6th Circuit BAP Takes Unusual Legal Step and Rules in Important Mortgage Avoidance Case Brought by Trustee

Posted on November 17, 2009. Filed under: Uncategorized |

Quotes from the 6th Circuit BAP Opinion:

“Ordinarily, an argument which could have been raised below, but was not, will not be considered on appeal. Poss v. Morris (In re Morris), 260 F.3d 654, 663 (6th Cir. 2001). However, an appellate court may deviate from this general rule if doing so would serve an overarching purpose other than simply reaching the correct result in this case. Id. at 664. The Kentucky Bankers Association has filed an amicus curiae brief as to this issue, asserting that “trustees are challenging an increasing number of mortgages in bankruptcy court on the basis of immaterial technical and clerical errors.” (Amicus Br.at 3.)”

“The Panel concludes that deciding the question of whether the 2006 amendments to Kentucky law preclude trustees in Kentucky from avoiding mortgages that are facially valid but contain technical errors in the acknowledgment may resolve a number of cases. Also this issue is purely a legal issue and requires no factual development. Therefore, the Panel will address it now.”

“Accordingly, the trustee’s rights vested on August 11, 2008 when Pelfrey filed his petition,and the application of Ky. Rev. Stat. Ann. § 382.270, as amended, is, therefore, appropriate. Pursuant to Ky. Rev. Stat. Ann. § 382.270, as amended, the mortgage lodged for record provided constructive notice to the trustee as a hypothetical bona fide purchaser despite any technical defects in the acknowledgment. As a result, the trustee cannot avoid the mortgage based on the alleged defects in the acknowledgment and summary judgment in favor of New South and Honaker is affirmed on this basis.”

For the full case from the 6th Circuit’s website, click here

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