Mortgage Legal Descriptions: To Avoid Litigation, Get It Right in the First Place

Ivy v. U.S. Bank N.A. as Legal Title Trustee for Truman 2016 SC6 Title Trust (In re Ivy), 604 B.R. 540 (Bankr. W.D. Ark. 2019) –

A chapter 7 debtor brought an adversary proceeding against a foreclosing lender seeking a bankruptcy court determination that the lender’s mortgage lien was void due to an incomplete legal description, or alternatively that it was voidable as a cloud on his superior title. This case turned on state law and exemption impairment rather than a typical trustee’s exercise of strong arm powers.

The debtor’s property was a 10 acre rectangle properly described as:

beginning at the NW corner of said 40 acre tract; [thence East 330 feet; thence South to the line of said 40 acres;] thence West 330 feet; thence North along the West line of said 40 to the point of beginning, containing 10 acres, more or less.

This legal description was used in a 1995 warranty deed transferring the property to the debtor’s mother. However, the deed was followed by a long line of documents that inadvertently omitted the calls for two sides of the rectangle (see bracketed language above):

  • 10/2004 mortgage given by the debtor’s mother: incomplete legal description, but correct street address and parcel number.
  • 11/2005 mortgagee’s deed to foreclosing lender: incomplete legal description, but correct street address and parcel number.
  • 11/2006 quit claim deed to financial entity: incomplete legal description.
  • 8/2006 special warranty deed from financial entity to debtor: incomplete legal description. (The court noted that even though the entity did not own the property at the time of the deed to the debtor, the debtor’s title included the entity’s after-acquired interest.)
  • 1/2007 attorney’s affidavit: there was an attempt to correct the error in the legal description through an attorney’s affidavit that identified the correct legal description and stated that correction of the scrivener’s error was consistent with the intention of the parties (to no avail).
  • 6/2007 mortgage given by the debtor and his wife: incomplete legal description; correct street address for the property, but describing the improvements “thereon” at an incorrect street address that did not exist. The debtor noted the incorrect street address to the mortgagee, but it was never corrected.
  • 10/2011 MERS assignment of mortgage to lender: incomplete legal description and incorrect improvements street address.
  • 1/2014 assignment by mortgagee to a trust: incomplete legal description, correct street address, but reference to the 6/2007 mortgage with both errors.

Procedurally the bankruptcy court elected to wait for a state court to reach a decision before addressing the matter. The state court issued a final foreclosure decree in favor of the mortgagee, finding that the mortgage constituted a first priority security interest superior to the interests of the debtor and his wife on property described using the incomplete legal description. This led the bankruptcy court to conclude that there was a factual issue regarding the property covered by the mortgage that had to be resolved.

The debtor contended that based on the attorney’s affidavit he owned the “rectangle.” But he and his wife mortgaged only the “two sides” based on the incomplete legal description in the mortgage and every subsequent recorded document. Thus, the debtor argued that the mortgage was void for uncertainty. Further, he contended that the mortgage was no more than a cloud on his title that could be avoided under section 522(f) of the Bankruptcy Code (as in effect a judicial lien that impaired an exemption).

The court brushed aside the section 522 argument in a footnote in part because, even if it was applicable to the debtor, it was not available to his wife since she did not filed bankruptcy. Thus, the court focused on the argument that the mortgage was void under state law for uncertainty.

The court quoted a state supreme court decision regarding the sufficiency of a legal description as follows:

It is a well settled principle of [state] law that a mortgage will not be held void for uncertainty, even as to third persons, where by any reasonable construction it can be sustained; and where the description used furnishes a key whereby a person, aided by extrinsic evidence, can ascertain what property is covered, such description is sufficient …

Thus, the court framed the issue as whether it was possible to ascertain the property subject to the mortgage when the incomplete legal description was supplemented by extrinsic evidence. The key was to determine the intent behind the conveyance.

Given this characterization of the issue, the court had little difficulty concluding that the parties intended to cover the entire rectangular property and not just the two sides. In addition, the court noted that the parcel ID number and the street address of the property were consistent with this conclusion.

Accordingly, the court concluded that the mortgage covered the entire 10 acre parcel, and since the debtor had made no payments after signing the documents more than 10 years earlier, the mortgagee was entitled to foreclose. The debtor was not entitled to avoid the mortgage for uncertainty, and the debtor could not avoid the lien as impairing his exemption because section 522 (f)(2)(C) specifically provides that this section does not apply to a judgment arising out of a mortgage foreclosure.

The mortgagee in this case was fortunate. Not many states are as relaxed about the accuracy of legal descriptions. Taking the time to carefully review a legal description (including a comparison to any survey and title work) is critical since errors in legal descriptions are common and in most circumstances a court is not going to bend over backwards to fix problems.

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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