In Indiana, as in most states, a mortgage must be properly acknowledged in order to be valid. This means that the notary present at the mortgage closing must make a written statement confirming that the notary witnessed the mortgagors sign the mortgage documents. If the notary acknowledgement is incomplete or improperly formatted, the mortgage is invalid.
Bankruptcy trustees use their powers under 11 U.S.C. § 544 to avoid mortgages that are defective. In 2007, the Indiana legislature passed an amendment to the recording statute that provided mortgages with certain technical defects would be treated as properly recorded mortgages (a ‘curative’ statute). Despite this amendment, bankruptcy trustees continued to file actions to avoid defective mortgages, arguing that the 2007 Amendment only applied to mortgages executed after July 1, 2007, the date of the amendment.
The 7th Circuit Court of Appeals issued a decision on February 19, 2010 that clarified this issue. The Court held that the 2007 Amendment applied to all mortgages, regardless of when they were executed. This is a positive result for creditors. It means that, in cases filed after July 1, 2007, the bankruptcy trustees are unable to avoid mortgages based on technical defects in the notary acknowledgement. This case applies to mortgages filed in the state of Indiana.
If you have any questions, please contact Laura Faulkner at .
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