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Monday, September 13, 2010

Forgetting to Include a Legal Description in the Mortgage Not Fatal in the Sixth Circuit

Forgetting to Include a Legal Description in the Mortgage Not Fatal in the Sixth Circuit

So does it really make a difference if someone (the closing attorney for your mortgage) messes up and forgets to attach the exact legal description to a mortgage which then gets recorded?  It may depend on how specific the mortgage is in describing the parcel of real property.
Now you would think this was an easy question, but apparently not.  We needed a Sixth Circuit opinion recently issued (and recommended for full publication) to tell us that as long as the property is identified with sufficient precision that you could actually locate it  in real life, the mortgage works as a valid lien on the property.  Thanks to Amy Bower (who represented the winner),  my Managing Partner here in the Columbus office of Plunkett Cooney for sharing this decision with me.
In Argent Mortgage Company, LLC v. Drown, Case No. 08-4508 (6th Cir. August 25, 2009), the Court addressed the question of
whether a recorded mortgage that contains the street address of residential property - but not the legal description - is sufficient to preclude the setting aside of an other-wise mortgage in bankruptcy court.
Judge Hoffman  originally ruled that the Chapter 7 Trustee could avoid the mortgage pursuant to section544(a)(3) of the Bankruptcy Code, relying heavily upon Stubbins v. American General Financial Services, Inc. (In re Easter), 367 B.R. 608 (Bankr. S.D.Ohio 2007), a decision by Judge Preston.  and caselaw discussed in that opinion, Judge Hoffman reasoned:
Under the circumstances of this case, the Court agrees with the Trustee that something more than the street address and permanent parcel number is necessary to provide constructive notice of the Mortgage to a hypothetical good-faith purchaser for value.  This is so because even if a third party had record notice of the existence of this Mortgage, neither the parcel number nor the street address , nor both together, would lead that third party to discover precisely what property is covered by the Mortgage.  Both a street address and a permanent parcel number may refer to a geographic area that contains more or less than what the morgagor intended to encumber.
The district court reversed and the Sixth Circuit upheld the district court's decision.  I agree with the Sixth Circuit in this situation when it notes
Mortgaging part rather than all of a single-dwelling residential subdivision property  is far enough outside the ordinary course of business that a reasonable prospective purchaser should assume that an ambiguous mortgage likely intended to encompass the entire residential lot at issue  

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