Warner et al v. CitiFinancial, Inc.
OPINION AND ORDER affirming the Memorandum of Decision and Order of the Bankruptcy Court dated March 4, 2011. Signed by Chief Judge Christina Reiss on 7/12/2011. (pam)
U.S. DISHHCT COURy'.
DISTRICT Of \if:':l:HON
UNITED STATES DISTRICT COURT
DISTRICT OF VERMONT
ZOI t JUL 12 AM 10: 07
DEPUT Y CLERK
CHRISTOPHER B. WARNER and
RUTH E. WARNER,
Chapter 13 Case No. 10-11089
Adversary Proceeding No.1 0-1043
CHRISTOPHER B. WARNER and
RUTH E. WARNER,
Case No.5: l1-cv-l 05
OPINION AND ORDER
AFFIRMING MEMORANDUM OF DECISION AND ORDER
OF THE BANKRUPTCY COURT
(Docs. 1-1, 3-5)
Plaintiffs-Appellants Christopher B. Warner and Ruth E. Warner ("the Warners")
appeal the Memorandum of Decision of the United States Bankruptcy Court for the
District of Vermont, dated March 4,2011, which granted Defendant-Appellee
CitiFinancial, Inc.'s motion to dismiss the Warners' adversary proceeding which
challenged the validity of their mortgage. (Doc. 1-3.) The parties completed their filings
on June 6, 2011. This court has jurisdiction to hear this appeal pursuant to 28 U.S.C. §
158(a)(1), and heard oral argument on the appeal on June 28,2011.
The Warners are represented by Michelle M. Kainen, Esq. CitiFinancial is
represented by Andrew S. Cannella, Esq.
Factual and Procedural Background.
The Warners are married debtors in the underlying Chapter 13 case. On March 29,
2005, they executed and delivered to CitiFinancial a mortgage to certain real estate owned
by Christopher Warner located at 458 Tigertown Road, West Hartford, Vermont. The
mortgage identifies Christopher B. Warner as the "Borrower" and secures a promissory
note executed only by him. The mortgage is signed by both Christopher B. Warner and
Ruth E. Warner, and their signatures are witnessed. However, only Mr. Warner's
signature is acknowledged. On April 1, 2005, the mortgage was recorded in the Town of
Hartford, Vermont land records.
On October 18,2010, the Warners initiated an adversary proceeding, seeking to
avoid the mortgage lien under 11 U.S.C. § 522 on the grounds that their mortgage is null
and void under 27 V.S.A. § 141 which requires an owner's spouse to join in a conveyance
of a homestead interest, and the acknowledgment of such conveyance, in order for it to be
operative. CitiFinancial moved to dismiss the adversary proceeding, asserting that the
Warners' challenge to their mortgage was filed beyond the three year deadline for such
actions set forth in 27 V.S.A. § 348(b). The Bankruptcy Court agreed, and granted the
motion to dismiss.
Both before the Bankruptcy Court and on appeal, the Warners assert that their
challenge to their mortgage's validity is governed by 27 V.S.A. § 348(a), which they claim
governs missing acknowledgments and imposes a fifteen year deadline for a challenge,
rather than § 348(b)(1), which governs defective acknowledgments and imposes a three
Analysis and Conclusions of Law.
On appeal from a motion to dismiss, the Bankruptcy Court's findings of fact are
upheld unless clearly erroneous. See Fed. R. Bankr. P. 8013. Its conclusions oflaw are
reviewed de novo. See Official Comm. of Unsecured Creditors v. Mfrs. & Traders Trust
Co. (In re Bennett Funding Group, Inc.), 146 F.3d 136, 138 (2d Cir. 1998) (citation
27 V.S.A. § 341(a) requires a mortgage to be signed by the party granting it and
acknowledged by the grantor before a town clerk, notary public, master, county clerk,
judge, or register of probate. Pursuant to Vermont law, a "deed that is improperly ...
acknowledged is invalid." Lakeview Farm, Inc. v. Enman, 166 Vt. 158, 164,689 A.2d
1089, 1093 (1997) (citation omitted).
In 1977, the Vermont Legislature enacted 27 V.S.A. § 348 which allowed certain
defects in "instruments of writing" to be cured with the passage of time:
When an instrument of writing shall have been on record in the office of the
clerk in the proper town for a period of 15 years, and there is a defect in the
instrument because it omitted to state any consideration therefor or was not
sealed, witnessed, acknowledged, validly acknowledged, or because a license
to sell was not issued or is defective, the instrument shall, from and after the
expiration of 15 years from the filing thereof for record, be valid.
27 V.S.A. § 348(a). In 2007, the Vermont Legislature amended Section 348 to include
subsections (b) through (d). Subsection (b), which is at issue here, provides:
Notwithstanding subsection (a) of this section, any deed, mortgage, lease,
power of attorney, release, discharge, assignment, or other instrument made
for the purpose of conveying, leasing, mortgaging, or affecting any interest
in real property which contains anyone or more ofthe following errors is
valid unless, within three years after the instrument is recorded, an action
challenging its validity is commenced, and a copy of the complaint is
recorded in the land records of the town where the instrument is recorded:
(1) The instrument contains a defective acknowledgment.
(2) [The instrument fails to disclose the authority of the individual who
executes and acknowledges the instrument on behalf of a corporation or
other business entity].
(3) The instrument contains an incorrect statement of the date of execution,
or contains an execution date, or other date that is later than the date of
the recording. In case of such conflict, the date of recording prevails.
(4) The instrument does not contain a statement of consideration.
27 V.S.A. § 348(b) (emphasis supplied).
In granting CitiFinancial's motion to dismiss, the Bankruptcy Court concluded that
"a reasonable and straightforward reading of the statute leads to the conclusion that the
term 'defective acknowledgment' in § 348(b) includes the defects listed in § 348(a)."
Warner v. Citifinancial, Inc. (In re Warner), 446 B.R. 651, 655 (Bankr. D. Vt. 2011). The
Warners argue that the Bankruptcy Court's interpretation of § 348 "impermissibly
expanded the definition of 'defective acknowledgment,' as provided for in 27 V.S.A. §
348(b)( 1), to include absent acknowledgments, where absent acknowledgments were
specifically provided for under 27 V.S.A. § 348(a)." (Doc. 3 at 2.)1
The Vermont Supreme Court has not addressed the proper interpretation of 27
V.S.A. § 348. Acknowledging that the "paramount goal in statutory construction is to give
effect to the intent of the [L]egislature," Gallipo v. City ofRutland, 173 Vt. 223, 235, 789
A.2d 942,951 (2001), this court must "look first to the statute's language," and "enforce
the plain meaning of the statutory language where the Legislature's intent is evident from
it." In re Appeal ofCarroll, 2007 VT 19, ~ 9,181 Vt. 383, 925 A.2d 990 (citations
omitted). "In determining legislative intent, [the court] look[ s] beyond the language of a
particular section, standing alone, to the whole statute, the subject matter, its effects and
consequences, and the reason and spirit of the law." In re Wal-Mart Stores, Inc., 167 Vt.
75, 84, 702 A.2d 397, 403 (1997) (internal quotation marks and citation omitted). The
court must "read the sections of [a] statute together as a harmonious whole." In re Soon
Kwon, 2011 VT 26,
17, 19 A.3d 139 (citation omitted), and, if necessary, consider other
"general rules of statutory construction [such as] that a specific statute governs over a more
general one, and that a statute enacted later in time generally governs over an earlier
statute." Hartford Bd. ofLibrary Trustees v. Town ofHartford, 174 Vt. 598, 599,816
A.2d 512, 515 (2002) (citations omitted).
Application of the foregoing principles to 27 V.S.A. § 348 reveals that the
Bankruptcy Court correctly interpreted § 348(b) as requiring the Warners' challenge to the
the Warners' mortgage is not missing an acknowledgment; it contains an
acknowledgment which is incomplete as it fails to include both spouses.
validity of their mortgage to be brought within the three year period. Because it was not,
the Warners' adversary proceeding was properly dismissed.
Reading 27 V.S.A. § 348 as a whole and examining its effects and consequences, it
is clear that in amending the statute to include subsection (b), the Vermont Legislature
sought to provide an earlier cure for certain types of defective instruments involving title to
real property. It did so by imposing an affirmative burden upon those challenging the
validity of such instruments to file an action within three years of recordation, and to
provide notice of their challenge to title searchers. See 27 V.S.A. 348(b). This
requirement has the salutary effect of requiring an identification of defects that may affect
the title to real property at a time when the ability to cure such defects through corrective
instruments and other means may still be available.'
Section 348(b) imposes two conditions precedent to the imposition of the three year
period. First, the instrument must be one that "affect[s] any interest in real property" and
specifically includes a "mortgage." See 27 V.S.A. § 348(b). Second, it identifies four
types of "errors" which are subject to the three year period including a "defective
acknowledgement." Under Vermont law, an acknowledgment that is invalid in some vital
respect is treated the same as an acknowledgment that is missing. See Sensenich v. Homeq
Servicing Corp. (In re Eaton), 2006 WL 2645179, at *3 (Bankr. D. Vt. Sept. 14, 2006)
("Without the statutory requirement of acknowledgement being met, the Mortgage is
defective[.]"); Lakeview Farm, 166 Vt. at 164,689 A.2d at 1093 (a "deed that is
improperly witnessed and acknowledged is invalid."); see also 2 Patton & Palomar on
Land Titles § 356 (3d ed.) ("If the acknowledgement is lacking or is invalid, the record is
an insufficient link in the chain oftitle, unless it has been legalized by a curative act,
because ... it does not constitute constructive notice[.]") (footnotes omitted).
In contradistinction to the fifteen year period, it may reasonably be anticipated that both grantors
and grantees to a real property transaction will be available for corrective action within three years
after recordationof a conveyance. Moreover, each of the identified "errors" subject to the three
year deadline is one that may be corrected by the parties to the conveyance without the necessity
of judicial intervention.
Had the Vermont Legislature chosen in § 348(b) to treat differently the various
ways in which an acknowledgment may be defective, it could have done so. Instead, it
chose to impose the three year period with regard to an acknowledgment that is defective
in any respect. The plain language of the statute supports this conclusion. Section 348(a)
defines a "defect in [an] instrument" to include one that is either "not ... acknowledged"
or "not ... validly acknowledged." The statute, itself, thus refutes the Warners' argument
that there is a fundamental difference between a missing acknowledgment and an invalid
acknowledgment as § 348(a) identifies both as a "defect in [an] instrument." Indeed, §
348(b) clearly signals the Vermont Legislature's intention to include § 348(a) defects
within the "errors" identified in § 348(b). Section 348(b) provides that its three year cure
period for specified instruments exists "[n]otwithstanding subsection (a)[.]" 27 V.S.A. §
Accordingly, pursuant to 27 V.S.A. 348(b), the Warners' mortgage became valid
three years after recordation notwithstanding its defective acknowledgment, and the
Warners did not challenge its validity within that time frame. There was thus no basis for
avoiding the mortgage under 11 U.S.C. § 522 and the Warners' adversary proceeding
seeking that relief was properly dismissed.
This, in tum, comports with the ordinary meaning of a "defect." See Black's Law Dictionary
481 (9th ed. 2009) (defining "defect" as "[a]n imperfection or shortcoming"); see also The
American College Dictionary 363 (3d ed. 1993) (defining "defect" as "[t]he lack of something
necessary or desirable for completion or perfection.").
For the foregoing reasons, this court AFFIRMS the decision and order of the
Bankruptcy Court granting CitiFinancial's motion to dismiss.
Dated at Rutland, in the District of Vermont, this
day of July, 2011.
istina Reiss, Chief Judge
United States District Court
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