- October 24, 2013
- All Massachusetts Issuing Offices
- UNDERWRITING - Bankruptcy Court Invalidates Mortgage, Holds Acknowledgment Was Flawed
In light of the recent decision in the United States Bankruptcy Appellate Panel for the First Circuit, BAP No. MS 13-012, Steven Weiss, Chapter 7 Trustee, Plaintiff-Appellant v. Wells Fargo Bank, N.A., Defendant-Appellee, we take this opportunity to once again remind you of the importance of the proper completion of all information in the acknowledgment clause of the Mortgage to be recorded.
In this case, the Mortgagors executed a Mortgage to Wells Fargo Bank pursuant to a Power of Attorney given to a representative of the Lender. In a subsequent Bankruptcy proceeding by the Mortgagors, in its attempt to avoid the Mortgage, the Bankruptcy Trustee maintained that the acknowledgment suffered from “three fatal flaws": (1) the use of the phrase “personally appeared,” when, in fact, it is undisputed the Debtors did not appear; (2) the failure to specify in the appropriate blank space the form of identification by which the notary identified the signer (or signers) of the Mortgage; and (3) the failure to indicate whose free act and deed the notary was verifying.
Citing McOuatt v. McOuatt, 69 N.E.2d 806, 810 (Mass. 1946): “[n]o particular words are necessary as long as they amount to an admission that [the grantor] has voluntarily and freely executed the instrument,” the Court found that each one of these issues, in and of itself was not enough to invalidate the Mortgage but taken as a whole, was unable to find that there was not an ambiguity as to whose free act and deed the notary was verifying:
We agree with the Trustee’s third argument, however, namely that the foregoing language fails to unequivocally express that the execution of the Mortgage was the free act and deed of the principals, i.e., the Debtors, and that this flaw is, indeed, fatal. Here, the preprinted form utilized by the notary combined with her failure to attend to the blank space and the inapplicable verbiage creates ambiguity concerning whether the execution of the Mortgage was the voluntary act of the Debtors. Although the acknowledgment contains a recitation that the Mortgage was signed “voluntarily for its stated purpose,” we are left to speculate whether the voluntariness relates to the principals (the Debtors) or to the attorney-in-fact (Obringer). Id at 14.
While the lenders frequently prepare the loan documents, it is incumbent upon the issuing Agent who acknowledges and records the Mortgage and subsequently issues the Loan Policy insuring that Mortgage, to confirm that all necessary and proper information is included in the recorded Mortgage, while paying particular attention to the acknowledgment clause, prior to recording the same.
For the proper way to execute and acknowledge a document under Power of Attorney, see Land Court Guideline (2009) 15.
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THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.
- Bulletins Replaced:
- Related Bulletins:
- MA2012002 Mortgage Avoidance by Trustees in Bankruptcy Based Upon Defective Acknowledgements
- Underwriting Manual:
- Exceptions Manual: