Bank of America, N.A. v. Casey

Filing

OPINION issued by Jeffrey R. Howard, Chief Appellate Judge; Sandra L. Lynch, Appellate Judge and Rogeriee Thompson, Appellate Judge. Published. [14-2115]

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Date Filed: 06/26/2015

Entry ID: 5918455

United States Court of Appeals
For the First Circuit
No. 14-2115
IN RE: ALVARO M. PEREIRA,
Debtor.
___________________
BANK OF AMERICA, N.A.,
Appellee,
v.
DEBORA A. CASEY, Chapter 7 Trustee for Alvaro M. Pereira,
Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. George A. O'Toole, Jr., U.S. District Judge]

Before
Howard, Chief Judge,
Lynch and Thompson, Circuit Judges.

Adam C. Ponte, with whom Mark S. Foss and Fletcher Tilton PC
were on brief, for appellant.
Mark B. Johnson, with whom Kathleen M. Heyer and Johnson &
Borenstein, LLC were on brief, for appellee.

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LYNCH, Circuit Judge.

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Entry ID: 5918455

The outcome of this federal

bankruptcy case turns on interpretations of two different state
statutes, each of which concerns defects in real estate titles.
In time, those interpretations may affect considerable numbers of
Massachusetts

foreclosure

proceedings.

In

this

case,

those

interpretations affect who will benefit from the estate's real
property assets: a bank, or the debtor's other creditors as
represented by a bankruptcy trustee. For the reasons stated below,
we decide to certify two questions to the Supreme Judicial Court
(SJC) of Massachusetts.
Debora Casey, a Chapter 7 bankruptcy trustee, filed this
action to avoid a mortgage held by Bank of America.
§ 544(a)(3).

11 U.S.C.

The parties both assume that the 2005 mortgage

contains a material defect: the certificate of acknowledgement
does not include the names of the mortgagors.

See Mortg. Elec.

Registration Sys., Inc. v. Agin (In re Giroux), No. 09-CV-10988PBS, 2009 WL 3834002, at *2 (D. Mass. Nov. 17, 2009) (applying
Massachusetts law to conclude that the omission of the mortgagor's
name in the certificate of acknowledgment rendered the mortgage
materially defective). After the mortgage was recorded, the notary
on the mortgage, presumably at the behest of the bank, executed an
affidavit under Mass. Gen. Laws ch. 183, § 5B, later recorded,
attesting that the debtors had signed the mortgage personally and

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voluntarily.

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The debtors went into bankruptcy later that year, in

2012.
The

legal

issues

presented

are

whether,

under

Massachusetts state law, that § 5B affidavit can cure the defective
acknowledgement, or otherwise provide constructive notice to a
bona fide purchaser.

If not, the bankruptcy trustee can avoid the

mortgage under 11 U.S.C. § 544(a)(3).
The state law questions in this case are dispositive,
and they are unresolved by the Massachusetts SJC.
implicate

"significant

resolution

by

the"

policy

SJC.

concerns

Easthampton

better

Sav.

Bank

Springfield, 736 F.3d 46, 48 (1st Cir. 2013).

They also
suited
v.

for

City

of

Accordingly, we

certify the questions for resolution by that court.

See Mass.

S.J.C. R. 1:03.

I.
On December 27, 2005, Alvaro and Lisa Pereira refinanced
their

property

in

New

Bedford,

Massachusetts,

by

granting

a

mortgage to Bank of America in the principal amount of $240,000.
The Pereiras executed the mortgage document, initialing each page.
The document's certificate of acknowledgement, which affirms that
the mortgagors actually executed the documents for the mortgage
"voluntarily for its stated purpose," omitted their names.
document was recorded the next day.
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That

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On January 19, 2012, the attorney who notarized the
mortgage documents recorded an affidavit purportedly executed
pursuant to Mass. Gen. Laws ch. 183, § 5B.

That statute permits

recording of affidavits that "will be of benefit and assistance in
clarifying

the

chain

of

title"

to

certain

land.

Id.

The

affidavit, dated January 11, 2012, states that the attorney had
witnessed the Pereiras' signatures to the mortgage, and that they
signed it voluntarily.

The attorney stated that his omission of

the Pereiras' names from the certificate of acknowledgement was
"inadverten[t]."
Alvaro Pereira filed for Chapter 7 bankruptcy on July
10, 2012.

On September 12, the bankruptcy trustee filed the

complaint in this case, seeking to avoid the mortgage for the
benefit of the bankruptcy estate pursuant to the "strong-arm
provision"

of

11

U.S.C.

§

544(a).

That

provision

allows

a

bankruptcy trustee to preserve the value of a mortgage for the
benefit of the bankruptcy estate if the mortgagee failed to perfect
its claim against a bona fide purchaser.

11 U.S.C. § 544(a)(3).

If the mortgage is voidable by a bona fide purchaser, the trustee
may preserve the avoided mortgage for the benefit of the bankruptcy
estate.

Id. §§ 544(a), 551; see also DeGiacomo v. Traverse (In re

Traverse), 753 F.3d 19, 27-28 (1st Cir. 2014).
Bank of America moved for summary judgment in bankruptcy
court on April 16, 2013, and the Trustee filed an opposition and
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cross-motion for summary judgment on May 31.1

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The bankruptcy court

found in favor of the Trustee on June 21, 2013.

In its view, the

mortgage was defective, the defect had not been cured, and so the
Trustee could avoid the mortgage.

Though the court believed such

a defect is curable, the court was not convinced that the bank
"can just file [an] attorney's affidavit which solves the problem
of a defective acknowledgement."

It pointed out that there was a

statute, Mass. Gen. Laws ch. 184, § 24, which it read to explicitly
provide a procedure for curing defects in title, including a
defective

certificate

of

acknowledgement,

and

that

statutory

procedure had not been used.
On September 26, 2014, the district court reversed. Bank
of Am., N.A. v. Casey, 517 B.R. 1 (D. Mass. 2014).

It held that

the affidavit was properly filed under Mass. Gen. Laws ch. 183, §
5B.

Id. at 3.

In its view, the affidavit "performed all the

necessary functions of a proper acknowledgement" and cured the
defective mortgage.

See id. at 5.

This appeal followed.

II.
The SJC permits a federal court to certify questions of
state law that are "determinative of the cause then pending in the
certifying court" but for which there is no controlling precedent

1

The debtor is not participating in this case.
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by the SJC. Easthampton Sav. Bank, 736 F.3d at 50 (quoting Mass.
S.J.C. R. 1:03); see also, e.g., Ins. Co. of Pa. v. Great N. Ins.
Co., ___ F.3d ___, 2015 WL 3440342, at *1 (1st Cir. May 29, 2015);
Bos. Gas Co. v. Century Indem. Co., 529 F.3d 8, 23-24 (1st Cir.
2008).

Such is the case here.2

A. Determinative Questions of State Law
Though it is an open question of Massachusetts law, Bank
of America does not argue that the defective mortgage document,
standing alone, was enough to prevent the Trustee from avoiding
the mortgage.

Casey, 517 B.R. at 3; see In re Giroux, 2009 WL

3834002, at *2.

Rather, the bank makes two arguments in reliance

on the § 5B attorney affidavit: that the affidavit cured the defect
in the mortgage, and that, in any event, the affidavit provided
"constructive notice" as good against a bona fide purchaser, and
so as good against the Trustee.

Under 11 U.S.C. § 544, the Trustee

may avoid mortgages voidable by "a bona fide purchaser of real
property."

Id. § 544(a)(3).

Each of these arguments presents a

question of Massachusetts law.3

2

At oral argument, the parties agreed to the court's proposal
of certification. See Easthampton Sav. Bank, 736 F.3d at 50 n.4.
We subsequently afforded them an opportunity to propose language
for the certification questions.
3

The bona fide purchaser provision "is generally dependent
on the substantive law of the state governing the property in
question." Bankruptcy Law Manual § 9A:7 (5th ed. 2015); see SotoRios v. Banco Popular de P.R., 662 F.3d 112, 116 (1st Cir. 2011)
("[T]he bankruptcy trustee is vested with the status of a
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First, the bank argues that the affidavit was within the
authority of a state statute to cure the defect in the mortgage.
Section 5B of chapter 183 of the Massachusetts General Laws
provides the following:
Subject to section 15 of chapter 184, an
affidavit made by a person claiming to have
personal knowledge of the facts therein stated
and containing a certificate by an attorney at
law that the facts stated in the affidavit are
relevant to the title to certain land and will
be of benefit and assistance in clarifying the
chain of title may be filed for record and
shall be recorded in the registry of deeds
where the land or any part thereof lies.
The parties agree that the affidavit satisfies most of
§ 5B's requirements, but they disagree over whether it "will be of
benefit and assistance in clarifying the chain of title."

The

district court concluded that "[w]ith the filing of the new
affidavit, all things necessary required for proper recording were
in place . . . ." Casey, 517 B.R. at 5.

hypothetical bona fide purchaser of real property, and may
ordinarily avoid any transfer of the property or obligation of the
debtor to the extent allowed under state law."); see also, e.g.,
Crane v. Richardson (In re Crane), 742 F.3d 702, 706 (7th Cir.
2013); Argent Mortg. Co. v. Drown (In re Bunn), 578 F.3d 487, 48889 & n.1 (6th Cir. 2009); Hamilton v. Wash. Mut. Bank FA (In re
Colon), 563 F.3d 1171, 1174 (10th Cir. 2009). Accordingly, whether
a subsequent purchaser would have constructive notice of the
Pereiras' mortgage, such that it would be good against the
purchaser and is good against the Trustee, is an issue of
Massachusetts law. The parties do not argue to the contrary.
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The Trustee argues that a ch. 183, § 5B, affidavit cannot
cure the defect for two reasons.

First, she argues that because

the underlying mortgage document is defective, there is no transfer
of title to be "clarified" by an affidavit within the meaning of
the statute.

Cf. Eaton v. Fed. Nat'l Mortg. Ass'n, 969 N.E.2d

1118, 1133 n.28 (Mass. 2012) (suggesting that a mortgage holder
could use a § 5B affidavit to prove its authority to conduct a
foreclosure sale by showing "that it either held the note or acted
on behalf of the note holder at the time" of sale).
a

§

5B

affidavit

is

available

to

"cure"

To the extent

defects

through

"clarification," she also argues that the "clarify" language means
that § 5B affidavits are only available to cure de minimus defects
like scrivener's errors, not material ones.
Second, the Trustee reads a different statute, Mass.
Gen. Laws ch. 184, § 24, to provide two methods for curing a
defective acknowledgement in an instrument conveying an interest
in land: (a) after "ten years elapses after the instrument is
accepted for record," or (b) if "a proceeding is commenced on
account of the defect . . . and notice thereof is duly recorded."
Since the Trustee reads § 24 to explicitly provide a means to
resolve a situation like this one, she argues that it must be the
sole means of doing so, and that a § 5B affidavit is inadequate.4

4

We are aware of no Massachusetts law on point deciding
whether the latter clause of § 24 is better read to provide a
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The bank replies that § 5B affidavits can cure both
substantive and technical defects in the mortgage note, and that
its use in this case cannot be distinguished from Eaton.

The bank

also argues that § 24 is simply a statute of repose, not "the
prescription of a method for curing defects in instruments of
title."

Casey, 517 B.R. at 4 (agreeing with that argument).
Determining whether a § 5B affidavit can cure a defective

mortgage acknowledgement is an issue of state law that turns on
the interpretation of two state statutes, § 5B and § 24.
The bank's alternative argument is that the affidavit
makes the Trustee chargeable with constructive notice of the
mortgage.5

In general, "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."

Stern v. Cont'l Assurance

Co. (In re Ryan), 851 F.2d 502, 506 (1st Cir. 1988) (emphasis
deleted).

remedy to cure any defect, or to state that a defective instrument
is not made effective by the ten-year period of repose if a
proceeding to escape the obligation was initiated before the
passage of ten years.
5

Bank of America does not argue that the Trustee is bound by
the mortgage because it had actual knowledge of the mortgage. See
11 U.S.C. § 544(a) (explaining that the trustee may avoid certain
transfers of property and obligations "without regard to any
knowledge of the trustee or of any creditor").
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Anyone purchasing the New Bedford property would have
discovered the affidavit and mortgage, the bank argues, thereby
receiving notice of the mortgagee's claim.

The affidavit itself

identifies the parties, the amount of the loan, and the address of
the property.

The district court agreed, observing that the

affidavit "performed all the necessary functions of a proper
acknowledgement"
mortgage

and

under
affirmed

Massachusetts
that

acknowledgement voluntarily.

the

law:

it

identified

the

executed

the

Pereiras

Casey, 517 B.R. at 5.

On appeal, the Trustee argues that the affidavit cannot
provide constructive notice because it is outside the chain of
title.

The defective mortgage alone cannot provide constructive

notice, because it cannot be legally recorded. See Allen v. Allen,
16 N.E.3d 1078, 1084-85 (Mass. App. Ct. 2014) (citing Graves v.
Graves, 72 Mass. 391, 392-93 (1856)).

If a defective mortgage

cannot provide constructive notice of itself, the Trustee argues,
an affidavit that merely references a defective mortgage cannot
provide constructive notice.

See In re Ryan, 851 F.2d at 511-12

(holding that a properly recorded mortgage assignment could not
cure a defectively recorded mortgage because it was not within the
chain of title, and so could not provide constructive notice of
either); Mbazira v. Ocwen Loan Servicing, LLC (In re Mbazira), 518
B.R. 11, 22-23 (Bankr. D. Mass. 2014) (holding that a certificate

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of title noting a mortgage cannot provide constructive notice of
the mortgage).
The outcome of these two state law arguments will control
the case.

If a § 5B affidavit can cure a defect in a mortgage's

certificate of acknowledgement, or if it can provide constructive
notice to a subsequent purchaser, the Trustee cannot avoid the
mortgage under her 11 U.S.C. § 544(a)(3) strong-arm powers.

If

the affidavit is not able to perform either of those functions,
the Trustee can avoid the mortgage.
B. Controlling SJC Precedent and Other Considerations
The parties have not suggested that Massachusetts courts
have given reasonably clear guidance -- much less determinative
precedent -- on how we should resolve these questions.

Most of

the cases the parties cite to us are decisions of federal courts.
In considering whether we should nonetheless "make[e] an
'informed prophecy'" rather than certify the question to the SJC,
we are mindful of the risks of an erroneous decision.

Ins. Co. of

Pa., 2015 WL 3440342, at *5 (quoting Showtime Entm't, LLC v. Town
of Mendon, 769 F.3d 61, 79 (1st Cit. 2014)).

"[T]he outcome of

this case has the potential to impact thousands of outstanding and
future mortgages . . . ."

Easthampton Sav. Bank, 736 F.3d at 52;

see id. (weighing "the dollar amounts involved, the likely effects
of a decision on future cases, and federalism interests" in
deciding whether to certify questions).
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As the bankruptcy court observed, "[t]he latest bunch of
cases that we have with defective acknowledgements are increasing
in number.

From what I've seen on my docket, there's lots more of

them yet to come."

This case does not implicate only situations

in which a § 5B affidavit has already been recorded to cure a
defective acknowledgement, but also situations going forward.
Further, if § 5B affidavits can cure the sort of material defect
at issue here, future mortgagees may argue that § 5B affidavits
can cure other material defects.
If that outcome were clearly correct under Massachusetts
law and policy, we might nonetheless decide the case.

But this

case is not one "in which the policy arguments line up solely
behind one solution."

Easthampton Sav. Bank, 736 F.3d at 52

(quoting Ropes & Gray LLP v. Jalbert (In re Engage, Inc.), 544
F.3d 50, 57 (1st Cir. 2008)) (internal quotation mark omitted).
On the one hand, as the district court reasoned, the Trustee's
position requires agreeing that "a correcting § 5B affidavit
recorded fifteen minutes after the Pereiras had left the registry
would be ineffective to cure the defect that existed here. There
would be no useful purpose served by such a rule."
B.R. at 5.

Casey, 517

On the other hand, as the Trustee observes, the bank's

position allows the mortgagee to materially alter the mortgage by
modifying the certificate of acknowledgement without the assent of
the mortgagor.

Functionally, it is no different than allowing the
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notary to correct the acknowledgement and re-record the mortgage
without the mortgagors' assent, a practice generally rejected.
See Logan v. WMC Mortg. Corp. (In re Gray), 410 B.R. 270, 277
(Bankr. S.D. Ohio 2009) ("[T]he vast majority of courts considering
the issue . . . have held that an attempt by a notary public or
other

public

official

to

correct

a

certification

of

acknowledgement after the document on which it appears has been
recorded is void absent re-acknowledgment by the grantor.").
"Given the competing considerations implicated by this
question

of

state

law

and

policy,"

the

significance

of

the

question, its determinative role in this case, and the lack of
clear guidance from the SJC, certification is the appropriate
course.

Ins. Co. of Pa., 2015 WL 3440342, at *1.

III.
For
questions

of

the

above

reasons,

Massachusetts

law

to

we
the

certify

the

following

Massachusetts

Judicial Court:
1. May an affidavit executed and recorded
pursuant to Mass. Gen. Laws. ch. 183, § 5B,
attesting to the proper acknowledgement of a
recorded mortgage containing a Certificate of
Acknowledgement that omits the name of the
mortgagor, correct what the parties say is a
material
defect
in
the
Certificate
of
Acknowledgement of that mortgage?
2. May an affidavit executed and recorded
pursuant to Mass. Gen. Laws. ch. 183, § 5B,
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attesting to the proper acknowledgement of a
recorded mortgage containing a Certificate of
Acknowledgement that omits the name of the
mortgagor, provide constructive notice of the
existence of the mortgage to a bona fide
purchaser,
either
independently
or
in
combination with the mortgage?
"We would also welcome any additional observations about
relevant Massachusetts law that the [SJC] may wish to offer."

See

Bos. Gas Co., 529 F.3d at 24; see also In re Giroux, 2009 WL
3834002, at *2.

The Clerk of this court is directed to forward to

the SJC, under the official seal of this court, a copy of the
certified questions and our opinion in this case, along with copies
of the parties' briefs and appendix, and any supplemental filings
under Rule 28(j) of the Federal Rules of Appellate Procedure.

We

retain jurisdiction over this appeal pending resolution of the
certified questions.
So ordered.

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