United States Court of Appeals For the First Circuit No. 16-1465

IN RE: SAFINA N. MBAZIRA,

Debtor.

___________________

U.S. BANK, N.A., as Trustee of the J.P. Morgan Mortgage Acquisition Corp. 2005-FRE1 Asset Backed Pass-through Certificates, Series 2005-FRE1,

Appellant,

OCWEN LOAN SERVICING, LLC,

Defendant,

v.

JOHN O. DESMOND, Chapter 11 Trustee of the Estate of Safina N. Mbazira,*

Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Indira Talwani, U.S. District Judge]

Before

Howard, Chief Judge, Thompson and Kayatta, Circuit Judges.

* John O. Desmond, Chapter 11 Trustee of the Estate of Safina N. Mbazira, has been substituted as appellee for Safina N. Mbazira. Jason A. Manekas, with whom Bernkopf Goodman LLP was on brief, for appellant. David G. Baker for appellee.

October 1, 2021 HOWARD, Chief Judge. This appeal arises out of an

adversary action filed in a Chapter 11 proceeding in the Bankruptcy

Court for the District of Massachusetts. The subject of the action

is a mortgage granted by the debtor, Safina Mbazira, and held by

U.S. Bank, N.A. Under the so-called "strong arm" provision of the

Bankruptcy Code,

, the bankruptcy court allowed

Mbazira to void the mortgage because the certificate of

acknowledgement accompanying it failed to state that Mbazira

signed the mortgage as her free act and deed. After the district

court affirmed, U.S. Bank timely appealed. For the following

reasons, on de novo review, we affirm the judgment of the

bankruptcy court.

I.

A.

The facts are undisputed. Mbazira purchased a home in

Waltham, Massachusetts in July 2005, which she financed through

two mortgages. This matter only concerns the first, which had an

initial principal of $528,000. Under Massachusetts law, a mortgage

must include a "certificate of acknowledgment," signed before a

notary public or similar official, that the grantor has voluntarily

signed the mortgage instrument. See McOuatt v. McOuatt,

(Mass. 1946);

. Although

a notarized certificate of acknowledgment accompanied Mbazira's

mortgage, the space for her name was left blank. Mbazira's

- 3 - handwritten initials, however, do appear on the bottom of the

page.1

The original mortgagee -- Mortgage Electronic

Registration Systems -- assigned its interest to U.S. Bank in 2008.

Both mortgagees registered their interests with Massachusetts'

Land Court.2 In September 2013, U.S. Bank initiated pre-

foreclosure proceedings against Mbazira and obtained an "Order of

Notice" from the Land Court, which was registered the following

month. The original interest in the mortgage, U.S. Bank's current

interest, and the pre-foreclosure Order of Notice each appear on

the Certificate of Title in the Land Court registration.

B.

Two months after U.S. Bank initiated the pre-foreclosure

proceedings, Mbazira filed for Chapter 11 bankruptcy. The

petition identified the mortgage at issue here as "unliquidated"

and "disputed" with a claim amount of $564,700. Mbazira then

commenced an adversary proceeding against U.S. Bank, seeking to

"avoid" the mortgage because her name is missing from the

certificate of acknowledgment. See

, 544, 551.

1The year was also left blank, but the parties do not make any arguments regarding this omission. 2 Massachusetts' Land Court, as its name implies, hears "cases involving real estate and land use, and oversees the Commonwealth's system for the registration of title to real property." Land Court, Mass.gov, https://www.mass.gov/orgs/land- court.

- 4 - Under the Bankruptcy Code, a mortgage may be avoided if a

hypothetical bona fide purchaser of the mortgaged properly would

not be charged with constructive notice of the mortgage. In re

Daylight Dairy Products, Inc.,

(Bank. D. Mass. 1991)

(citing

(a)). The effect of avoidance is to render

the debt unsecured, leaving the creditor to stand at the end of

the line with other unsecured creditors in sharing unencumbered

assets of the debtor.

U.S. Bank sought to dismiss the adversary proceeding.

It advanced two arguments: The recording of a mortgage with such

a defect was effective to provide constructive notice of the

mortgage; and, in any event, registration of the mortgage provided

sufficient notice to subsequent bona fide purchasers. In the

alternative, U.S. Bank asked the bankruptcy court to certify to

Massachusetts' highest court the questions concerning the effect

of the missing name.

The bankruptcy court denied both U.S. Bank's motion to

dismiss and its request to certify any questions to the

Massachusetts Supreme Judicial Court ("SJC"). In re Mbazira,

, 23–24 (Bankr. D. Mass. 2014). It held that the incomplete

certificate of acknowledgment was materially defective under

Massachusetts law and that, therefore, third parties do not have

constructive notice of the encumbrance on the property.

. The court then invited Mbazira to file a motion for judgment

- 5 - on the pleadings, which became a motion for summary judgment once

additional documents were appended. Following its prior ruling,

the court granted the Mbazira's motion and allowed her to avoid

the mortgage. In re Mbazira, No. 13-16586-WCH,

,

at *1 (Bankr. D. Mass. Mar. 31, 2015).

With Mbazira's debt to U.S. Bank rendered unsecured and

its priority wiped away, U.S. Bank appealed to the district court,

which concurred with the bankruptcy court. We review the

bankruptcy court's decision directly, despite the intermediate

district-court decision. In re Sheedy,

(1st Cir.

2015). We assess the bankruptcy court's factual findings for clear

error and its legal conclusions de novo.

II.

Section 544 of the Bankruptcy Code -- known as the

"strong arm" clause -- permits a trustee3 to "avoid . . . any

obligation incurred by the debtor that is voidable by" a real or

hypothetical bona fide purchaser, regardless of any actual

knowledge of the obligation by the trustee.

(a)(3).

Thus, the trustee can only void a mortgage obligation if it did

not have constructive notice of the encumbrance. Under

Massachusetts law there are two methods for giving constructive

3

(a) gives Mbazira, as the debtor-in- possession, the same rights as a "trustee."

- 6 - notice to the world of a mortgage on real property: One can either

properly record the mortgage in the registry of deeds,

,4 or one can register the mortgage with the Land

Court, which provides the same notice to third parties as if it

were recorded,

U.S. Bank argues

that the mortgage here was properly recorded, and, if not, it was

nevertheless registered with the Land Court, which alone provides

the required notice. We take each contention in turn.

A.

As mentioned, a properly recorded mortgage provides

notice of a security interest, but a recording is not effective -

- indeed is literally barred under Massachusetts law -- unless

there is a certificate of acknowledgment or proof of its due

4

, states: "A conveyance of an estate . . . shall not be valid as against any person, except the grantor or lessor, his heirs and devisees and persons having actual notice of it, unless it . . . is recorded in the registry of deeds." 5

, states:

Every conveyance, lien, attachment, order, decree, instrument or entry affecting registered land, which would under other provisions of law, if recorded, filed or entered in the registry of deeds, affect the land to which it relates, shall, if registered, filed or entered in the office of the assistant recorder of the district where the land to which such instrument relates lies, be notice to all persons from the time of such registering, filing or entering.

- 7 - execution attached,

As explained

by the SJC, Massachusetts law requires the grantor to "acknowledge

that [he or she] has executed the instrument as [his or her] free

act and deed," and the statute requires that "a certificate

reciting that the grantor appeared before the officer making the

certificate and made such acknowledgment . . . be attached to the

instrument in order to entitle it to be recorded." Bank of Am.,

N.A. v. Casey,

(Mass. 2016) (quoting McOuatt,

); see also

(specifying the requirements for a certificate of acknowledgment).

Here, there is no certificate "reciting that [Mbazira]

appeared before the officer . . . and made such acknowledgement."

Bank of Am., 52 N.E. at 1035. There is, in fact, no certificate

reciting that anyone made any such acknowledgement because the

name was left blank. As the bankruptcy court observed, the plain

language of Massachusetts law, therefore, seems to render any

recording of this mortgage ineffective because it does not contain

a proper certification of acknowledgement. See In re Mbazira,

.

6

, states: "No deed shall be recorded unless a certificate of its acknowledgment or of the proof of its due execution, made as hereinafter provided, is endorsed upon or annexed to it, and such certificate shall be recorded at length with the deed to which it relates . . . ."

- 8 - U.S. Bank nevertheless contends that the omitted name

does not preclude recording from giving constructive notice of the

mortgage. It is true that Massachusetts law does not definitively

deem such a defect material.7 But the weight of precedent leans

decidedly in favor of strictly construing the statutory

requirement for certificates of acknowledgment. The bankruptcy

courts applying Massachusetts law have adhered to an

7 A review of rulings on a similar issue in other jurisdictions reveals no consensus on the matter:

At least nine state jurisdictions have held that the omission of the mortgagor's name is not a material defect. See Farm Bureau Fin. Co., Inc. v. Carney,

(Idaho 1980); Gardner v. McAlester,

(1946); Fahey v. Ottenheimer,

(N.Y. App. Div. 1927); Larson v. Elsner,

(Minn. 1904); Milner v. Nelson,

(Iowa 1892); Wilcoxon v. Osborn,

(1883); Magness v. Arnold,

(1876); Sanford v. Bulkley,

(1862); Pickett v. Doe,

(1845). Two states have validated certificates of acknowledgment where the notary block included the wrong name. See Edenfield v. Wingard,

(Fla. 1956) (en banc); Coates v. Smith,

(Or. 1916).

By contrast, at least five state jurisdictions have found that this type of omission does constitute a material defect. See Seale Motor Co. v. Stone,

(S.C. 1950) (predicting that the omission would be material under either Kentucky or South Carolina law); Thomas v. Davis,

(Ala. 1941); Merritt v. Yates,

(1874); Buell v. Irwin,

(1871); Smith's Lessee v. Hunt,

(1844). The Sixth Circuit has predicted that Tennessee would also view this omission as a material defect. See In re Biggs,

(6th Cir. 2004) (applying Tennessee law).

We note that federal bankruptcy courts in Ohio, a state with a land registration system, have permitted trustees to avoid mortgages with this very defect. See, e.g., In re Goheen, 739 (Bankr. S.D. Ohio 2012), aff'd, No. 10-16427,

(S.D. Ohio July 6, 2012).

- 9 - interpretation that requires strict formality in the execution of

mortgage acknowledgments. See, e.g. In re Reznikov,

(Bankr. D. Mass. 2016) (holding that a certificate of

acknowledgment that merely stated that the debtor "duly

acknowledged" that she executed the mortgage but did not indicate

that the execution was voluntary or her "free act and deed" was

materially defective under state law), aff'd,

(D.

Mass. 2017); see also In re Shubert,

(Bankr. D.

Mass. 2015) (same, but acknowledgment lacked even the "duly

acknowledged" language). And the bankruptcy courts have

specifically viewed certificates missing the debtor's name to be

materially defective under Massachusetts law. See In re Giroux,

No. 08-14708-JNF,

, at *8 (Bankr. D. Mass. May 21,

2009) (not reported) (predicting "that the Massachusetts Supreme

Judicial Court would view the omission of the Debtor's name from

the acknowledgment as a material defect in the acknowledgment of

the Debtor's signature on the mortgage document"), aff'd sub nom.

Mortg. Elec. Registration Sys., Inc. v. Agin, No. 09-CV-10988-PBS,

(D. Mass. Nov. 17, 2009); see also In re Bower,

No. 10-10993-WCH,

, at *5 (Bankr. D. Mass. Oct. 13,

2010) (adopting Giroux's reasoning and noting that "[m]ortgage

acknowledgments must be strictly executed in the manner proscribed

by Massachusetts law or they are invalid."). Indeed, the SJC

itself has twice declined an opportunity to question the presumed

- 10 - ineffectiveness of a missing name on a certificate of

acknowledgment. See Bank of Am.,

; McOuatt,

.

This is not to say that the case law requires any

specific magic words. As the Massachusetts Supreme Judicial Court

explained, "[n]o particular words are necessary as long as they

amount to an admission that [the grantor] has voluntarily and

freely executed the instrument." McOuatt,

; see

also In re Demore,

(1st Cir. 2018).8 Here

though no words on this certificate indicate who has voluntarily

and freely executed the instrument.

All in all, we see no good reason to resist the momentum

of this precedent, even recognizing that it is not binding or

definitive, particularly because the statutory text appears quite

clear. This sort of defect is also quite easily avoided in the

first instance by the mortgagee at the time the mortgage is

granted, or even thereafter. See Bank of Am., 52 N.E.3d at 1039–

40 (explaining that an "affidavit filed and recorded . . . that

supplies the omitted names of the mortgagors, explains the

8 We have published one other opinion in this subject area, but it concerns Vermont law. In that case we strictly construed Vermont's acknowledgment requirements, finding that a certificate of acknowledgment signed by only one of two required witnesses was materially defective and thus the debtor could avoid the mortgage in bankruptcy. In re Ryan,

(1st Cir. 1988).

- 11 - circumstances of the omission, and confirms that in fact the

affiant did witness the voluntary execution of the mortgage by the

mortgagors on the date stated operates to cure the original defect

in the acknowledgment"). We see no reason to, in effect, eliminate

an express requirement that the Massachusetts legislature has

specified as a condition for proper recording. Accordingly, we

conclude that the recording of the mortgage was not effective to

give constructive notice to third parties. Bank of Am., N.A. v.

Casey,

(2016).

B.

Having found that the attempted recording of the

mortgage did not give constructive notice of its existence, we

turn to U.S. Bank's alternative argument that effective notice was

given by registering the mortgage with the Land Court. That

argument finds no ready toehold in Massachusetts' statutes. U.S.

Bank notes that

, provides that "[t]he

original certificate" of title "shall be conclusive as to all

matters contained therein, except as otherwise provided in this

chapter." U.S. Bank then directs us repeatedly to

, in which the Massachusetts legislature provides

that registration of a lien in the proper district "be notice to

all persons," but that notice applies only to liens which, "if

recorded, filed or entered in the registry of deeds, affect the

land to which it relates." And, as we have just explained,

- 12 - Massachusetts law bars the recording of any deed -- and nowhere

excludes mortgage deeds -- without a proper certificate of

acknowledgement.

In short, as

the bankruptcy court concluded, Massachusetts law "incorporates

the filing standards for recorded land," including the

acknowledgment requirement, "into the land registration system as

the condition for the act of registration to be notice to third

parties." In re Mbazira,

.

This interpretation is supported by the Land Court

Guidelines on Registered Land, which expressly require all deeds

affecting registered land to include a certificate of

acknowledgment. See Commonwealth of Massachusetts Land Court

Guidelines on Registered Land 1 (Rev. Feb. 27, 2009),

http:// www.mass.gov/courts/docs/courts-and-judges/courts/land-court/guidelines-

registered-land.pdf (requiring that deeds, including mortgage deeds,

be acknowledged in accordance with [section] 29) Sept. 20, 2017));

accord Petrozzi v. Peninsula Council, Inc., No. 07-MISC-349279,

, at *16 (Mass. Land Ct. Apr. 14, 2011) (noting

that an instrument "require[s] some manner of acknowledgment

compliant with [section] 30" to be "accepted for registration").

9U.S. Bank makes no argument that a deed can be filed or entered so as to affect the land under section 58 even if it cannot be recorded.

- 13 - U.S. Bank argues that reading section 58 to apply the

rules for recording to the registration scheme "is unsupported and

would usurp the function of the Land Court's registration process."

This argument makes too broad a claim. We are solely concerned

with constructive notice to third parties, not other kinds of

notice or the other functions of the land registration system;

actual notice to individuals who consult the land registry is

unaffected. See In re Woodman,

, 670 n.2 & 673 (Bankr.

D. Mass. 2013). A person who investigated the Certificate of Title

for the property at issue would have gained actual knowledge of

U.S. Bank's interest, but the relevant scenario under the

Bankruptcy Code is that presented by a hypothetical bona fide

purchaser without actual notice. See

(a).

U.S. Bank points to another provision of Massachusetts

law that allows owners of registered land to mortgage it via deed

and states that a registered mortgage will "take effect upon the

title only from the time of registration."

. Into this language U.S. Bank reads an assurance

that registering has an effect, no matter how done. But even

accepting this ambitious reading, we see no conflict with the

notion that the effect will not extend more broadly than making

the mortgage effective as against persons with actual notice.

Relatedly, section 54's admonition that certificates of title are

"conclusive as to all matters contained therein" also concerns

- 14 - actual notice, not constructive notice, contrary to U.S. Bank's

arguments otherwise.

Turning its focus back to the text of section 58,

U.S. Bank argues that "any document which a person could record

that would affect the land would also provide notice once it is

accepted for registration by the Land Court." But, as we have

explained, the mortgage here is not a mortgage that could have

been properly recorded given the absence of a properly executed

certificate of its acknowledgement. See Part II.A., supra;

("No deed shall be recorded unless a

certificate of acknowledgment or the proof of its execution . . .

is endorsed or annexed to it.").

Although U.S. Bank is correct that there is "no dispute

that the Mortgage was accepted by the Land Court for registration

and still appears on the Certificate of Title," those facts do not

create constructive notice to third parties under Massachusetts

law. Contrary to U.S. Bank's implication, "'constructive notice'

is not really 'notice,' as that word is commonly used, at all."

In re Ryan,

(1st Cir. 1988). "Instead,

constructive notice is a positive rule of state law that permits

the prior purchaser to gain priority over a latter purchaser,

regardless of whether the latter purchaser really knows of the

prior purchase."

(emphasis omitted). U.S. Bank makes the

conclusory argument that because the mortgage was accepted by the

- 15 - Land Court and added to the Certificate of Title, this would

"charge" the debtor with "constructive notice." But the only

"positive rule of state law" U.S. Bank can cite is section 58,

which, as discussed, applies the recording requirements to the

land registration scheme. U.S. Bank points to no other statute

that creates a rule for constructive notice to third parties

regarding mortgage documents, and U.S. Bank's argument that a

mortgage accepted for registration "should" provide constructive

notice is best saved for the state legislature.

U.S. Bank's invocation of inquiry notice is also

irrelevant to Mbazira's ability to avoid the mortgage under section

544 of the Bankruptcy Code. "[I]nquiry notice is not entirely

distinct from actual or constructive notice; rather, it is a duty

of a purchaser to conduct a reasonable investigation upon gaining

constructive or actual notice of facts which would make a prudent

person suspicious." In re Ryan,

(emphasis in

original). "Questions of a purchaser's duty, however, are by

definition in the sphere of constructive notice."

(emphasis

in original). And constructive notice is defined by state law,

which in this instance, requires a proper certificate of

acknowledgment. See Mass. Gen. Laws ch. 185 § 58; id. ch. 183

§ 4. Thus, without any constructive notice giving rise to the

- 16 - duty to conduct an investigation, the hypothetical bona fide

purchaser here cannot be charged with inquiry notice.10

III.

Over seven years have passed since the bankruptcy court

issued its first ruling that neither attempted recording nor

registration with the Land Court triggered constructive notice

given the defective certificate. Neither party has suggested that

the bankruptcy court's reasoning has created any significant

problems. As we have already noted, the defect at issue in the

certificate is obvious and readily guarded against by a mortgagee.

For the foregoing reasons, we think it best to leave matters as

they stand. And for the same reasons we see no substantial need

to certify a question to the SJC. We therefore hold that summary

judgment was properly granted for Mbazira because the omission of

Mbazira's name from the certificate of acknowledgement was a

material defect under Massachusetts law. As such, a bona fide

purchaser would not be charged with constructive knowledge of the

instrument, and therefore Mbazira can avoid the mortgage in

bankruptcy.

10U.S. Bank also argues that the mortgage and the certificate of acknowledgment, together in context, comprise a "materially complete" document that complies with state law. But it conceded the omission of Mbazira's name on the certificate of acknowledgment below and did not make this new "comprehensiveness" argument until this appeal. Accordingly, we find that U.S. Bank waived this argument and do not reach it.

- 17 -