Ch. 7 Trustee Avoids Maine Mortgage Due to Incomplete Acknowledgment

Thursday, August 18, 2016

Chapter 7 trustees’ success in avoiding mortgages with defective certificates of acknowledgement occurs with some regularity in Massachusetts.  See e.g. In re Giroux, 2009 WL 1458173 (D. Ma. Bankr. Jul. 27, 2011).  But it has not been that common in Maine.  Last month, however, a Chapter 7 trustee successfully avoided a Maine mortgage because of a defective acknowledgment and obtained the right to sell the property.  In re Bishop, No. 15-10554 (D. Me. Bankr. Jul. 28, 2016).  The Debtor’s mortgage included a certificate of acknowledgment which failed to state the location of the notary (Aroostook County, Maine) when he acknowledged the mortgage.

Pursuant to the Chapter 7 trustee’s strong-arm powers, 11 U.S.C. § 544(a)(3), the trustee argued that he could avoid the mortgage as a hypothetical bona fide purchaser for value.  As in other defective acknowledgment cases, the trustee argued that a defective mortgage or a mortgage which fails to meet recording requirements under applicable state law does not provide constructive notice, at least with respect to attaching lien creditors.  The Court rejected the bank’s argument that the acknowledgment was sufficient because it was clear the property and notary were located in Maine.  The Court noted that it is critical for an acknowledgement to state the location of the notary at the time of execution.  Without that statement, one cannot determine whether the notary had the authority required by the statute to acknowledge the mortgage.

Maine practitioners facing a certificate of acknowledgment issue should closely review 33 M.R.S. § 352, which governs defective acknowledgments.  § 352 offers protection to mortgagees against defects like this for mortgages made prior to January 1, 2013, and with respect to bankruptcies filed on or after October 15, 2015.

New Article Discusses whether a Late-Filed Tax Return Is a “Return”

Thursday, August 11, 2016

As part of the American Bankruptcy Institute Northeast Bankruptcy Conference and Consumer Forum, Tony Manhart presented an article, which I co-wrote with him, on whether a late-filed tax return is a “return” under section 523(a) of the Bankruptcy Code. Courts are divided on whether the definition of “return” added by the Bankruptcy Abuse and Consumer Protection Act makes tax debt associated with all late-filed returns non-dischargeable. Courts in the First Circuit have found that late-filed returns are not “returns” and the associated tax debt cannot be discharged in bankruptcy.

The article discusses recent cases including: In re Fahey, 779 F.3d 1 (1st Cir. 2015), In re Nilsen, 542 B.R. 640 (Bankr. D. Mass. 2015) and Berry v. Massachusetts Department of Revenue, Case No. 15-41218-CJP (Bankr. D. Mass. June 30, 2016).

The full article is available for download on Preti Flaherty's website.