Another Lender's Lien Sunk By Seemingly Trivial Notary Screw-Up; Chapter 7 Trustee Successfully Voids Mortgage In Ohio Homeowner's Bankruptcy Proceeding

From a post on the blog Bankruptcy-RealEstate-Insights:

• [In re] Lacy is one more in a long list of cases where an Ohio mortgage was attacked based on defects in execution. Although the Ohio statute requires only “substantial compliance” with the statutory execution requirements, mortgages are sometimes avoided based on seemingly trivial technical defects.
  
  The debtor, Mr. Lacy, had executed a valid power of attorney appointing Ms. Iacuzzo as his attorney-in-fact to execute documents in connection with the acquisition and financing of a property. Using the power of attorney, Ms. Iacuzzo executed a mortgage on behalf of Mr. Lacy.
  
  The first page of the mortgage included the following:

“Borrower” is CHARLES L. LACY , UNMARRIED

...........The signature block included the following:

– BORROWER – CHARLES L. LACY, BY, GINA MARIE IACUZZO

HIS ATTORNEY IN FACT – DATE –

...........The acknowledgment stated that it was acknowledged before the notary by:

CHARLES L. LACY , U [The court noted that this appeared to
be copied from the first page, where “U” was the
first letter of “Unmarried.”]

...............................

• Since it was Ms. Iacuzzo, not Mr. Lacy, that appeared before the notary, the acknowledgement was incorrect.

***

• After reviewing [the applicable Ohio case law], the Lacy court concluded that, while an argument could be made that the acknowledgment was sufficient, this case was closer to the cases holding that the certificate was invalid, causing the mortgage to be ineffective.
  
  When the notary stated that the instrument was “acknowledged before me,” the notary was purportedly certifying that Mr. Lacy appeared in person and that he was known to the notary or provided satisfactory evidence to the notary that he was the person taking the acknowledgment. That was incorrect.
  
  Although the court found it to be a close call, it concluded that the certificate was not in substantial compliance with the statutory requirements, and therefore the mortgage was avoidable. As a consequence, GMAC was treated as having an unsecured claim, and the lien of the mortgage was preserved for the benefit of the estate. (This means that the trustee could assert the lien for the benefit of the estate to obtain a distribution ahead of any junior lienholders.)
  
  As illustrated by these and other cases (see Bankruptcy “Strong Arm” Powers: Bye Bye Mortgage), details can be very important; and if you are going to make a mistake in execution of a mortgage, try not do it in Ohio.

For more, see Mortgage Execution Errors: If You Make a Mistake, Try Not To Do It in Ohio.

For the court ruling, see McClatchey v. GMAC Mortgage, LLC (In re Lacy), 483 B.R. 126 (Bankr. S.D. Ohio 2012).