HSBC Bank USA, N.A. v. Lassman (In Re Demore) , 844 F.3d 292 ( 2016 )

United States Court of Appeals
For the First Circuit
No. 16-1150
IN RE ANDREW A. DEMORE; MAUREEN A. DEMORE,
Debtors,
___________________
HSBC BANK USA, N.A.,
Plaintiff, Appellee,
v.
DONALD LASSMAN, CHAPTER 7 TRUSTEE OF THE BANKRUPTCY ESTATES OF
ANDREW A. DEMORE AND MAUREEN A. DEMORE,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Richard G. Stearns, U.S. District Judge]
Before
Torruella, Lipez, and Barron,
Circuit Judges.
Mark G. DeGiacomo, with whom Taruna Garg and Murtha Cullina
LLP was on brief, for appellant.
Jason A. Manekas, with whom Bernkopf Goodman LLP was on brief,
for appellee.
December 13, 2016
BARRON, Circuit Judge. This case concerns an appeal
from a consolidated adversary action in bankruptcy. The action
was brought by Donald Lassman, the appellant, who is the trustee
for the estates of two bankruptcy petitioners, Andrew and Maureen
DeMore. In bringing the adversary action that this appeal
concerns, Lassman sought, pursuant to 11 U.S.C. § 544(a)(3), to
"avoid" a mortgage on a parcel of land in Massachusetts that the
DeMores had purportedly granted to the predecessor in interest to
HSBC Bank, USA, N.A. ("HSBC"), which is the appellee.
Below, the Bankruptcy Court granted summary judgment to
Lassman. The Bankruptcy Court did so on the ground that what is
known under Massachusetts law as the certificate of
acknowledgement for the mortgage at issue is "materially
defective" because the certificate failed to make clear that the
DeMores, as grantors of that mortgage, executed that mortgage as
their free act and deed. But, when HSBC appealed that ruling to
the District Court, the District Court reversed on the ground that
the certificate of acknowledgement is not materially defective
because it did make clear that the DeMores had executed the
mortgage as their free act and deed. Because we agree with the
District Court, we affirm its order reversing summary judgment for
Lassman.
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I.
The underlying dispute concerns a mortgage purportedly
granted by the DeMores to HSBC Mortgage Corporation ("HSBC
Mortgage"), the predecessor in interest to HSBC, on a parcel of
property that is owned by the DeMores. We start by recounting the
uncontested facts that are critical to the resolution of this
dispute.
A.
In 1994, the DeMores acquired a parcel of land in North
Attleboro, Massachusetts. This property is what is known in
Massachusetts as "registered land," which is a type of land for
which the Massachusetts Land Court maintains a certificate of
title, and to which chapter 185 of the Massachusetts General Laws
applies.
In April 2004, the DeMores each executed a power of
attorney to John G. Molloy. Those powers of attorney authorized
Molloy to grant a mortgage on the property to HSBC Mortgage.
Later that month, Molloy granted a promissory note and
mortgage on that property to HSBC Mortgage on behalf of the
DeMores. Several days later, the note and the mortgage were
registered on the certificate of title for the property in the
Northern Bristol County Registry of Deeds of the Massachusetts
Land Court.
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Appended to the mortgage document was a certificate of
acknowledgment. A certificate of acknowledgment is a notarized
document that is signed by an officer entitled to take
acknowledgments (often a notary public) and that attests that "the
grantor appeared before the officer making the certificate and
made such acknowledgment." Bank of Am., N.A. v. Casey, 52 N.E.3d
1030, 1035 (Mass. 2016) (quoting McOuatt v. McOuatt, 69 N.E.2d
806, 809 (Mass. 1946)). The certificate of acknowledgment in this
case reads as follows:
On this 27th day of April, 2004, before me,
the undersigned notary public[,] personally
appeared Andrew DeMore and Maureen DeMore by
their attorney-in-fact, John G. Molloy[,]
under Power of Attorney recorded herewith
proved to me through satisfactory evidence of
identification, which were drivers licenses to
be the person whose name is signed on the
proceeding attached document, and
acknowledged to me that he/she signed it
voluntarily and for its stated purpose.
/s/ Melissa L. Henderson
Melissa L. Henderson, Notary Public
My Commission Expires 8/27/101
The requirement to record a mortgage with a certificate
of acknowledgment comes from chapter 183, section 29 of the
Massachusetts General Laws. That section states, in relevant part,
that "[n]o deed shall be recorded unless a certificate of its
1 The underlined portions of the acknowledgment indicate
handwritten insertions into an otherwise typed form.
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acknowledgment . . . is endorsed upon or annexed to it . . . ."
Mass. Gen. Laws ch. 183, § 29. It is clear that, for the purposes
of section 29, a mortgage constitutes a deed. See Casey, 52 N.E.3d
at 1035.
The Supreme Judicial Court of Massachusetts ("SJC") has
stated that "[a]n acknowledgment is the formal statement of the
grantor to the official authorized to take the acknowledgment that
the execution of the instrument was his free act and deed."
McOuatt, 69 N.E.2d at 810. The SJC has also stated that "[n]o
particular words are necessary as long as they amount to an
admission that [the grantor] has voluntarily and freely executed
the instrument." Id. (citations omitted). Massachusetts,
however, permits a person acting under power of attorney to execute
and acknowledge a mortgage for another. See Mass. Gen. Laws ch.
183, § 30 ("The acknowledgment of a deed or other written
instrument required to be acknowledged shall be by one or more of
the grantors or by the attorney executing it."); Malaguti v. Rosen,
160 N.E. 532, 560-62 (Mass. 1928) (finding that a specific power
of attorney extended the authority to borrow money and execute
notes to mortgage property); Davidson v. Reznikow, 2005 WL 774047,
at *5 (Mass. Land Ct. April 6, 2005) (finding that a power of
attorney "regularly" provides authority to convey registered
land). And thus the question that gives rise to this appeal: what
must a certificate of acknowledgement for a mortgage state when a
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person acting by power of attorney appears to acknowledge the
mortgage?
B.
The appeal itself comes to us by way of bankruptcy court.
In 2013, each of the DeMores filed separate voluntary petitions
for bankruptcy under Chapter 7 of the Bankruptcy Code. The
schedule for each of the petitions listed the property and the
mortgage in question. A single bankruptcy trustee, Donald Lassman,
was appointed for both of the DeMores' bankruptcy cases.
Lassman, as trustee, then filed adversary actions
against HSBC, which had received an assignment of the mortgage
from HSBC Mortgage, to avoid the mortgage. In avoiding a lien,
such as a mortgage, a trustee "invalidate[s] unperfected security
interests," pursuant to 11 U.S.C. § 544(a)(3), and, "put[s] the
estate in the shoes of the creditor whose lien is avoided,"
pursuant to 11 U.S.C. § 551. In re Traverse, 753 F.3d 19, 26 (1st
Cir. 2014) (internal quotation marks, brackets, and citation
omitted). The adversary actions Lassman filed against HSBC on
behalf of each of the DeMores' bankruptcy estates were then
consolidated.
In pressing the consolidated adversary action, Lassman
explained that the Bankruptcy Code authorizes a bankruptcy trustee
to avoid a transfer of property by the debtor, such as a mortgage,
where such a transfer is voidable under state law by a bona fide
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purchaser. See 11 U.S.C. § 544(a)(3). Lassman then contended
that, under section 29 of chapter 183 of the Massachusetts General
Laws, the mortgage on the DeMores' property is required to be
recorded along with a valid certificate of acknowledgement. And,
finally, Lassman contended that the mortgage here is voidable under
state law by a bona fide purchaser because the certificate of
acknowledgement is "materially defective" under section 29.
To support this last contention, Lassman argued that the
certificate of acknowledgment does not clearly state that the
execution of the mortgage was the free act and deed of the DeMores.
Lassman argued that this ambiguity arises because it is unclear
from the certificate of acknowledgement whether the DeMores,
Molloy, or some combination thereof were present to acknowledge
the mortgage. According to Lassman, if only Molloy appeared before
the notary to acknowledge the mortgage, then the certificate of
acknowledgement by its terms makes clear only that Molloy had
signed -- and thus executed -- the mortgage to HSBC Mortgage as
his free act and deed pursuant to the powers of attorney that the
DeMores had granted to him.2 For that reason, Lassman argued, the
certificate of acknowledgement is materially defective under
2
The certificate of acknowledgment in this case states that
the one who appeared to acknowledge the mortgage "signed it
voluntarily and for its stated purpose." Quite sensibly, Lassman
does not argue that there is any material significance to the use
of the word "voluntarily" rather than the use of the words "free
act and deed."
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section 29 because it fails to do what McOuatt requires an
acknowledgement to do: make clear that the instrument being
acknowledged (here, the mortgage from the DeMores to HSBC Mortgage)
had been executed as the "free act and deed" of that instrument's
grantors (here, the DeMores). See 69 N.E.2d at 810.
HSBC filed a motion to dismiss the consolidated
adversary action. The motion contended that, if section 29's
requirement applies to the mortgage at issue here, the certificate
of acknowledgement complies with section 29 because the
certificate does make clear that the execution of the mortgage was
the free act and deed of the DeMores. In addition, HSBC contended
that section 29's requirement does not apply to the mortgage at
issue here because section 29 appears in chapter 183, which governs
recorded land, while the underlying parcel that is subject to the
mortgage at issue is registered land, which is governed by chapter
185.3
HSBC further contended that, even if the certificate of
acknowledgment does not comply with section 29, the certificate
and other documents still provide constructive notice of the
mortgage to a bona fide purchaser, and that state law requires no
more than constructive notice in order to preclude a bona fide
3
For a useful discussion of the land registration system,
which governs registered land, and the land recording system, which
governs recorded land, and the differences between the two systems,
see In re Bailey, 468 B.R. 464, 477 n.19 (Bankr. D. Mass. 2012).
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purchaser from voiding the mortgage. In connection with this
contention, HSBC also filed a motion for the Bankruptcy Court to
certify to the SJC the question of whether a "mortgage encumbering
registered land, whose certificate of acknowledgment is alleged to
be potentially ambiguous regarding whether the execution of the
mortgage was the voluntary act of the mortgagors, but which . . .
is noted on the certificate of title of such registered land,
provides constructive notice."
After HSBC converted its motion to dismiss into a motion
for summary judgment, the Bankruptcy Court denied both HSBC's
motion to certify the question to the SJC and its motion for
summary judgment. In doing so, the Bankruptcy Court ordered HSBC
to show cause why the Bankruptcy Court should not grant summary
judgment to Lassman, the trustee. After receiving briefing in
response to that order, the Bankruptcy Court granted summary
judgment to Lassman. The Bankruptcy Court did so because it found
that a certificate of acknowledgment is required for this mortgage
under section 29, notwithstanding the parcel's status as
registered land; that the certificate of acknowledgement at issue
does not make clear who appeared before the notary; that this
ambiguity renders the certificate of acknowledgement "materially
defective" by making it unclear whether there was an acknowledgment
that the execution of the mortgage was the free act and deed of
the DeMores; and that, while constructive notice of the mortgage
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is all that is required under state law to prevent a bona fide
purchaser from voiding a mortgage, the defective certificate of
acknowledgement and other documents do not suffice to provide
constructive notice of the mortgage to a bona fide purchaser. In
re DeMore, 530 B.R. 519, 532-37 (Bankr. D. Mass. 2015).
HSBC appealed the Bankruptcy Court's order to the
District Court. The District Court reversed the Bankruptcy Court's
grant of summary judgment to Lassman on the ground that the
certificate of acknowledgment is not materially defective.
Lassman now appeals that order.
II.
In an appeal from a district court's review of a decision
by a bankruptcy court, our review "assess[es] the bankruptcy
court's decision directly." In re Sheedy, 801 F.3d 12, 18 (1st
Cir. 2015) (internal quotation marks and citation omitted). We
review a bankruptcy court's findings of fact for clear error and
its conclusions of law de novo. Id. Because we conclude that the
certificate of acknowledgement in this case complies with section
29 of chapter 183, we need not address either the threshold
question of whether section 29 applies to the parcel at issue,
despite its being registered rather than recorded land,4 or the
4 In response to HSBC's argument that section 29 of chapter
183 does not apply to this mortgage because the mortgage concerns
a parcel of registered land, which is governed by section 185,
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back-end questions of whether a bona fide purchaser would have had
constructive notice of the mortgage and whether such notice would
be sufficient to preclude a bona fide purchaser from voiding the
mortgage.
In reaching this conclusion, we do not take issue with
the finding below that the certificate of acknowledgement that is
in dispute fails to show that the DeMores appeared before the
notary to acknowledge the mortgage and thus may show no more than
that Molloy alone appeared on their behalf. We simply conclude
that, even assuming that the certificate of acknowledgment must be
read to state that only Molloy appeared before the notary, the
certificate of acknowledgement still does all that it needed to
do.
If the certificate of acknowledgment is read to state
that Molloy appeared without both DeMores, then it expressly states
that Molloy appeared as the "attorney-in-fact" for the DeMores
"under Power of Attorney recorded herewith." And, in the
referenced "Power of Attorney recorded herewith," the DeMores
Lassman points to chapter 185, section 58. Lassman contends that
this section of chapter 185 incorporates the requirements of
section 29 of chapter 183 for recording a mortgage on recorded
land into the requirements for registering a mortgage on registered
land. Section 58 of chapter 185 provides that "[e]very . . .
attachment . . . affecting registered land, which would under other
provisions of law, if recorded . . . affect the land to which it
relates, shall, if registered . . . be notice to all persons from
time of such registering." Mass Gen. Laws ch. 185, § 58.
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specifically authorized Molloy to "do all things necessary to
obtain a mortgage loan from . . . HSBC . . . including without
limitation the right to execute, acknowledge and deliver any and
all documents." Further, the certificates of acknowledgment
accompanying those power of attorney forms state that the DeMores
each signed the power of attorney forms "voluntarily for [their]
stated purpose."
Thus, the certificate of acknowledgement for the
mortgage does just what it needs to do: state that Molloy is
acknowledging to the notary that he executed the mortgage not only
as his own free act and deed but as the "free act and deed" of the
DeMores. McOuatt, 69 N.E.2d at 809. As the District Court stated,
"[u]nder the terms of the power of attorney[,] . . . Molloy's 'free
act and deed,' with respect to executing the mortgage, was the
free act and deed of the DeMores." HSBC Bank USA, N.A. v. Lassman,
550 B.R. 157, 162 (D. Mass. 2016); cf. Sowden & Co. v. Craig, 26
Iowa 156, 163 (1868) ("It was the agent who executed the
instrument, and, assuming his authority . . . if it was his (the
agent's) voluntary act and deed, as he acknowledged it to be, then
in law it was the voluntary act and deed of his principal.").
Lassman argues against this seemingly commonsensical
conclusion on the ground that the certificate of acknowledgment in
this case does not, in a key respect, mirror a form certificate of
acknowledgement that is set forth in an appendix to chapter 183,
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which, again, is the chapter in which section 29 appears. That
appendix contains form certificates of acknowledgement for various
situations, including the one that is relevant here. In
particular, the form that appears in the appendix as "14," has the
italicized title, "Acknowledgement of Individual Acting by
Attorney." And the text that follows then states: "On this
________ day of ________ 19__, before me personally appeared A B,
to me known to be the person who executed the foregoing instrument
in behalf of C D, and acknowledged that he executed the same as
the free act and deed of said C D." Mass. Gen. Laws ch. 183 App.,
Form (14).
Lassman seizes on the fact that this form certificate of
acknowledgment expressly states that "A B" in executing the
instrument in behalf of "C D" was doing so "as the free act and
deed of said C D." He contends that, in this way, the form signals
the intention of the legislature to ensure that a certificate of
acknowledgment for an instrument, such as a mortgage, expressly
states that an attorney in fact who acknowledges that instrument
executed it as the free act and deed of the grantor of the
instrument. And, Lassman contends, because the certificate of
acknowledgement in this case expressly states only that the
execution of the mortgage was the free act and deed of Molloy, and
not of the DeMores themselves, the certificate of acknowledgement
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fails to make the representation that, in light of what McOuatt
requires of an acknowledgement, is the critical one.
But we do not agree. It is true that the certificate
of acknowledgment in this case does not use the very same words as
does the form that is set forth in the appendix to chapter 183.
Nonetheless, the certificate of acknowledgement in this case still
does all that it must do. This certificate of acknowledgement
expressly states that the one who appeared in order to acknowledge
the mortgage, Molloy, did so as the DeMores' attorney and that he
did so pursuant to power of attorney forms "recorded herewith."
Those recorded power of attorney forms in turn make perfectly clear
that the DeMores voluntarily granted the power to execute the
mortgage to Molloy. And, indeed, the DeMores acknowledged those
power of attorney forms as their free act and deed.
Thus, when the certificate of acknowledgement of the
mortgage states that Molloy voluntarily executed the mortgage as
attorney in fact under the power of attorney forms "recorded
herewith," the certificate of acknowledgement leaves no doubt that
Molloy is acknowledging that he had executed the mortgage -- to
quote the form certificate of acknowledgment in the appendix to
chapter 183 -- "as the free act and deed" of the DeMores. And no
more is required under section 29, given the standard for making
an acknowledgement laid out in McOuatt. See id. at 810 (explaining
that, to qualify as an acknowledgement, "[n]o particular words are
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necessary as long as they amount to an admission that [the grantor]
has voluntarily and freely executed the instrument").
Nor is there any reason to conclude that Molloy's
representation in the certificate of acknowledgment that is at
issue here fails to comply with section 29 simply because that
representation is formally distinct from the functionally
equivalent representation set forth in the form certificate of
acknowledgment in chapter 183's appendix. Chapter 183, section 42
states quite clearly that "[t]he forms set forth in the appendix
to this chapter for taking acknowledgments . . . may be used; but
this shall not prevent the use of any other forms heretofore
lawfully used." And the SJC has also confirmed that "[t]he
acknowledgment required for proper recording of a mortgage . . .
need not take any one specific form." Casey, 52 N.E.3d at 1036.
Lassman also argues that the District Court's ruling is
in error on the basis of another model certificate of
acknowledgment -- this one published by the Land Court, which
maintains the certificate of title for registered land like the
parcel that is at issue here. The Land Court model form reads:
"Then personally appeared the aforementioned John Doe and
acknowledged the foregoing instrument to be the free act and deed
of Mary Doe." Commonwealth of Mass. Land Court Guidelines on
Registered Land ("Land Court Guidelines"), Feb. 27, 2009, at 39,
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http://www.mass.gov/courts/docs/courts-and-judges/courts/land-
court/guidelines-registered-land.pdf.
But, like the form certificate of acknowledgement in the
appendix to chapter 183, the Land Court's form is also of no help
to Lassman's argument, even assuming that the requirement of
section 29 applies to registered land, as we must for the Land
Court form to be of any help to Lassman.5 For the reasons we have
already given, the certificate of acknowledgment in this case --
by expressly referencing the power of attorney forms "recorded
herewith" -- makes clear that Molloy, in signing the mortgage, was
undertaking the free act and deed of the DeMores. Thus, the fact
that the certificate of acknowledgment in this case does not use
the precise words used in the Land Court form is not significant.
To the extent one might have any doubt on that score,
moreover, the Land Court Guidelines containing the model Land Court
form expressly state that "[t]he forms of certificates of
acknowledgment . . . set forth in Executive Order Revised No. 455
. . . are acceptable for registration by the court's registration
districts." Land Court Guidelines at 2. And that executive form
in turn reads:
5
The Land Court Guidelines appear to contemplate that the
requirement of section 29 does apply to registered land, because
they state that deeds, among other documents "must be acknowledged
in order to be recorded." Land Court Guidelines at 1 (citing Mass.
Gen. Laws ch. 183, § 29).
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On this ____ day of ___________, 20__, before me,
the undersigned notary public, personally appeared
________________________ (name of document
signer), proved to me through satisfactory evidence
of identification, which were
_______________________, to be the person whose
name is signed on the preceding or attached
document, and acknowledged to me that (he) (she)
signed it voluntarily for its stated purpose.
(as partner for ____________, a partnership)
(as ____________ for ______________, a corporation)
(as attorney in fact for ________________, the
principal)
(as ___________ for _______________, (a) (the)
_________________)
_________________ (official signature and seal of
notary)
Revised Executive Order No. 455 (04-04) (2004), at 6,
http://www.mass.gov/courts/docs/lawlib/eo400-499/eo455rev.pdf.
In other words, the Land Court Guidelines expressly bless a
form certificate of acknowledgement that is not unlike the one
that is at issue here. The executive form, like the one in this
case, references the power of attorney relationship between the
one who appears before the notary to acknowledge the instrument
and the grantor of the instrument. And, the executive form, like
the one in this case, does not also expressly state that the person
who appeared as attorney in fact for the grantor in "voluntarily"
signing the mortgage did so as the free act and deed of the grantor.
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We thus do not see how the Land Court form -- given that the Land
Court's own guidelines expressly approve the executive form --
calls into question the certificate of acknowledgement that is at
issue in this case.6
III.
The order of the District Court is affirmed.
6 We note that in In re Kelley, 498 B.R. 392 (B.A.P. 1st Cir.
2013), on which Lassman relies, the certificate of acknowledgment
for the mortgage there at issue stated in relevant part that
"before me . . . personally appeared [Grantors] by Shannon Obringer
as Attorney in Fact . . . and acknowledged to me that he/she/they
signed it voluntarily for its stated purpose." Id. at 394. The
Bankruptcy Appellate Panel concluded that, despite the language
stating that the grantor of the mortgage appeared "by" Obringer,
id., Obringer "[n]ever said anything to the one who made out the
certificate of acknowledgment to indicate that the Mortgage was
the voluntary act of the [grantors]." Id. at 401. In so holding,
the Bankruptcy Appellate Panel in In re Kelley made no reference
to the terms of the power of attorney that would have enabled
Obringer to execute and acknowledge the mortgage on behalf of the
grantors. Thus, even if we were to assume that In re Kelley is
right on its particular facts, our case is distinguishable because
the certificate of acknowledgment at issue here expressly
specified that the one who appeared before the notary to
acknowledge the mortgage was acting "under Power of Attorney
recorded herewith," and the recorded power of attorney forms that
are referenced expressly and voluntarily authorize that attorney
-- Molloy -- to execute and acknowledge the mortgage on behalf of
the DeMores. Thus, we do not see how one could say that, on the
basis of the certificate of acknowledgement here, the one who
acknowledged the mortgage "[n]ever said anything to the one who
made out the certificate of acknowledgment to indicate that the
Mortgage was the voluntary act of the [grantors]." Id.- 18 -