If you have attained the age of 18, and you have a pulse, you are probably qualified to be a notary public in Massachusetts. Although becoming a notary is easy, notary services are vital to real estate transactions. One cannot effectively record deeds or mortgages at registries of deeds without notary acknowledgements.
Many regard notarization as a formality. The notary, often an attorney, asks parties to acknowledge that they are signing the deed or mortgage as their free act and deed. The parties answer with a simple “yes.” However, a line of bankruptcy cases holds that recorded mortgages with flawed notary acknowledgments are ineffective under Massachusetts law, with disastrous results for mortgage lenders.
Weiss v. Wells Fargo Bank, N.A., decided by the Bankruptcy Appellate Panel for the First Circuit last October, is the most recent of these cases. There, a bank accepted a mortgage signed under a power of attorney. The mortgage included the following notary acknowledgement:
COMMONWEALTH OF Pennsylvania, Allegheny County ss:
On this 11 day of June, 2007, before me, the undersigned notary public, personally appeared Shawn G. Kelley and Annemarie Kelley by Shannon Obringer as Attorney in Fact proved to me through satisfactory evidence of identification which was/were [left blank] to be the person(s) whose name(s) is/are signed to the preceding document, and acknowledged to me that he/she/it signed it voluntarily for its state purpose.
After the borrowers went bankrupt, the bankruptcy trustee sought to avoid the mortgage, asserting that the notary acknowledgment was fatally defective because it did not clarify whether the attorney-in-fact or the borrowers had signed the mortgage voluntarily for its stated purpose. The bankruptcy court rejected this argument and upheld the bank’s mortgage, but the trustee appealed.
To the bank’s horror, the Bankruptcy Appellate Panel agreed with the trustee. The panel cited Massachusetts statutes requiring that deeds and mortgages bear notary acknowledgments in order to be recorded. The panel then considered the Massachusetts Supreme Judicial Court’s 1946 decision in McOuatt v. McOuatt, nullifying a recorded deed because there was no evidence that the grantor had acknowledged it as “his free act and deed.” The panel also cited recent bankruptcy court decisions invalidating mortgages with notary acknowledgments that failed to name the borrowers, or named them incorrectly.
The panel observed that the acknowledgment in Weiss “failed to unequivocally express” that the borrowers signed the mortgage as their free act and deed. Therefore, the acknowledgment was ambiguous as to whether the mortgage was the voluntary act of the borrowers or their attorney-in-fact. The panel concluded that the acknowledgment was “materially and patently defective,” and “incapable of providing constructive notice to a subsequent purchaser for value.” The panel reversed the bankruptcy court’s decision, and allowed the bankruptcy trustee to avoid the mortgage.
This decision is a wake-up call to real estate professionals. The bank lent money and received a notarized mortgage as security. It recorded the mortgage at the registry of deeds, for all to see. Nevertheless, the Bankruptcy Appellate Panel nullified the mortgage because of the acknowledgment’s technical defect, rendering the bank an unsecured creditor. Going forward, one can expect bankruptcy trustees to scrutinize notary acknowledgments on all mortgages, and probably deeds as well, seeking to invalidate real estate transfers and increase assets available to unsecured creditors.
Perhaps legislation is desirable, so recorded deeds and mortgages will conclusively protect transferees from claims of third parties (including bankruptcy trustees), regardless of technical flaws in notary acknowledgments. In the meantime, real estate professionals and their attorneys should take extra care that mortgages and deeds are properly notarized.
Christopher R. Vaccaro is an attorney at Looney & Grossman LLP in Boston. His email address is cvaccaro@lgllp.com.
