In Rogan v. U.S. Bank, N.A. (In re: Partin), Adv. No. 14-5015 (E.D. Ky., Sept.9, 2014), a bankruptcy case in the Eastern District of Kentucky, the bankruptcy trustee sought to avoid three mortgages filed on the debtor’s property in Jessamine County. The trustee argued that the mortgages were invalid because the bank had not properly recorded them. Specifically, the trustee pointed out that the mortgages, which were identical form documents, did not include the date of the underlying note as required by Kentucky’s recording statute. See Ky. Rev. Stat. § 382.330. The mortgages did include the date of the maturity of the note, but they did not include the date of the note itself. Because § 382.330 specifically states that both “the date and the maturity of the obligations thereby secured” must be included, the Court agreed with the trustee. The Court held that the mortgages did not comply with the plain language of the statute and were therefore not recordable when filed with the clerk, even though the clerk accepted them for filing.
The Court rejected the bank’s fallback argument that the mortgages should have served as constructive notice of the debt to any other creditor, including the trustee. The Court explained that “Kentucky courts have long recognized that constructive notice does not arise with respect to instruments that are not authorized by law for recording but are nevertheless legally acknowledged and filed of record.” The Court further noted that the legislature recently amended another mortgage recording statute (KRS § 382.270) to provide that an improperly acknowledged mortgage that was filed of record would serve as constructive notice of its contents. However, notably, a similar change has not been made in KRS § 382.330.
This opinion should prompt lenders to review any form documents they routinely use for mortgage transactions to ensure that their mortgage forms include both the execution date and the maturity date of the note secured by the mortgage. Amendments are likely necessary for any mortgages previously accepted by the clerk that do not include both dates.
For additional information, please contact KDDK attorney Michael E. DiRienzo at (812) 423-3183 or mdirienzo@KDDK.com, or any member of the KDDK Creditors’ Rights & Collections Practice Team.