Merit Decision: Defectively-Executed Recorded Mortgage Provides Constructive Notice to the World. In Re Messer.

On February 16, 2016, the Supreme Court of Ohio handed down a merit decision in In re Messer, 2016-Ohio-510. This case involved the following two questions certified from bankruptcy court:

  1. whether R.C. 1301.401 applies to all recorded mortgages in Ohio, and
  2. whether R.C. 1301.401 acts to provide constructive notice to the world of a recorded mortgage that was deficiently executed under R.C. 5301.01.

In a unanimous opinion written by Justice Lanzinger, the court answered yes to both questions. The case was argued October 14, 2015.

Case Background

On November 26, 2007, Daren and Angela Messer executed a promissory note and mortgage in favor of the Mortgage Electronic Registrations System, Inc. (MERS). The mortgage document was signed, but was not notarized. On December 4, 2007, the defectively executed mortgage was recorded with the Franklin County Recorder’s Office. In 2013, this mortgage was assigned to JP Morgan Chase Bank, NA (JP Morgan), and recorded.

In September of 2013, the Messers filed for bankruptcy under Chapter 13. They then filed an adversary proceeding seeking to avoid the mortgage as defectively executed under R.C. 5301.01. Finding no state law interpretation of R.C. 1301.401, and believing it to be dispositive of the case, the bankruptcy judge certified the two questions set out above.

Read the oral argument preview of this case here, and the analysis of that argument here.

Key Statutes and Precedent

R.C. 1301.401 (The key statute in the case; deals with the effect of recording documents.)

R.C. 1301.401(B) (“The recording with any county recorder of any document described in division (A)(1) of this section (which includes any document described or referred to in R.C.317.08). . . shall be constructive notice to the whole world of the existence and contents of either document as a public record and of any transaction referred to in that public record, including, but not limited to, any transfer, conveyance, or assignment reflected in that record.”)

R.C. 317.08(A)(19) (The county recorder shall record in the official records all of the following instruments that are presented for recording, upon payment of the fees prescribed by law: Mortgages, including amendments, supplements, modifications, and extensions of mortgages, or other instruments of writing by which lands, tenements, or hereditaments are or may be mortgaged or otherwise conditionally sold, conveyed, affected, or encumbered)

R.C. 5301.01(A) (“A . . . mortgage . . . shall be signed by the . . . mortgagor . . . The signing shall be acknowledged by the . . . mortgagor . . . before a judge or clerk of a court of record in this state, or a county auditor, county engineer, notary public, or mayor, who shall certify the acknowledgement and subscribe the official’s name to the certificate of the acknowledgement.”)

R.C. 5301.25(A) (“[I]nstruments of writing properly executed for the conveyance or encumbrance of lands . . . shall be recorded in the office of the county recorder of the county in which the premises are situated. Until so recorded or filed for record, they are fraudulent insofar as they relate to a subsequent bona fide purchaser having, at the time of purchase, no knowledge of the existence of that . . . instrument.”)

R.C. 5301.01(B) (If a mortgage was executed prior to February 1, 2002, and was not acknowledged in the presence of, or was not attested by, two witnesses as required by this section prior to that date, the instrument is deemed properly executed and is presumed to be valid (absent fraudulent activity), and the recording of the instrument in the office of the county recorder of the county in which the subject property is situated is constructive notice of the instrument to all persons including subsequent purchasers.

R.C. 5301.23(B) (“A mortgage that is presented for record shall contain the then current mailing address of the mortgagee. The omission of this address or the inclusion of an incorrect address shall not affect the validity of the instrument or render it ineffective for purposes of constructive notice.”)

Merit Decision

This is pretty much just a straight-up case of statutory interpretation.

Executive Summary

As argued by JP Morgan at oral argument, R.C. 1301.401 peacefully co-exists with the recording statutes. One does not eliminate the other.

The Key Statutes (see precedent section above)

Title 53 of the Revised Code deals with real property. R.C. 5301.01(A) sets forth the requirements for a mortgage in Ohio. Pertinent here is that this document must be properly notarized.

R.C. 1301.401 (which is in the Ohio Uniform Commercial Code (UCC) section of the Revised Code.) Sections (B) and (A)(1) provide that the recording of certain specified documents, including mortgages (per R.C. 317.08) shall be constructive notice to the world of their existence and contents.

 Messers’ Arguments and Court’s Responses

First Argument

The Messers argued that because R.C. 1304.401 is in the UCC, the statute only applies to transactions governed by the UCC, not to mortgages.

The court rejected this argument because the plain language in R.C. 1301.401 indicates that it applies to “any document described in division (A)(1)” of this statute. Division (A)(1) clearly states that any document mentioned or described in R.C. 317.08 is included within the purview of the statute. R.C. 317.08(A)(19) expressly includes mortgages.  Nice, neat and tidy.

Second Argument

The Messers next argue that a mortgage does not provide constructive notice if it is not properly executed. Application of R.C. 1301.410 would be inconsistent with R.C. 5301.25(A), which provides that all properly executed mortgages shall be recorded in the county recorder’s office, but until recorded or filed for record are deemed fraudulent as to any bona fide purchaser without knowledge of the existence of the mortgage.

The court rejected that argument, finding that R.C. 1304.401 does not contradict the basic principle set forth in R.C. 5301.25(A); it simply holds that the act of recording the document gives constructive notice to the world of its existence and contents. It doesn’t guarantee its accuracy or whether it has been properly executed. It just says it “here I am.”

Third and Final Argument

R.C. 5301(B) and 5301.23(B)(see above) provide two instances where recording of deficiently executed mortgages do provide constructive notice—pre-February 1, 2002 deficiently executed mortgages, and mortgages that omit the current mailing address of the mortgagee. The Messers argue that had the General Assembly wanted to create constructive notice for other deficiently executed mortgages, it would have done so in R.C. Chapter 5301. They also argued that these are the only two statutes that allow deficient mortgages to provide constructive notice, and preclude other statutes from doing so.

The court rejected this last set of arguments, finding that nothing prevents the General Assembly from recognizing other instances in which defectively executed mortgages can provide constructive notice, and no language in either of those statutes does so, either. So, R.C. 1304.401 is completely compatible with the statutes cited from Chapter 53.

Case Holding and Case Syllabus

  1. R.C. 1301.401 applies to all recorded mortgages in Ohio.
  2. R.C. 1301.401 acts to provide constructive notice to the world of the existence and contents of a recorded mortgage that was deficiently executed under R.C. 5301.01.

Concluding Observations

Student Contributor Connie Kremer and I both correctly called this for JP Morgan.

I wrote that I thought the court was unlikely to do much more than answer both questions in the affirmative, and that was pretty much the case.  It was clear during the argument that the court was put off by the fact that the homeowners, who knew perfectly well the house was mortgaged, were trying to capitalize on a technical mistake. But in the opinion, the court stayed away from the various bankruptcy implications involved. The opinion sticks to Justice French’s preferred approach, “don’t we always have to look first at the language of a statute?”

This is not my field, so there may be much more to this than the four corners of this opinion. Cincinnati attorney Rick DeBlasis, of Lerner, Sampson & Rothfuss, whose field it is, and who co-authored this guest post on the Messer case, along with his colleague Cynthia Fischer, advises that on closing the door in Messer on mortgage avoidance actions based on a defect in execution where the mortgage has been recorded, the Supreme Court of Ohio has effectively reversed 200 years of Ohio jurisprudence. That’s surely significant.  Rick cites to Johnston v. Haines, 2 Ohio 55 (1825) (“…the mere fact of recording a deed, without the legal requisites, gives it no validity.”); Citizens National Bank v. Denison, 165 Ohio St. 89, 133 N.E.2d 329 (1956) (“A mortgage by two persons is not properly executed in accordance with the provisions of R.C. 5301.01, and is not entitled to record under R.C. 5301.25, and the recording thereof does not constitute constructive notice to subsequent mortgagees, where there is a failure to follow the statutory requirements…”). Overruled, sub silentio?


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