Blog Ohio Real Estate Law / 04.04.2016

Ohio UCC Provision Re: Constructive Notice Applies to All Recorded Mortgages, Even With Defective Acknowledgement

On February 16, 2016, the Ohio Supreme Court decided In re Messer, Slip Opinion No 2016-Ohio-510, which addresses the application of ORC 1301.401 to recorded mortgages that were deficiently executed under ORC 5301.01.

This decision was issued at the request of U.S. Bankruptcy Court for the Southern District of Ohio, Eastern Division (the “Bankruptcy Court”), who asked the Ohio Supreme Court (the “Ohio Court”) determine whether ORC 1301.401, which provides that the recording of certain documents provides constructive notice, applies to all mortgages recorded in Ohio and whether 1301.401 provides constructive notice of a recorded mortgage that was deficiently executed under ORC 5301.01.
In this matter, Daren and Angela Messer (the “Messers”) took out a loan in 2007 which was secured by a mortgage. The notary acknowledgement was left blank bringing into doubt whether or not they executed the mortgage in front of a notary. The mortgage containing incomplete notary section was recorded with the Franklin Counter Recorder.  In 2013 the mortgage was assigned to JP Morgan Chase Bank (the “Bank”).
The Messers subsequently filed a Chapter 13 bankruptcy and commenced an adversary proceeding requested that the mortgage be avoided as defectively executed under ORC 5301.01. If successful, the Bank would have lost its secured position.
The Bankruptcy Court in this matter decided that the Ohio Court should make the determination on the application of 1301.401, which is part of Ohio’s Uniform Commercial Code (the “UCC”), to a recorded mortgage that is clearly defectively executed under ORC 5301.01.
ORC 5301,01 provides that a mortgage must be signed by the mortgagor and the execution must be acknowledged by the mortgagor in front of a judge or clerk of court in Ohio, or a county auditor, county engineer, notary public or mayor, who shall certify the acknowledgement and subscribe the official’s name to the certificate of the acknowledgement.
ORC 1301.401(B) provides that the recording with any county recorder of any document described in ORC 1301.401(A)(1) is constructive notice to the whole world the existence and contents of that document as a public record and of the transaction referred to in that public record. ORC 1301.401(C) further provides that any person contesting the validity or effectiveness of any transaction referred to in a public record is considered to have discovered that public record and any transaction referred to in the record as of the time that the record was first tendered to the county recorder for recordation.
The documents described in ORC 1301.401(A)(1) specifically includes documents referenced in ORC 317.08, which expressly references mortgages.
While the Messers argued that 1301.401 only applies to transactions governed by the UCC and shouldn’t apply to mortgages since mortgages are governed by Ohio contract law. The Court disagreed, finding that the statute’s clear language indicated that it applied to any document referenced in ORC 317.08, which included mortgages. Based on the express language in the statute, the Court held that ORC 1301.401 applies to all recorded mortgages.
The Court went on to disagree with the Messers other contentions and further held that the portion of ORC 1301.401 that states the act of recording provides constructive notice to the whole world of the existence and contents of the mortgage document is compatible with provisions of ORC 5301.01 and ORC 5301.23 and the rest of the Ohio Revised Code and the fact that it is part of the UCC and not ORC Chapter 5301 does not prevent it from applying to mortgages.
In conclusion, the Court has clarified that ORC 1301.401 applies to all recorded mortgages, and acts to provide constructive notice to the world of the existence and contents of a recorded mortgage even if it was deficiently executed under ORC 5301.01. This is a win for common sense.
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