OneWest Bank, FSB,
v.
Dorner et al.

No. CI09-7477

 DATE: January 7, 2011.

Matthew J. Richardson and Robert B. Holman, for plaintiff.Joyce Anagnos, for defendant Toledo Department of Public Utilities.Steven E. Elder, Michelle Polly Murphy, Nicholas D. Donnermeyer, and Andrew P. George for intervening defendant, CitiMortgage, Inc.

OPINION AND JUDGMENT ENTRY

McDONALD, Judge.

{¶1} This case is before the court upon the motion for summary judgment as to lien priority filed by plaintiff OneWest Bank, FSB, against intervening defendant CitiMortgage, Inc. Upon consideration of the pleadings, the evidence, the written arguments of counsel, and the applicable law, I find that the motion for summary judgment should be granted.

I

{¶2} Defendant Kevin Dorner is the current owner of real estate located at 2026 N. Michigan Street, Toledo, Lucas County, Ohio (“the property”).

{¶3} On April 5, 2005, Dorner executed a mortgage and note on the property in favor of mortgagee Mortgage Electronic Registration Systems, Inc. (“MERS”). Mortgage Method, L.L.C. was the lender.^[1]

{¶4} On February 8, 2007, Dorner executed a mortgage and note on the property in favor of mortgagee MERS. Indymac Bank, FSB was the lender.^[2]

{¶5} On October 13, 2009, OneWest filed its complaint for foreclosure on its mortgage and note against Dorner, unknown spouse (if any) of Dorner, and the city of Toledo, Department of Public Utilities (“the city”). The city filed an answer to the complaint.

{¶6} On October 13, 2009, a preliminary judicial report for the property was filed.

{¶7} On October 22, 2009, the notice of filing of the final judicial report for the property was filed.

{¶8} On November 16, 2009, OneWest filed a motion for default judgment against Dorner and his unknown spouse, if any. This motion was granted.

{¶9} On December 18, 2009, CitiMortgage filed a motion to intervene as a party defendant. This motion was granted.

{¶10} On January 13, 2010, CitiMortgage filed an answer, cross-claim, and counterclaim. In its cross-claim and counterclaim, CitiMortgage alleges that Dorner is in default under the note and mortgage filed April 11, 2005, that it declared the debt due, and that it is entitled to have the mortgage foreclosed. CitiMortgage further alleges that OneWest and the city may claim an interest in the property. CitiMortgage prays that its mortgage be adjudged a valid first lien on the property, that its mortgage be foreclosed, that the property be sold, and that CitiMortgage be paid out of the proceeds of the sale. OneWest filed a reply to the counterclaim.

{¶11} An order of sale for the property was issued on March 5, 2010.

{¶12} On March 15, 2010, OneWest filed its motion for summary judgment as to the lien priority between its mortgage and CitiMortgage’s alleged mortgage.

{¶13} On April 20, 2010, CitiMortgage filed its motion to stay the sheriff sale so that the dispute over the priority of liens could be resolved. This motion was granted on May 4, 2010.

{¶14} On August 23, 2010, CitiMortgage filed an opposition to OneWest’s motion for summary judgment. Thereafter, OneWest filed a reply. The motion is now decisional.

II

{¶15} The general rules governing motions for summary judgment filed pursuant to Civ.R. 56 are well established. In Harless v. Willis Day Warehousing Co. (1978), 54 Ohio St.2d 64, 66, the Supreme Court of Ohio stated the requirements that must be met before a motion for summary judgment can be granted:

{¶16} “The appositeness of rendering a summary judgment hinges upon the tripartite demonstration: (1) that there is no genuine issue as to any material fact; (2) that the moving party is entitled to judgment as a matter of law; and (3) that reasonable minds can come to but one conclusion, and that conclusion is adverse to the party against whom the motion for summary judgment is made, who is entitled to have the evidence construed most strongly in his favor.

{¶17} “The burden of showing that no genuine issue exists as to any material fact falls upon the moving party in requesting a summary judgment.”

{¶18} A party who claims to be entitled to summary judgment on the ground that a nonmovant cannot prove its case bears the initial burden of (1) specifically identifying the basis of its motion, and (2) identifying those portions of the record that demonstrate the absence of a genuine issue of material fact regarding an essential element of the nonmovant’s case. Dresher v. Burt (1996), 75 Ohio St.3d 280, 293; see also Dresher, 75 Ohio St.3d at 299 (Pfeifer, J., concurring in judgment only). The movant satisfies this burden by calling attention to some competent summary-judgment evidence, of the type listed in Civ.R. 56, affirmatively demonstrating that the nonmovant has no evidence to support his or her claims. Id. Once the movant has satisfied this initial burden, the burden shifts to the nonmovant to set forth specific facts, in the manner prescribed by Civ.R. 56(E), indicating that a genuine issue of material fact exists for trial. Dresher at 293. Accord Mitseff v. Wheeler (1988), 38 Ohio St.3d 112, 114-115.

{¶19} The Sixth District Court of Appeals has consistently held that summary judgment should be granted with caution in order to protect the nonmoving party’s right to trial. As stated by the court in Viock v. Stowe-Woodward Co. (1983), 13 Ohio App.3d 7, 14-15:

{¶20} “We recognize that summary judgment, pursuant to Civ.R. 56, is a salutary procedure in the administration of justice. It is also, however, a procedure which should be used cautiously and with the utmost care so that a litigant’s right to a trial, wherein the evidentiary portion of the litigant’s case is presented and developed, is not usurped in the presence of conflicting facts and inferences. * * * It is settled law that `[t]he inferences to be drawn from the underlying facts contained in the affidavits and other exhibits must be viewed in the light most favorable to the party opposing the motion, * * *’ which party in the instant case is appellant. * * * It is imperative to remember that the purpose of summary judgment is not to try issues of fact, but rather to determine whether triable issues of fact exist.” (Citations omitted.)

III

{¶21} OneWest contends that it is entitled to summary judgment, as its lien is superior to CitiMortgage’s lien. OneWest argues that CitiMortgage’s alleged mortgage is invalid because it is not notarized. Moreover, OneWest maintains that its knowledge of the defective mortgage is irrelevant. OneWest cites R.C. 5301.01 and 5301.25, as well as numerous cases, including Citizens Natl. Bank v. Denison (1956), 165 Ohio St. 89, and Mtg. Elec. Registration Sys. v. Odita, 159 Ohio App.3d 1, 2004-Ohio-5546.

{¶22} In opposition, CitiMortgage asserts that its mortgage, which properly described the property, was recorded first, and OneWest had actual or constructive notice of the mortgage. CitiMortgage claims that pursuant to R.C. 5301.23, it is entitled to priority because first in time should be first in right, and its mortgage was recorded almost two years before OneWest’s mortgage. CitiMortgage submits that even if there is an error in the acknowledgement clause, this mistake does not void the instrument, as it is subject to reformation pursuant to R.C. 2719.01. CitiMortgage maintains that OneWest would be unjustly enriched if OneWest were allowed to maintain an interest in the property to the exclusion of CitiMortgage.

{¶23} In its reply, OneWest observes that R.C. 5301.23 is not applicable, as it applies to only properly executed mortgages. OneWest agrees with CitiMortgage that first in time means first in right, but OneWest notes that this provision applies to only properly executed mortgages, not defective instruments. OneWest offers that Ohio law is clear that when a notary’s ackowledgement is defective, the instrument is ineffective against subsequent creditors. OneWest maintains that because its mortgage is properly executed, it takes priority over the defective mortgage, which was not entitled to be recorded and is not entitled to reformation.

{¶24} Before the motion for summary judgment is analyzed, it must be noted that the assignment of the mortgage from MERS to OneWest occurred on October 22, 2009, more than a week after OneWest filed its complaint in the present case. The notice of assignment was filed with the court less than one month later. Thus, the notice was sufficient to alert the court, Dorner, and others that OneWest was the real party in interest. See Campus Sweater & Sportswear Co. v. M. B. Kahn Constr. Co. (D.C.S.C.1979), 515 F.Supp. 64, 84-85 (because the assignment took place a year before trial, the defendant was not prejudiced by the assignment, and the assignee was the real party in interest to bring the suit.). Moreover, no party has raised the issue that OneWest is not the real party in interest. See Wachovia Bank, N.A. v. Cipriano, 5th Dist. No. 09CA007, 2009-Ohio-5470, at ¶ 38 (“Pursuant to Civ.R. 17(A), the real party of interest shall `prosecute’ the claim. The rule does not state `file’ the claim”). See also LaSalle Bank Natl. Assn. v. Street, 5th Dist. No. 08 CA 60, 2009-Ohio-1855, at ¶ 28. Accordingly, OneWest, as the real party in interest, has legal standing to bring this foreclosure action.

{¶25} With respect to the motion for summary judgment, OneWest contends that CitiMortgage’s mortgage is defective, yet CitiMortgage maintains that the mortgage should be reformed.

{¶26} R.C. 5301.01 provides:

{¶27} “(A) A deed, mortgage * * * shall be signed by the grantor, mortgagor * * *. The signing shall be acknowledged by the grantor, 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.”

{¶28} R.C. 5301.23 provides:

{¶29} “(A) All properly executed mortgages shall be recorded in the office of the county recorder of the county in which the mortgaged premises are situated and shall take effect at the time they are delivered to the recorder for record. * * *

{¶30} “(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.”

{¶31} In Citizens Natl. Bank v. Denison, 165 Ohio St. at 95, the Ohio Supreme Court held that when the acknowledgment or execution of a deed is defective, the deed is ineffective as against subsequent creditors, but the deed “is valid as between the parties thereto, in the absence of fraud.” Moreover, a defectively executed mortgage is invalid as to a subsequent lienholder, even if the subsequent lienholder had actual knowledge of the prior, defectively executed mortgage. Odita, 159 Ohio App.3d 1, 2004-Ohio-5546, at ¶ 15.

{¶32} R.C. 2719.01 states:

“When there is an omission, defect, or error in an instrument in writing or in a proceeding by reason of the inadvertence of an officer, or of a party, person, or body corporate, so that it is not in strict conformity with the laws of this state, the courts of this state may give full effect to such instrument or proceeding, according to the true, manifest intention of the parties thereto.”

{¶33} Reformation of an instrument is an equitable remedy wherein a court modifies the instrument that, due to mutual mistake on the part of the original parties to the instrument, does not express the real intention of those parties. Greenfield v. Aetna Cas. & Sur. Co. (1944), 75 Ohio App. 122, 128. However, a defectively executed instrument, not acknowledged, cannot be reformed. Delfino v. Paul Davies Chevrolet, Inc. (1965), 2 Ohio St.2d 282, paragraphs two and three of the syllabus (“The curative effect of Section 2719.01, Revised Code, operates to validate instruments in relation to technical defects of content. It does not validate a lease which does not comply with the mandatory requirements of the statute of conveyances (Section 5301.01, Revised Code) as to execution. Where * * * [R.C. 5301.01] requires certain formalities for the execution of an instrument, reformation cannot be granted to supply these formalities”).

{¶34} Applying these principles to the present case, the CitiMortgage mortgage was defectively executed in that Dorner’s signature was not acknowledged by a notary public as required by R.C. 5301.01. Moreover, this defect cannot be cured by reformation. Thus, CitiMortgage’s defectively executed mortgage cannot take priority over a subsequent, valid, recorded mortgage. The record shows that OneWest’s subsequent mortgage was properly executed, valid, and recorded. Accordingly, OneWest’s mortgage is entitled to priority over CitiMortgage’s defective mortgage.

JUDGMENT ENTRY

{¶35} The court finds that there are no genuine issues of material fact and that plaintiff OneWest Bank, FSB is entitled to summary judgment as to lien priority against intervening defendant CitiMortgage, Inc. as a matter of law. It is ordered that plaintiff OneWest Bank, FSB have summary judgment against intervening defendant CitiMortgage, Inc. as to lien priority. It is further ordered that plaintiff OneWest Bank, FSB’s mortgage is entitled to priority over the defective mortgage of intervening defendant CitiMortgage, Inc.

So ordered.

[1] MERS assigned the mortgage to CitiMortgage on December 2, 2009.

[2] On November 16, 2009, OneWest filed a notice of filing of assignment of mortgage from MERS to OneWest. The assignment occurred on October 22, 2009.

U.S. BANK NATIONAL ASSOCIATION,
v.
GORDON.

S10Q1564.
Supreme Court of Georgia.

Decided: March 25, 2011.

NAHMIAS, Justice.

The United States District Court for the North District of Georgia has certified a question to this Court regarding the 1995 Amendment to OCGA § 441-4-33. See Ga. L. 1995, p. 1076, § 1. The question is whether the 1995 Amendment

means that, in the absence of fraud, a security deed that is actually filed and recorded, and accurately indexed, on the appropriate county land records provides constructive notice to subsequent bona fide purchasers, where the security deed contains the grantor’s signature but lacks both an official and unofficial attestation (i.e., lacks attestation by a notary public and also an unofficial witness).

For the reasons that follow, we answer the certified question in the negative.

1. In October 2005, Bertha Hagler refinanced her residence through the predecessor-in-interest to U.S. Bank National Association (U.S. Bank) and granted the predecessor a first and a second security deed to her residence. The security deeds were recorded with the Clerk of the Fulton County Superior Court in November 2005, but the first security deed was not attested or acknowledged by an official or unofficial witness. According to the district court’s certification order:

Gordon, the Chapter 7 Trustee in Hagler’s bankruptcy case, sought to avoid or set aside the valid, but unattested, first security deed to the residence through the “strong-arm” power of Section 544 (a) (3) of the Bankruptcy Code. See 11 U.S.C. § 544 (a) (3). Gordon argued that under the proper interpretation of § 44-14-33 of the Georgia Code, a security deed that is not attested by an official and unofficial witness cannot provide constructive notice to a subsequent purchaser even if it is recorded. U.S. Bank argued, in opposition, that a 1995 amendment to § 44-14-33 changed the law to enable an unattested security deed to provide constructive notice. Gordon argued in response that the 1995 amendment served only to recognize constructive notice from a security deed with a “latently” defective attestation, meaning an irregular attestation that appears regular on its face; a deed with a “patently” defective attestation, meaning an attestation that is obviously defective on its face, would not provide constructive notice.

The bankruptcy court ruled in Gordon’s favor, concluding that, under the 1995 Amendment, a security deed with a facially defective attestation would not provide constructive notice, while a security deed with a facially proper but latently defective attestation would provide constructive notice. See Gordon v. U.S. Bank Natl. Assn. (In re Hagler), 429 BR 42, 47-53 (Bankr. N.D. Ga. 2009). Concluding that the issue involved an unclear question of Georgia law and that no Georgia court had addressed the issue after the 1995 Amendment, the district court certified the question to this Court. We conclude that the bankruptcy court properly resolved the issue.

2. OCGA § 44-14-61 provides that “[i]n order to admit deeds to secure debt . . . to record, they shall be attested or proved in the manner prescribed by law for mortgages.” OCGA § 44-14-33 provides the law for attesting mortgages:

In order to admit a mortgage to record, it must be attested by or acknowledged before an officer as prescribed for the attestation or acknowledgment of deeds of bargain and sale; and, in the case of real property, a mortgage must also be attested or acknowledged by one additional witness. In the absence of fraud, if a mortgage is duly filed, recorded, and indexed on the appropriate county land records, such recordation shall be deemed constructive notice to subsequent bona fide purchasers.

The second sentence of this Code section was added by the 1995 Amendment.

3. We first address Gordon’s contention that the 1995 Amendment does not apply at all to security deeds. He contends that only the first sentence of § 44-14-33, which expressly deals with attestation, is applicable to security deeds through § 44-14-61 and that, because the 1995 Amendment addresses constructive notice, it does not apply to security deeds. We disagree. The General Assembly chose to enact the 1995 Amendment not as a freestanding Code provision but as an addition to a Code provision clearly referenced by § 44-14-61. Moreover, “[t]he objects of a mortgage and security deed . . . under the provisions of the Code are identical — security for a debt. While recognizing the technical difference between a mortgage and security deed hereinbefore pointed out, this court has treated deeds to secure debts . . . as equitable mortgages.” Merchants & Mechanics’ Bank v. Beard, 162 Ga. 446, 449 (134 SE 107)Fair v. State, 288 Ga. 244, 252 (702 SE2d 420) (2010), so the placement of the amendment makes complete sense. Indeed, no reason has been suggested why the General Assembly would want the same type of recording to provide constructive notice for mortgages but not for security deeds. Accordingly, we conclude that the 1995 Amendment is applicable to security deeds. (1926). The General Assembly is presumed to have been aware of the existing state of the law when it enacted the 1995 Amendment, see

4. Turning back to the certified question, we note that the “recordation” that is deemed to provide constructive notice to subsequent purchasers clearly refers back to “duly filed, recorded, and indexed” deeds. U.S. Bank argues that a “dulyin fact filed, recorded, and indexed, even if unattested by an officer or a witness. We disagree. filed, recorded, and indexed” deed is simply one that is

Particular words of statutes are not interpreted in isolation; instead, courts must construe a statute to give “`”sensible and intelligent effect” to all of its provisions,'” Footstar, Inc. v. Liberty Mut. Ins. Co., 281 Ga. 448, 450 (637 SE2d 692)State v. Bowen, 274 Ga. 1, 3 (547 SE2d 286) (2001). In particular, “statutes `in pari materia,’ i.e., statutes relating to the same subject matter, must be construed together.” Willis v. City of Atlanta, 285 Ga. 775, 776 (684 SE2d 271) (2009). (2006) (citation omitted), and “must consider the statute in relation to other statutes of which it is part.”

Construing the 1995 Amendment in harmony with other recording statutes and longstanding case law, we must reject U.S. Bank’s definition of “duly filed, recorded, and indexed.” Its definition ignores the first sentence of § 44-14-33, which provides that to admit a security deed to record, the deed must be attested by or acknowledged before an officer, such as a notary public, and, in the case of real property, by a second witness. See OCGA § 44-2-15 (listing the “officers” who are authorized to attest a mortgage or deed). Other statutes governing deeds and mortgages similarly preclude recording and constructive notice if certain requirements are not satisfied. See OCGA § 44-2-14 (“Before any deed to realty or personalty or any mortgage, bond for title, or other recordable instrument executed in this state may be recorded, it must be attested or acknowledged as provided by law.”); OCGA § 44-14-61 (“In order to admit deeds to secure debt or bills of sale to record, they shall be attested or proved in the manner prescribed by law for mortgages”). Indeed, U.S. Banks’ construction of the 1995 Amendment contradicts OCGA § 44-14-39, which provides that “[a] mortgage which is recorded . . . without due attestation . . . shall not be held to be notice to subsequent bona fide purchasers.”

Thus, the first sentence of § 44-14-33 and the statutory recording scheme indicate that the word “duly” in the second sentence of § 44-14-33 should be understood to mean that a security deed is “duly filed, recorded, and indexed” only if the clerk responsible for recording determines, from the face of the document, that it is in the proper form for recording, meaning that it is attested or acknowledged by a proper officer and (in the case of real property) an additional witness. This construction of the 1995 Amendment is also consistent with this Court’s longstanding case law, which holds that a security deed which appears on its face to be properly attested should be admitted to record, see Thomas v. Hudson, 190 Ga. 622, 626 (10 SE2d 396) (1940); Glover v. Cox, 137 Ga. 684, 691-694 (73 SE 1068) (1912), but that a deed that shows on its face that it was “not properly attested or acknowledged, as required by statute, is ineligible for recording.” Higdon v. Gates, 238 Ga. 105, 107 (231 SE2d 345) (1976).

We note that at the time the 1995 Amendment was considered and enacted, the appellate courts of this State had “never squarely considered” whether a security deed with a facially valid attestation could provide constructive notice where the attestation contained a latent defect, like the officer or witness not observing the grantor signing the deed. Leeds Bldg. Prods. v. Sears Mortg. Corp., 267 Ga. 300, 301 (477 SE2d 565) (1996). The timing of the amendment suggests that the General Assembly was attempting to fill this gap in our law as the Leeds litigation worked its way through the trial court and the Court of Appeals before our decision in 1996. See Gordon, 429 BR at 50. We ultimately decided in Leeds that, “in the absence of fraud, a deed which, on its face, complies with all statutory requirements is entitled to be recorded, and once accepted and filed with the clerk of court for record, provides constructive notice to the world of its existence.” 267 Ga. at 302. We noted that Higdon remained good law, because in that case the deed was facially invalid, did “not entitle [the deed] to record,” and “did not constitute constructive notice to subsequent purchasers.” Leeds, 267 Ga. at 302. Because we reached the same result as under the 1995 Amendment, we did not have to consider whether the amendment should be applied retroactively to that case. See id. at 300 n.1.

Our interpretation of the 1995 Amendment also is supported by commentators that have considered the issue. See Frank S. Alexander, Georgia Real Estate Finance and Foreclosure Law, § 8-10, p. 138 (4th ed. 2004) (stating that “[a] security deed that is defective as to attestation, but without facial defects, provides constructive notice to subsequent bona fide purchasers”); Daniel F. Hinkel, 2 Pindar’s Georgia Real Estate Law and Procedure, § 20-18 (6th ed. 2011) (without mentioning deeds with facial defects, explaining that the 1995 Amendment to § 44-14-33 and Leeds “provide that in the absence of fraud a deed or mortgage, which on its face does not reveal any defect in the acknowledgment of the instrument and complies with all statutory requirements, is entitled to be recorded, and once accepted and filed with the clerk of the superior court for record, provides constructive notice to subsequent bona fide purchasers”); T. Daniel Brannan & William J. Sheppard, Real Estate, 49 Mercer L. Rev. 257, 263 (Fall 1997) (without mentioning deeds with facial defects, stating that the 1995 Amendment to § 44-14-33 resolves “the issue that was before the court in [Leeds]”). As noted by the bankruptcy court, if Hinkel and the law review authors thought that the 1995 Amendment altered longstanding law with regard to deeds containing facial defects as to attestation, they surely would have said so. See Gordon, 429 BR at 52-53.

Finally, it should be recognized that U.S. Bank’s interpretation of the 1995 Amendment to § 44-14-33 “would relieve lenders of any obligation to present properly attested security deeds” and “would tell clerks that the directive to admit only attested deeds is merely a suggestion, not a duty,” and this would risk an increase in fraud because deeds no longer would require an attestation by a public officer who is sworn to verify certain information on the deeds before they are recorded and deemed to put all subsequent purchasers on notice. Gordon, 429 BR at 51-52. Moreover, while “it costs nothing and requires no special expertise or effort for a closing attorney, or a lender, or a title insurance company to examine the signature page of a deed for missing signatures before it is filed,” U.S. Bank’s construction would “shift to the subsequent bona fide purchaser and everyone else the burden of determining [possibly decades after the fact] the genuineness of the grantor’s signature and therefore the cost of investigating and perhaps litigating whether or not an unattested deed was in fact signed by the grantor.” Id. at 52.

For these reasons, we answer the certified question in the negative.

Certified question answered. All the Justices concur.