Bankruptcy Courts Avoiding Imperfectly Executed Mortgage Liens
Three cases decided in different jurisdictions in August allowed bankruptcy trustees to avoid mortgages because of imperfections in execution or recording.
The Bankruptcy Court for the Eastern District of Kentucky ruled in In re Helvey that a mortgage wherein the notary acknowledgment did not show the borrower's name, name of county, or date of acknowledgment failed to provide constructive notice to the trustee as a hypothetical bona fide purchaser as of the date of the commencement of the bankruptcy case.
The U.S. District Court for the Northern District of Indiana upheld a similar ruling in In re Stubbs, despite Indiana statutes creating a presumption of compliance and dictating that a properly recorded document provides constructive notice of its contents. In Stubbs, the notary acknowledgment failed to show the borrower's name.
In re Bross involved a mortgage document that was unsigned. Although the document bore the borrower's initials in numerous fields and was accompanied by signed riders, the Bankruptcy Court and the U.S. District Court for the Southern District of Ohio ruled that the requirement that the mortgage be executed was not satisfied and allowed the trustee to avoid the mortgage.
