Bank of America v. Greene et al
Filing
15
MEMORANDUM AND OPINION as set forth in following order.Signed by District Judge Thomas A Varlan on 1/17/12. Associated Cases: 3:11-cv-00231, 3:11-cv-00376(ABF)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE
BANK OF AMERICA,
Appellant,
v.
RICHARD TRAVIS GREENE, et al.,
Appellees.
BANK OF AMERICA,
Appellant,
v.
RICHARD TRAVIS GREENE, et al.,
Appellees.
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No.:
3:11-CV-231
(VARLAN/GUYTON)
No.:
3:11-CV-376
(VARLAN/GUYTON)
MEMORANDUM OPINION
Appellant Bank of America (“Bank of America”) has appealed [Doc. 8] the
Memorandum and Judgment (the “Judgment”) [Doc. 1-35; Doc. 1-36] of the United States
Bankruptcy Court for the Eastern District of Tennessee (the “Bankruptcy Court”) in favor
of Richard and Deana Greene and Trustee, John P. Newton, Jr. (the “Trustee”). Appellee,
the Trustee, has submitted a response in opposition to that appeal [Doc. 12]. Bank of
America has filed a reply [Doc. 13] to that response.
The Court has carefully reviewed the parties’ briefs in light of the entire record and
the controlling law. For the reasons set forth below, the decision of the Bankruptcy Court
will be affirmed and Bank of America’s appeals will be dismissed.
I.
Relevant Facts and Procedural History1
In February 2009, Richard and Deana Greene (the “debtors”) executed a deed of trust
(the “DOT”) in favor of Homeowners Mortgage of America, Inc. (“Homeowners
Mortgage”), covering real property located at 825 Garners Landing Boulevard, Seymour,
Tennessee (the “Property”) [Doc. 1-35, p. 2]. On March 11, 2009, Homeowners Mortgage
submitted the DOT via electronic filing to the Sevier County Register of Deeds (the
“Register”) [Id., pp. 2, 7 n.6; Doc. 1-22, ¶ 4]. The Register accepts instruments for
registration via electronic filing through Business Information Systems (“BIS”), an electronic
recording vendor [Doc. 1-35, p. 6; Doc. 1-22, ¶ 4]. The Register maintains a documents log
which lists all instruments received for registration [Doc. 1-35, p. 6; Doc. 1-22, ¶ 5]. The
documents log indicates the instrument numbers assigned to instruments upon receipt and
the address to which a copy of the received instrument is to be returned after registration
[Doc. 1-35, p. 7 n.6; Doc. 1-22, ¶ 5]. The return address in the documents log for instruments
delivered by BIS is typically listed as “Ingeo” or “Simplifile” [Doc. 1-35, p. 7 n.6; Doc. 1-22,
¶ 5].
1
As noted by the Bankruptcy Court, these facts are “not in dispute or have not been rebutted.”
[Doc. 1-35, p. 5].
2
On March 11, 2009, the Register received an electronic copy of the DOT from
Homeowners Mortgage [Doc. 1-35, pp. 6-7].
The Register accepted the DOT for
registration, assigned it instrument number 09015404, and listed the instrument number and
the return address of Simplifile in the documents log [Id.]. Lois McCurry (“McCurry”), chief
deputy of the Register, assigned the DOT book number 3300 and page number 584-594 [Id.,
p. 7]. A copy of the recorded DOT, including the assigned instrument, book, and page
numbers, was transmitted to Network Closing Services, Inc. (“NCS”), the closing agent for
the debtors’ loan [Id., pp. 7 n.6, 12].
McCurry then voided the DOT because it was labeled as a “miscellaneous document”
and because the mortgage tax had not been received [Id., p. 12]. McCurry then accepted a
subsequently filed, unrelated instrument, which was listed as instrument number 09015405
in the documents log, and assigned that instrument the identical book and page numbers
previously assigned to the DOT [Id., pp. 12-13]. Neither the debtors or NCS received any
information or indication that the DOT had been voided until December 15, 2009 [Doc. 1-32,
¶ 11].
In the meantime, on June 17, 2009, the debtors filed a Chapter 7 Voluntary Petition
of bankruptcy (the “Chapter 7 petition”), and the Trustee was appointed to serve as trustee
of the debtors’ bankruptcy estate [Doc. 1-35, p. 5]. In the Chapter 7 petition, the debtors
listed the Property on the schedule and list of real property which, pursuant to 11 U.S.C. §
541, became part of the bankruptcy estate [Id.]. The Chapter 7 petition also indicated that
3
the debtors had signed the DOT to secure a promissory note entered into in February 2009,
and that Bank of America was the secured creditor [Doc. 1-1].
The Trustee reviewed the Chapter 7 petition, including the accompanying schedules,
and investigated the Property listed on the schedules, along with Bank of America’s
purported interest as the secured creditor [Doc. 1-35, pp. 5-6]. From the Trustee’s
investigation and review of the applicable property records, the Trustee found no recorded
deeds of trust encumbering the Property and therefore requested that Bank of America file
a proof of claim with documentation establishing its security interest over the Property [Id.,
p. 5]. On March 18, 2010, Bank of America filed a proof of claim against the debtors based
on the DOT in the amount of $203,938.18 [Id., p. 6]. Attached to the proof of claim was a
copy of the electronically filed DOT containing the Register’s stamp, dated March 11, 2009,
and reflecting that the DOT was, on that date, accepted by the Register, assigned instrument
number 09015404, and assigned book number 3300 and page numbers 584-594 [Id.].
On May 4, 2010, the Trustee initiated an adversary proceeding by filing a complaint
against Bank of America and seeking to avoid, pursuant to 11 U.S.C. § 544, Bank of
America’s lien on the Property, along with a determination that the Property is free and clear
of liens [Id., p. 7]. Bank of America moved for summary judgment and the Trustee
responded in opposition [Id.]. After Bank of America filed the motion for summary
judgment, the Bankruptcy Court advised the parties that it may grant summary judgment for
the nonmoving Trustee independent of Bank of America’s motion [Id., p. 4]. On March 11,
2011, after additional briefing, including the submission of supporting exhibits and
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documents, along with oral argument, the Bankruptcy Court entered the Judgment in favor
of the Trustee, denied Bank of America’s motion for summary judgment, and ordered that
the Property could be sold free and clear of Bank of America’s lien [Id., pp. 4-5, 19-20; Doc.
1-36].
Bank of America filed a notice of appeal of the Judgment to this Court, docketed as
Case No. 3:11-CV-231. That appeal raises four issues [Doc. 8, p. 4]. First, based on the
undisputed material facts, was the Bankruptcy Court correct in entering summary judgment
in favor of the Trustee [Id.]. Second, whether Bank of America holds a valid security interest
in the Property [Id.]. Third, whether the Trustee is entitled to sell the Property free and clear
of Bank of America’s lien [Id.]. Fourth, whether Bank of America is entitled to an order
granting relief from the automatic stay in order to enforce its security interest in the Property
[Id.]. The first and second issues are dispositive of the third and fourth.
After the Bankruptcy Court entered Judgment in favor of the Trustee, Bank of
America moved the Bankruptcy Court to stay enforcement of the Judgment and for approval
of a supersedeas bond. The Bankruptcy Court denied both motions. The Bankruptcy Court
then authorized the sale of the Property free and clear of Bank of America’s lien and required
the Trustee to retain the proceeds of the sale subject to further order. Bank of America
appealed this order to this Court, docketed as Case No. 3:11-CV-376.
Upon docketing of the second appeal, the magistrate judge deemed both appeals
related. Bank of America moved to consolidate the two appeals because the actions involve
the same transaction or occurrence, the same parties, and the same issues, and because filing
5
additional appeal briefs in the later-filed appeal would be a waste of time and resources.
With no submitted opposition by the Trustee, the magistrate judge granted the motion and
consolidated the two appeals, with Case No. 3:11-CV-231 being designated the lead case
[Doc. 14].
II.
Standard of Review
A district court reviews the findings of fact of a bankruptcy court for clear error, and
the conclusions of law de novo. See In re Behlke, 358 F.3d 429, 433 (6th Cir. 2004). Federal
Rule of Bankruptcy Procedure 8013 provides that “[f]indings of fact, whether based on oral
or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall
be given to the opportunity of the bankruptcy court to judge the credibility of witnesses.”
Fed. R. Bankr. P. 8013. Where a bankruptcy court makes a determination on a motion for
summary judgment, the bankruptcy court’s decision is purely a question of law. Thus, the
district court reviews the award of summary judgment de novo. See In re Cannon, 277 F.3d
838 (6th Cir. 2002); In re Batie, 995 F.2d 85, 89 (6th Cir. 1993). “On an appeal the district
court . . . may affirm, modify, or reverse a bankruptcy judge’s judgment, order, or decree or
remand with instructions for further proceedings.” Fed. R. Bankr. P. 8013.
Federal Rule Bankruptcy Procedure 7056 makes Federal Rule of Civil Procedure 56
applicable to bankruptcy adversary proceedings. Fed. R. Bankr. P. 7056. Thus, summary
judgment is appropriate if there is no genuine issue as to any material fact and the moving
party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The burden is on the
moving party to show conclusively that no genuine issue of material fact exists, and the
6
Court must view the facts and all inferences to be drawn therefrom in the light most
favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 587 (1986); Morris v. Crete Carrier Corp., 105 F.3d 279, 280-81 (6th Cir. 1997);
White v. Turfway Park Racing Ass’n, Inc., 909 F.2d 941, 943 (6th Cir. 1990).
“Once the moving party presents evidence sufficient to support a motion under Rule
56, the nonmoving party is not entitled to a trial merely on the basis of allegations.” Curtis
Through Curtis v. Universal Match Corp., 778 F. Supp. 1421, 1423 (E.D. Tenn. 1991) (citing
Celotex Corp v. Catrett, 477 U.S. 317, 322-23 (1986)). The nonmoving party is required to
come forward with some significant probative evidence which makes it necessary to resolve
the factual dispute at trial. White, 909 F.2d at 943-44. The moving party is entitled to
summary judgment if the nonmoving party fails to make a sufficient showing on an essential
element of the nonmoving party’s case with respect to which the nonmoving party has the
burden of proof at trial. Celotex, 477 U.S. at 323; Collyer v. Darling, 98 F.3d 211, 220 (6th
Cir. 1996).
III.
Analysis
A.
The Applicable Law
The filing of a Chapter 7 bankruptcy petition creates a bankruptcy estate, comprised
in part of “all legal or equitable interests of the debtor in property as of the commencement
of the case.” 11 U.S.C. § 541(a)(1). The trustee in the bankruptcy case then becomes the
representative of the bankruptcy estate, see 11 U.S.C. § 323(a), with the authority to “collect
and reduce to money the property of the estate for which such trustee serves, and close such
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estate as expeditiously as is compatible with the best interests of parties in interest[.]” 11
U.S.C. § 704(a)(1). Pursuant to 11 U.S.C. § 544(a), often referred to as the “strong-arm
clause,” In re Biggs, 377 F.3d 515, 517 (6th Cir. 2004), a trustee is allowed to “avoid any
transfer of property of the debtor or any obligation incurred by the debtor that is voidable by
. . . a bond fide purchaser of real property . . . from the debtor, against whom applicable law
permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has
perfected such transfer at the time of the commencement of the case, whether or not such a
purchaser exists.” 11 U.S.C. § 544(a). In other words, the trustee hypothetically purchases
the debtor’s property at the commencement of the bankruptcy case, then determines whether
that property is subject to any valid prior interest. Biggs, 377 F.3d at 517. While the
authority of the trustee is conferred by the bankruptcy code, the powers of the trustee are
determined under the applicable state law. See In re Muller, 185 B.R. 552, 554 (Bankr. M.D.
Tenn. 1995).
In Tennessee, deeds of trust are among the documents eligible for registration. See
Tenn. Code Ann. § 66-24-101(a)(8). Tennessee recording statutes follow what has been
referred to as a race-notice recording system, Trustmark Nat’l Bank v. Deutsche Bank Nat’l
Trust Co., No. W2009-01658-COA-R3-CV, 2010 WL 3269978, at *12 (Tenn. Ct. App. June,
16, 2010), and the Tennessee Supreme Court has articulated the five leading propositions
embraced in those recording statutes:
(1) That, as between the parties themselves and their heirs and
representatives, such instruments take effect and are good without
regard to registration; (2) that they also take effect and are equally good
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as to all persons who have actual notice of them from the date of such
notice, except creditors; (3) that as to creditors (that is, of the vendor)
they are inoperative, ineffective, and practically nonexistent until they
are noted for registration on the books of the register; (4) that as to all
other persons (that is, all not embraced in the preceding classes) they
are equally inoperative, ineffective, and nonexistent until so noted for
registration; (5) that upon being so “noted for registration” they become
at once “notice to all the world,” and so effective as to all the world.
Id. (quoting Wilkins v. McCorkle, 80 S.W. 834, 835 (Tenn. 1904) (discussing the recording
statutes set forth in Shannon’s Code)).
As stated by the Bankruptcy Court in the Memorandum supporting the Judgment,
“[a]ll instruments registered pursuant to § 66-24-101 shall be notice to all the world from the
time they are noted for registration, as prescribed in § 8-13-108; and shall take effect from
such time.” [Doc. 1-35, pp. 11-12 (quoting Tenn. Code Ann. § 66-26-102)]. The phrase
“noted for registration” is described in § 8-13-108, which charges registers of deeds with the
following duties:
(1)
Determine whether each instrument offered for registration is entitled
to registration under the laws of the state;
(2)
If the instrument is accepted for registration, note on the instrument the
time the instrument is actually received by the register;
(3)
Keep a notebook containing information regarding all instruments
registered[.] The information contained in the notebook shall include
the names of the grantors, grantees, the time of receipt (date, hour and
minute) and the fees received. . . . The notebook shall be maintained
in a well-bound book or computer storage media in accordance with §
10-7-121. The notebook information shall be maintained as a
permanent record;
(4)
Enter into the appropriate notebook the required information listed
above. The register shall endeavor to make entries into the notebook
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in the order of time of reception as nearly as practicable, but entries
shall be made without undue delay even if due to volume of instruments
received the exact order of time or reception cannot be maintained.
However, no instrument received on a certain day shall be entered into
the notebook after instruments received on a later day;
(5)
Record or file the instrument in the appropriate book or record series;
6)
Certify the fact of registration upon every instrument registered, the
time it was received, the book and page or other reference where it is
recorded or filed, the amount of fees received (if any) . . . .
(7)
Carefully preserve as permanent records the recorded copies of all
deeds, deeds of trust and other instruments affecting interests in real
estate;
(8)
Exhibit the notebooks and instruments registered to all persons wishing
to inspect them, during regular business hours;
(9)
Register, in the proper book of the register’s office, the correction by
the clerk of any error or omission in the clerk’s certificate or probate or
acknowledgment[.]
....
[Doc. 1-35, pp. 13-14 (quoting Tenn. Code Ann. § 8-13-108)]. “All of the instruments
mentioned in § 66-24-101 shall have effect between the parties to the same . . . without
registration; but as to other persons, not having actual notice of [the instruments] only from
the noting thereof for registration on the books of the register, unless otherwise expressly
provided.” Id. § 66-26-101, see id. §§ 66-24-101(a)(1), (4), (8). In other words, fulfilling
the requirements of § 8-13-108 is imperative because, although an instrument will continue
to be effective between the parties thereto, see id. § 66-26-101, “[a]ny instruments not so
registered, or noted for registration, shall be null and void as to existing or subsequent
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creditors of, or bona fide purchasers from, the makers without notice.” Id. § 66-26-103.
Thus, § 66-26-105 sets forth the priority of instruments as follows:
Any instruments first registered or noted for registration shall have
preference over one of earlier date, but noted for registration
afterwards; unless it is proved in a court of equity, according to the
rules of the court, that the party claiming under the subsequent
instrument had full notice of the previous instrument.
Id. § 66-26-105.
Under Tennessee law, “[n]otice is generally said to take two forms, actual or
constructive. Constructive notice is notice implied or imputed by operation of law and arises
as a result of the legal act of recording an instrument under a statute by which recordation
has the effect of constructive notice.” Blevins v. Johnson Cnty., 746 S.W.2d 678, 682 (Tenn.
1988).
While “[i]t is true that recordation creates constructive notice as distinguished
from actual notice, in that ordinarily actual notice is when one sees with his
eyes that something is done,” another kind of notice occupying what amounts
to a middle ground between constructive notice and actual notice is recognized
as inquiry notice. Some authorities classify inquiry notice as a type of
constructive notice, but in Tennessee, it has come to be considered as a variant
of actual notice.” “The words ‘actual notice’ do not always mean in law what
in metaphysical strictness they import; they more often mean knowledge of
facts and circumstances sufficiently pertinent in character to enable reasonably
cautious and prudent persons to investigate and ascertain as to the ultimate
facts.” Even a good faith failure to undertake the inquiry is no defense. Thus,
“[w]hatever is sufficient to put a person upon inquiry, is notice of all the facts
to which that inquiry will lead, when prosecuted with reasonable diligence and
good faith.”
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Id. at 683 (internal citations omitted). Furthermore, the Tennessee Supreme Court has
explicitly held that “[a] legally registered deed of trust places subsequent creditors and
purchasers on constructive notice.” In re Marsh, 12 S.W.3d 449, 454 (Tenn. 2000).
B.
The Judgment of the Bankruptcy Court
The Bankruptcy Court found that the DOT was accepted by the Register on March 11,
2009, assigned an instrument number, listed in the documents log, and registered under book
and page numbers [Doc. 1-35, pp. 17-19]. The Bankruptcy Court found that these actions
by the Register constituted registration of the DOT and afforded it notice under Tennessee
law for the period of time in which the DOT was actually recorded on the Register’s books
[Id.]. However, that same day, the Register improperly voided the DOT,2 see Tenn. Code
Ann. § 67-4-409(b)(10)(A), and improperly replaced it with a subsequent, unrelated
instrument at the identical book and page numbers [Id., p. 19]. The Bankruptcy Court found
that these actions by the Register voided the DOT, rendered it unregistered, and took it
outside the recorded chain of title just as if it had never been recorded [Id.]. The Bankruptcy
2
Bank of America and the Trustee do not dispute that the Register improperly removed the
DOT from the property records and them improperly recorded the other instrument in its place. As
noted by the Bankruptcy Court, once an instrument is accepted and recorded by a register of deeds,
the “[n]onpayment or underpayment of tax on an indebtedness, or failure timely to pay tax on an
increase in indebtedness, shall not affect or impair the effectiveness, validity, priority, or
enforceability of the security interest or lien created or evidence by the instrument[.]” Tenn. Code
Ann. § 67-4-409(b)(10)(A). Furthermore, according to a non-binding opinion of the Tennessee
Attorney General, “a register of deeds is not entitled to remove an instrument that has been accepted
and recorded by a deputy register of deeds, even if the register later determines that the deed was
not entitled to registration.” 2003 Tenn. AG LEXIS 74, at *4 (May 1, 2003) (stating that, however,
the register is “authorized to record his or her determination that the instrument was not entitled to
recording”).
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Court then summarized the definitions and parameters of “notice” in regard to registration
of instruments under Tennessee law [Id., p. 16], and found that the Register’s voiding and
removal of the DOT from the Register’s books resulted in the DOT being neither
constructive nor actual notice to the world at the time of the debtors’ Chapter 7 petition.
Thus, the Bankruptcy Court concluded, because the Trustee had no notice of the DOT, either
by a search of the records or otherwise, the Trustee had priority as a bona fide purchaser and
the authority to avoid Bank of America’s lien [Id.].
C.
The Parties’ Positions
On appeal, Bank of America argues that McCurry’s improper voiding of the DOT, and
her registration of the different, subsequently filed instrument in its place, was unlawful,
ultra vires, and void. Thus, Bank of America contends, although the Register’s actions
resulted in the DOT not appearing in the Trustee’s search of the records at the time of the
debtors’ Chapter 7 petition, the Register’s improper actions should have no effect on the
recordation, validity, and enforceability of the DOT because it remained notice to all the
world of Bank of America’s lien, thus binding subsequent parties such as the Trustee. Bank
of America submits that Tennessee case law confirms this position, that is, that a recorded
instrument gives notice to all the world, despite an error by a filing official in the recording
of the instrument, and even if that instrument would not be found from a search of the
property records [Doc. 8, pp. 16-20 (citing and discussing Philips v. Erwin, 1 Tenn. 235 (D.
Cir. Ct. Tenn. 1807); Flowers v. Wilkes, 31 Tenn. 408, 1852 WL 1772 (Tenn. 1852);
Swepson v. Exch. & Deposit Bank, 77 Tenn. 713, 1882 WL 4091 (Tenn. 1882); Hughes v.
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Powers, 99 Tenn. 480, 42 S.W.1 (Tenn. 1897); Wilkins v. Reed, 300 S.W. 588 (Tenn.
1927))]. Accordingly, Bank of America submits that the Bankruptcy Court was in error
when it found otherwise.
In response, the Trustee contends that the Court should affirm the Judgment of the
Bankruptcy Court because the critical issue is that on the date of the debtors’ Chapter 7
petition, the DOT was not in the property records, was not registered, did not appear in the
chain of title for the Property, and did not give actual or constructive notice to the Trustee
of Bank of America’s interest in the Property. The Trustee argues that whether the DOT was
ever registered, or how it became unregistered, are of no consequence if the DOT was not
registered and did not appear in the property records at the time the Chapter 7 petition was
filed, therefore giving no notice of Bank of America’s lien to the Trustee, a subsequent bona
fide purchaser.
D.
Registration and Notice Under Tennessee Law
Bank of America argues that two principles flow throughout the case law construing
Tennessee’s recording statutes [Doc. 8, p. 17]. First, that an error of a register of deeds will
not injure one who submits an instrument to the register of deeds and does everything the law
requires of him, and second, that in such a situation, the instrument will be effective and
notice to all the world even though, due to an error of the register, it may not appear from a
search of the registered instruments in the property records [Id.].
The first case cited by Bank of America, Philips v. Erwin, rejects the defendant’s
assertion that a grant was invalid because it lacked an essential requisite, the countersignature
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of the secretary of state. Id., 1 Tenn. at 235. The Philips court found that the lack of the
signature did not render the grant void, stating that the omission of the signature should not
operate to the prejudice of the grantee and render the grant void. Id. The Philips court then
stated, arguendo, that “[s]uppose a person takes a deed to a register . . . who returns it as
registered, when in truth it was not. This neglect shall not injure the owner of the deed. In
fact, it must be considered as registered from the time it is left with the register, the owner
having performed all the law required of him.” Id. There is no mention in the Philip court’s
analysis, nor in its description of the facts, that the party attempting to have the grant
declared invalid lacked notice of the grant, or that the grant could not be found upon a search
of the property records.
In Flowers v. Wilkes, the court considered a bill of sale that had been duly
acknowledged, delivered to the register of deeds for registration, and immediately noted in
the register’s books. Id., 1852 WL 1772, at * 1. However, the bill of sale was not registered
in fact until approximately eight years later. Id. In the intervening period, a prior,
unrecorded deed of gift that predated the bill of sale and involved the same property was
registered in fact, followed later by the registration in fact of the bill of sale. Id. The plaintiff
claimed that the deed of gift, the first to be registered in fact, had priority over the bill of sale,
the second to be registered in fact, due to the order of registration. Id. at *2. The court
disagreed, holding that, “[t]he party claiming under a deed, or other instrument, proved in
proper form, and filed with the register, and noted by him in his book . . . will stand in the
same attitude, as well in respect to creditors of the vendor as purchasers from him, as if such
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deed or other instrument had been then actually spread upon the register’s books.” Id. The
court’s only discussion of notice was in regard to the bona fide purchaser’s notice of the bill
of sale, which the Flowers court observed had been done without notice of the prior deed of
gift because the gift was accompanied by neither registration nor possession. Id. at *2. The
court did not discuss notice in regard to whether the bill of sale appeared in a search of the
property records.
Swepson v. Exchange & Deposit Bank considered an improperly recorded deed of
trust that was “properly acknowledged and noted for registration, but . . . was recorded in the
book for registration of chattel mortgages, etc., and not in the book of trust deeds or
conveyances of real estate.” Id., 1882 WL 4091, at *5. Despite this error, the Swepson court
held that because the applicable statute “directs the register to keep a book for the registration
of trust deeds, etc. This section is directly to the register, and when a deed is noted and
registered, it is notice to ‘all the world,’ from the time it is noted[.]” Id. Similar to Flowers,
the Swepson court did not discuss whether the party challenging the validity of the deed
lacked notice of the deed because it was recorded in the wrong book. There was also no
discussion of whether a search of the property records would have revealed the deed.
Hughes v. Powers considered the entry of a notation for a deed of land intended for
registration in a notebook maintained by a register. Id., 42 S.W. at 1. Instead of the
statutorily required description of the date of reception, grantor, grantees, and nature of the
instrument, the notation contained “ditto marks” under the columns for date of reception,
grantors, and grantees, with the only written description of the instrument being that of a
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“warranty deed” under the column describing the nature of the instrument. Id. at *1-*2. It
was argued by the plaintiffs that the ditto marks were “without intelligible meaning” and
should be ignored, thus rendering the notation essentially blank, save for the column
indicating the nature of the instrument, and therefore void. Id. The defendant offered the
Hughes court a different interpretation of the ditto marks, submitting that the marks should
be read as a repetition of what appeared on the line above the marks, thus making the
notation a repetition of the terms in the preceding notation and rendering it a complete, valid
notation with all the required entries. Id.
The Hughes court agreed with the defendant, finding that the ditto marks “should be
read as a repetition or reproduction of the words and figures in the line above them[,]” and
that, given this, the “notation is sufficient, and gave the deed effect against the creditors of
the vendor from the date of noting, though the deed was not in fact registered until after the
complainants filed their bill.” Id. at *2. The Hughes court noted that the actual deed was not
registered in fact until after the plaintiffs filed their objection to the notation containing the
ditto marks, but that the notation was “sufficient, and gave the deed effect against creditors
of the vendor from the date of noting.” Id. at 2. Similar to Philips, Flowers, and Swepson,
the Hughes court did not discuss whether the unregistered deed represented by the notation,
ditto marks or otherwise, gave the plaintiffs notice of the deed upon a search of the property
records.
Finally, in Wilkins v. Reed, the defendant took, as security for a loan, a deed of trust
that was properly executed, acknowledged, and contained the correct description of the
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property. Id., 300 S.W. at 588. The plaintiff objected to the deed of trust because the register
had inadvertently omitted the signature of the notary public. Id. In its analysis of this defect,
the Wilkins court discussed two types of defects, the first, a defect that “went to the issue of
notice of the transfer in some form or degree, and the second, a defect that “involv[es]the
authority to record, such as the omission, in fact, of the officer’s signature to his certificate.”
Id. In regard to this first type of defect, the Wilkins court discussed a case from Pennsylvania
in which the instrument was recorded under the wrong name, resulting in “no notice of the
[instrument], either actual or constructive” to the purchaser who bought the property after a
search of the records. Id. (citing and discussing Prouty v. Marshall, 225 Pa. 570 (Pa. 1909)).3
The Wilkins court emphasized that throughout Prouty was language “emphasizing the
essentiality of the element of notice–that the record, including the required index, shall be
in such shape that examination thereof will supply notice to the searcher of the previous
transfer of the identical property[,]” and that several cases from Tennessee, considering facts
involving defects in the deeds’ descriptions of properties, reached similar conclusions. Id.
at 588-89 (citing cases). The Wilkins court found “[t]hese holdings are consistent with the
principle doctrine of notice. Unless the description is adequate and correct, obviously this
vital element of notice is wanting on the face of the record.” Id. at 589.
3
In Prouty, the mortgage was both defectively recorded and wrongly indexed, and the
applicable state statutes provided that the entry of mortgages in an index would be notice to all
persons of the recording of the same. Id., 225 Pa. at 574. The court concluded that the defective
recording and indexing afforded no notice of the mortgage to the purchaser of the land and that these
defects were fatal to the claim of the mortgagee that the purchaser was on notice of the mortgage.
Id. at 574-75.
18
The Wilkins court then considered the second type of defect, the defect at issue in
Wilkins, that is, the lack of an acknowledgment signature on a deed. Id. at 589. The court
observed that this defect “does not affect the element of notice to an interested party of the
essential fact of a previous transfer of property[,]” and concluded that when an instrument
has been properly executed and acknowledged, it is entitled to registration and a defective
recording of the certificate does not render that instrument null and void. Id. The Wilkins
court found, under the facts of that case, that the lack of the signature would not render the
deed invalid and that “[t]his rule should certainly be applied whenever the neglect or
omission of the register in no way affects the notice carried by the correct registration of the
instrument itself but relates alone to the authority for its registration.” Id.
After a review of these cases, the Court disagrees with Bank of America that the cases
stand for the proposition that under Tennessee law, an instrument once recorded gives notice
to all the world, despite an error by the register, and even if that instrument would not be
found from a search of the property records. Except for the discussion in Wilkins regarding
notice, there is no mention in these cases of the validity and priority of an instrument if a
subsequent, bona fide purchaser’s investigation of the property records did not reveal the
instrument. In Swepson and Hughes, the instruments were in the respective register of deeds
offices and were properly noted for registration but were either not registered in fact with a
technically insufficient notation, or were registered in the wrong books. In Flowers, the bill
of sale was filed, acknowledged, and noted by the register, but was not registered in fact and
“actually spread upon the register’s books” until eight years later. In Philips, there was no
19
discussion of notice because the only issue actually addressed in that opinion pertained to
whether the lack of a required signature rendered the deed void. In Wilkins, the court
discussed two potential defects, one of which—a lack of a required signature—would not
render a deed void, while the other—a defect pertaining to the element of notice, such as an
improper description in a deed of the covered property—could void a deed.
In sum, the Court does not find these cases to show that the Bankruptcy Court’s
conclusion was in error under the applicable Tennessee law. Finally, the Court agrees with
the Bankruptcy Court that the facts of this case are more akin to the misfiling of a document
which prevents a subsequent purchaser from having notice of a property interest, rather than
a technical clerical error that has no effect on notice. See, e.g., Holiday Hospitality
Franchising, Inc. v. States Resources, Inc., 232 S.W.3d 41, 54 (Tenn. Ct. App. Dec. 14,
2006) (finding that a mistakenly released deed would not be reinstated and could not
therefore attain a priority position if the subsequent bona fide purchaser could assert a lack
of notice). Here, the Bankruptcy Court found that the unregistered interest represented by the
improperly voided DOT would not be given priority over a subsequent bona fide
purchaser—the Trustee—who asserted a lack of notice
In this case, there is no dispute that “the [DOT] was not a matter of public record in
the [Register] when the Debtors filed [the Chapter 7 petition] on June 17, 2009, [the DOT]
having been voided and removed by . . . McCurry on March 11, 2009.” [Doc. 1-35, p. 17].
There is no dispute that the Trustee searched the Register’s property records, but that his
search did not put the Trustee on notice, either actual or constructive, of the DOT and Bank
20
of America’s interest in the Property. Furthermore, there is no argument that the Trustee
should have done more to search the Register’s records, that he was on notice—either actual,
inquiry, or constructive—due to the listing of the DOT’s instrument number and return
address designation in the documents log, or that the listing of an instrument in a documents
log, alone, suffices for purposes of notice under the recording statutes.
This is not a case where it is argued that a notation of registration or a “spreading on
the books” was sufficient, despite a technical defect. Rather, the Court agrees with the
Bankruptcy Court that this is a case where the issue is one of the notice of the Trustee at the
time of the Chapter 7 petition. While Bank of America argues that the one time registration
of the DOT, irrespective of the improper voiding of that instrument, left the notice afforded
by the briefly-registered DOT in effect to all the world, Bank of America has cited no case
considering similar facts and stating such a proposition. Rather, neither Philips, Flowers,
Swepson, or Hughes discussed or addressed whether the subsequent bona fide purchaser in
each case was on notice of the unregistered or erroneously registered deeds at issue in those
cases. Finally, in Wilkins, where the issue of notice was discussed, the Wilkins court stated
that a defect in a deed pertaining to notice could render a deed void.
Accordingly, the Court finds, contrary to Bank of America’s assertion, that the cases
cited in its brief do not stand for the proposition that the one-time act of registration, if an
instrument is subsequently unregistered, affords a party a priority position when it is
undisputed that a subsequent bona fide purchaser had no notice of the unregistered
instrument after a search of the applicable property records.
21
IV.
Conclusion
For the reasons stated herein, the Court AFFIRMS the Judgment of the Bankruptcy
Court [Doc. 1-35; Doc. 1-36] in its entirety. Accordingly, Bank of America’s appeals will
be DISMISSED. An appropriate order will be entered.
ORDER ACCORDINGLY.
s/ Thomas A. Varlan
UNITED STATES DISTRICT JUDGE
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