the mortgagee appealed. The district court agreed with the bankruptcy court in a decision that paralleled the lower court opinion with a few nuances.
As discussed in a prior post on the bankruptcy court decision (see Recording Requirements: When “Duly Acknowledged” Is Not Enough), this case followed a familiar pattern:
- The issue was use of the trustee’s “strong-arm” powers under section 544 of the Bankruptcy Code to avoid the mortgage – specifically section 544(a)(3), which allows the trustee to avoid a transfer that would be voidable by a hypothetical bona fide purchaser of real property.
- Under state law, if the mortgage was not properly acknowledged as required by statute, it was not entitled to be recorded; and even if it was recorded notwithstanding any defects, the mortgage would not provide constructive notice. In either case if there was no constructive notice of the mortgage, it was voidable by a hypothetical bona fide purchaser.
Here the notary acknowledgment stated that the debtor “duly acknowledged to me that he/she/they executed the same.” The legal issue was whether stating that the mortgage was “duly acknowledged” was sufficient to meet a statutory requirement that the certificate of acknowledgment state that the debtor’s execution of the mortgage was voluntary.
The mortgagee attempted to support its position that the certificate was adequate by submitting affidavits from the debtor and the notary. The debtor stated that she executed the document voluntarily, and the notary stated that it was his usual practice to ask the person signing the document whether the signature was voluntary.
However, the bankruptcy court rejected these affidavits as irrelevant and inadmissible since the only dispute was whether the actual language of the acknowledgment would have provided adequate notice as required by law to a bona fide purchaser. The district court also ignored the affidavits.
Although the acknowledgment did not contain an explicit statement, the mortgagee argued that voluntariness can be inferred. As support, it pointed to a state executive order defining acknowledgment to mean a notarial act that, among other things, “indicates to the notary public that the signature on the document was voluntarily affixed by the individual for the purposes stated within the document.” Further the mortgagee argued that “duly acknowledged” meant in accordance with legal requirements, including the element of voluntariness. However, the district court was persuaded by the bankruptcy court’s analysis: While Black’s Law Dictionary defined “acknowledged” as “[t]o confirm as genuine before an authorized officer.” That definition differed significantly from the definition of “acknowledgment” (which was similar to the executive order and mentioned voluntary execution). The court declined to view the terms as interchangeable, so “acknowledged” did not incorporate the concept of voluntary.
The bottom line was that the court concluded that it was not sufficient to state that the document was “duly acknowledged,” but rather there must be an affirmative statement that the document was being signed voluntarily for its stated purpose.
The court also addressed various cases that were cited and concluded that they were not applicable. In this case the acknowledgment was not just ambiguous, but rather missing an element, and inferring that element would go “much farther” than other cases that found acknowledgments were sufficient. While conceding that courts might permit “some minimal ambiguity,” the district court rejected the view that “completely omitting language relating to voluntariness is permissible.”
The mortgagee’s arguments that the law does not require any specific language and that the court’s interpretation would render some language in the acknowledgment superfluous were also rejected. Accepting statements that execution was the debtor’s “free act and deed” as an alternative to a statement that the signature was voluntary was not equivalent to accepting no language at all; and the two phrases highlighted by the mortgagee did not have identical meanings so there was no needless surplus language. Accordingly, the district court affirmed the bankruptcy court.
Having practiced for a number of years in a state that had adopted the Uniform Recognition of Acknowledgments Act, I was always inclined to view any language beyond a simple statement that “the foregoing instrument was acknowledged before me on this ___ day of ________ by [name]” as unnecessary excess baggage. However, that worked because the act contained approved short form certificates, and the approved short forms in effect incorporated the longer list of requirements. For documents to be recorded in another state that you are not familiar with, you ignore local requirements at your peril.
Vicki R Harding, Esq.