Mortgage Formalities Strictly Enforced In Ohio

Recently, some bankruptcy courts in Ohio have given mortgage lenders something new to be concerned over:  Is the form of your notary’s certification proper?  Everyone in the mortgage industry is aware of the wave of cases challenging the validity or effectiveness of certain mortgages or mortgage assignments on account of sub-standard execution, notarization and recordation practices. 

Recently, some bankruptcy courts in Ohio have given mortgage lenders something new to be concerned over:  Is the form of your notary’s certification proper?  Everyone in the mortgage industry is aware of the wave of cases challenging the validity or effectiveness of certain mortgages or mortgage assignments on account of sub-standard execution, notarization and recordation practices.  Borrowers’ attorneys have challenged the authority of the persons executing assignments, the failure of notaries to actually administer oaths to mortgagors and assignments of blocks of mortgages without prompt recording.  In the last year, several bankruptcy trustees in Ohio have successfully avoided mortgages by challenging the effectiveness of the notary’s certification clause.

In Noland v. Burns,[1] the trustee challenged a mortgage which contained the following acknowledgement clause:  “the foregoing instrument was acknowledged before me this 25^th day of August, 2004 by ______________.”  The blank was meant to contain the name of the mortgagor but had never been filled in.  The acknowledgement was on a separate page from the mortgagor’s signature.  The court held that the trustee could avoid the mortgage because the acknowledgement clause did not identify the mortgagor, citing Ohio Revised Code § 5301.01(A) and Ohio Revised Code § 147.53.  The court held that O.R.C. 5301.01 required the certification of acknowledgement by a notary and that O.R.C. 147.53 required that the identity of the person acknowledging was required in the certification.  The failure to identify the mortgagor in the certificate was fatal and allowed the trustee to avoid the lien.  The court relied upon Smith’s Lessee v. Hunt,[2] a case from 1844, as authority for the proposition that an acknowledgement clause must identify the mortgagor, despite the fact that O.R.C. 147.50 et seq. (the Ohio codification of the Uniform Recognition of Acknowledgements Act) was enacted in 1974.

In March of 2011, three more cases were decided in the same Bankruptcy District affirming and expanding this holding.  In re Phalen,[3] involved a mortgage signed by both of the two owners of the property.  However, the notary’s certificate contained the name of only one of the mortgagors.  The court held that the trustee could avoid the mortgage on the interest of the unnamed mortgagor.  Four days later, in In re Winngham,[4] another judge held that an otherwise defective certificate of acknowledgement that failed to identify the mortgagor was not “cured” by virtue of the fact that the certificate appeared on the same page as did the borrowers’ signature.  Later that same month, the court rejected another mortgagee’s arguments that a blank certificate should be conclusively presumed to be valid in the absence of fraud.[5]

This line of cases, if followed by other courts, should cause all mortgagors and loan closing services to closely examine their forms and practices.  Best practice would dictate that every mortgage be prepared with great care to insure specific identification of the mortgagor in the certificate of the notary.  Where preprinted form documents are employed, the executed mortgage should be thoroughly reviewed to insure proper completion by the notary.  Where the mortgage is not a preprinted form, special attention should be given to insure that the drafter does not use a “short form” acknowledgement – one that simply states “Acknowledged before me this (date) day of (month), (year).

While it would be difficult to recommend the following practice, the Phalen court did indicate that a certification that did not name the mortgagor but did refer to “the mortgagor signing above” would be acceptable and enforceable.

[1]  435 B.R. 503 (Bankr. S.D. Ohio 2010).

[2]  13 Ohio 260 (1844).

[3]  2011 WL 811161 (Bkrtcy. S.D. Ohio).

[4]  2011 WL 1479919 (Bkrtcy. S.D. Ohio).

[5]  In re Trahan, 2011 WL 1119663 (Bkrtcy. S.D. Ohio).

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Categories: Bankruptcy & Banking Law