In re Oakes ( 2018 )


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  •                           RECOMMENDED FOR FULL-TEXT PUBLICATION
    File Name: 18b0001p.06
    BANKRUPTCY APPELLATE PANEL
    OF THE SIXTH CIRCUIT
    IN RE: JERRY WAYNE OAKES; JENNIFER ANN OAKES,          ┐
    Debtors.     │
    ___________________________________________           │
    │
    DONALD F. HARKER, Trustee,                              >    No. 17-8005
    Plaintiff-Appellee,    │
    │
    │
    v.                                              │
    │
    PNC MORTGAGE COMPANY,                                  │
    │
    Defendant-Appellant.
    │
    ┘
    Appeal from the United States Bankruptcy Court
    for the Southern District of Ohio at Dayton.
    No. 13-33828—Lawrence S. Walter, Judge.
    Argued: November 14, 2017
    Decided and Filed: February 6, 2018
    Before: HARRISON, OPPERMAN, and WISE, Bankruptcy Appellate Panel Judges.
    _________________
    COUNSEL
    ARGUED: Amelia A. Bower, PLUNKETT COONEY, Columbus, Ohio, for Appellant. Dianne
    F. Marx, RIESER & MARX LLC, Dayton, Ohio, for Appellee. ON BRIEF: Amelia A. Bower,
    PLUNKETT COONEY, Columbus, Ohio, for Appellant. Dianne F. Marx, John Paul Rieser,
    RIESER & MARX LLC, Dayton, Ohio, for Appellee.
    No. 17-8005                              In re Oakes                                    Page 2
    _________________
    OPINION
    _________________
    OVERVIEW
    DANIEL S. OPPERMAN, Chief Bankruptcy Appellate Panel Judge. PNC Mortgage
    Company (“PNC”) requests that this Panel hold that the Chapter 7 Trustee, Donald F. Harker
    (“Trustee”), cannot avoid its mortgage under 11 U.S.C. § 541(a)(1) as a hypothetical lien
    creditor. PNC argues that the Ohio Supreme Court addressed similar issues regarding a trustee’s
    avoidance powers as a bona fide purchaser, and the Ohio Legislature subsequently amended its
    statutes to limit a trustee’s avoidance powers. The Panel granted leave to appeal to resolve a
    split in the Ohio bankruptcy courts. Because the Panel finds that the Ohio Supreme Court did
    not address the Trustee’s avoidance powers as a hypothetical judicial lien creditor, and the Ohio
    Legislature did not make its amendments retroactive, we affirm the bankruptcy court’s order
    denying PNC’s motion for judgment on the pleadings.
    STATEMENT OF ISSUES
    The issue on appeal is whether the bankruptcy court erred in denying PNC’s Motion to
    Dismiss and/or For Judgment on the Pleadings and failed to properly apply Ohio Revised Code
    § 1301.401 and the Ohio Supreme Court decision in In re Messer, 
    50 N.E.3d 495
    (Ohio 2016), to
    a trustee’s powers under 11 U.S.C. § 544(a)(1). Resolution of this appeal requires the Panel to
    answer two questions:
    1. Are the Trustee’s avoidance powers as a hypothetical judicial lien creditor pursuant to
    § 544(a)(1) limited due to the constructive notice provision of Ohio Revised Code
    § 1301.401 and the Ohio Supreme Court’s interpretation of that statute in In re
    Messer?
    2. Does Ohio Revised Code § 5301.07 (effective April 6, 2017) apply retroactively to
    limit the Trustee’s avoidance powers as a hypothetical judicial lien creditor in the
    present case?
    No. 17-8005                               In re Oakes                                   Page 3
    JURISDICTION AND STANDARD OF REVIEW
    On March 30, 2017, the Panel granted leave to appeal finding that the appeal involved a
    question of law to which there was disagreement and which was controlling as to the outcome of
    the case. An order deciding that the Trustee has strong arm powers under § 544(a)(1) renders a
    legal determination reviewed de novo. Simon v. Chase Manhattan Bank (In re Zaptocky),
    
    250 F.3d 1020
    , 1023 (6th Cir. 2001) (citing Corzin v. Fordu (In re Fordu), 
    201 F.3d 693
    , 696 n.1
    (6th Cir. 1999) (“We review the bankruptcy court’s legal holdings de novo and its factual
    determinations for clear error.”)).
    FACTS
    Jerry and Jennifer Oakes (“Debtors”) filed a Chapter 7 bankruptcy petition on September
    17, 2013. They included their interest in real property located in Franklin, Ohio, on Schedule A.
    Schedule D indicated three mortgages against the property; PNC held the first two. The home
    was “underwater.”
    On January 28, 2014, the Trustee filed a Complaint to initiate an adversary proceeding to
    avoid PNC’s alleged first mortgage. The Trustee asserted that the mortgage was avoidable under
    11 U.S.C. §§ 544(a)(1) and 544(a)(3) and Ohio law. Shortly after filing an Answer, PNC moved
    to dismiss the case. The bankruptcy court then entered an agreed order that stayed the adversary
    proceeding pending resolution of two questions of law that the United States Bankruptcy Court
    for the Southern District of Ohio had certified to the Ohio Supreme Court in another matter:
    1. Does O.R.C. § 1301.401 apply to all recorded mortgages in Ohio?
    2. Does O.R.C. § 1301.401 act to provide constructive notice to the world of a recorded
    mortgage that was deficiently executed under O.R.C. § 5301.01?
    In re Messer, 
    50 N.E.3d 495
    , 496 (Ohio 2016). Ultimately, the Ohio Supreme Court answered
    both questions in the affirmative. 
    Id. at 499.
    After the Ohio Supreme Court issued its Messer opinion, the Trustee filed an Amended
    Complaint on July 8, 2016, and PNC filed an Answer and another Motion to Dismiss or for
    Judgment on the Pleadings the following month.           Although the parties agreed that the
    acknowledgement clause in the mortgage was defective and did not substantially comply with
    No. 17-8005                               In re Oakes                                    Page 4
    the requirements of Ohio Revised Code § 5301.01, PNC asserted that Ohio Revised Code
    § 1301.401 vitiates the Trustee’s power to avoid recorded mortgages based on defects in their
    execution as either a hypothetical bona fide purchaser under 11 U.S.C. § 544(a)(3) or
    hypothetical judicial lien creditor under 11 U.S.C. § 544(a)(1).
    On February 16, 2017, the bankruptcy court entered its opinion and order denying the
    Motion to Dismiss. The bankruptcy court held that
    [w]hile Ohio Rev. Code § 1301.401 deems the recording of a defectively executed
    mortgage to provide constructive notice, such notice does not affect the priority of
    liens involving a defectively executed mortgage. As such, the Trustee retains the
    power to avoid PNC’s defectively executed mortgage as a judicial lien creditor
    pursuant to § 544(a)(1).
    Harker v. PNC Mortgage Co. (In re Oakes), 
    565 B.R. 616
    , 618 (Bankr. S.D. Ohio 2017). PNC
    timely filed both a notice of appeal and a motion for leave to appeal. The Panel granted leave to
    appeal the bankruptcy court’s interlocutory order.
    DISCUSSION
    I.     The Constructive Notice Provision Of Ohio Revised Code § 1301.401 Does Not
    Defeat The Trustee’s Powers As A Hypothetical Judicial Lien Creditor.
    A.      The Trustee has Avoidance Powers under Section 544 of the Bankruptcy Code.
    The Bankruptcy Code gives trustees certain rights and powers to avoid transfers of
    property of a debtor:
    (a) The trustee shall have, as of the commencement of the case, and without
    regard to any knowledge of the trustee or of any creditor, the rights and powers
    of, or may avoid any transfer of property of the debtor or any obligation incurred
    by the debtor that is voidable by--
    (1) a creditor that extends credit to the debtor at the time of the
    commencement of the case, and that obtains, at such time and with respect to such
    credit, a judicial lien on all property on which a creditor on a simple contract
    could have obtained such a judicial lien, whether or not such a creditor exists;
    ....
    (3) a bona fide purchaser of real property, other than fixtures, 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.
    No. 17-8005                                       In re Oakes                                              Page 5
    11 U.S.C. § 544. State law determines the extent of those rights and powers. Treinish v.
    Norwest Bank, MN, N.A. (In re Periandri), 
    266 B.R. 651
    , 655 (B.A.P. 6th Cir. 2001). Pursuant
    to 11 U.S.C. § 544(a)(1), a bankruptcy trustee has the status of a hypothetical judicial lien
    creditor who is deemed to have perfected his interest as of the date of the filing of the bankruptcy
    petition and has the power to avoid transfers of property that could be avoided by such a creditor.
    Palmer v. Washington Mut. Bank (In re Ritchie), 
    416 B.R. 638
    , 643 (B.A.P. 6th Cir. 2009);
    Rogan v. Bank One, N.A. (In re Cook), 
    457 F.3d 561
    , 564 (6th Cir. 2006).
    “One of these powers is the ability to take priority over or ‘avoid’ security
    interests that are unperfected under applicable state law [.]” Neilson v. Chang (In
    re First T.D. & Inv., Inc.), 
    253 F.3d 520
    , 526 (9th Cir. 2001) (citation omitted).
    Under § 544(a)(1), if a lien against the debtor’s property was improperly
    perfected, or not perfected at all, before the bankruptcy petition was filed, the
    trustee may take priority. Drown v. Perfect (In re Giaimo), 
    440 B.R. 761
    , 765
    (6th Cir. BAP 2010).
    Rogan v. Litton Loan Serv., L.P. (In re Collins), 
    456 B.R. 284
    , 293 (B.A.P. 6th Cir. 2011).
    “Accordingly, the trustee can prevail only if, under Ohio law, a person with the status described
    in § 544(a)(1), (2), or (3) as of the commencement of the case could avoid [the mortgagee’s]
    interest in the Debtors’ property under the mortgage.” 
    Periandri, 266 B.R. at 655
    (quoting
    Simon v. Chase Manhattan Bank (In re Zaptocky),1 
    232 B.R. 76
    , 79–80 (B.A.P. 6th Cir. 1999))
    (alteration in original).
    B.       Bankruptcy Trustees in Ohio Avoided Defective Mortgages under § 544(a)(3) and
    Ohio Law as Bona Fide Purchasers Prior to the Enactment of Ohio Revised Code
    § 1301.401, which Narrowed Trustees’ Strong Arm Powers under Ohio Law.
    In the present case, the bankruptcy court properly noted: “Prior to the enactment of Ohio
    Rev. Code § 1301.401, bankruptcy trustees routinely avoided defectively executed mortgages on
    real property located in Ohio using their ability to obtain the status of a hypothetical bona fide
    purchaser without actual notice (meaning only constructive notice matters in the bankruptcy
    context).” 
    Oakes, 565 B.R. at 621
    (citing Rhiel v. Central Mortg. Co. (In re Kebe), 
    469 B.R. 778
    (Bankr. S.D. Ohio 2012); Rhiel v. Huntington Nat'l Bank (In re Phalen), 
    445 B.R. 830
    (Bankr.
    1
    Although the ruling in Zaptocky was effectively superseded by statute, see Ransier v. Standard Fed. Bank
    (In re Collins), 
    292 B.R. 842
    , 846-847 (Bankr. S.D. Ohio 2003), the legal principles for purposes of this decision are
    sound.
    No. 17-8005                               In re Oakes                                      Page 6
    S.D. Ohio 2011); Noland v. Burns (In re Burns), 
    435 B.R. 503
    (Bankr. S.D. Ohio 2010)). The
    Bankruptcy Court correctly articulated the basis for avoidance:
    A trustee’s ability to avoid defectively executed mortgages arose from a
    combination of Ohio statutory and case law to the effect that defectively executed
    mortgages were not entitled to be recorded, derived no efficacy from being placed
    on record and, as such, the recording did not provide constructive notice to
    subsequent purchasers.
    
    Id. (citing Ohio
    Rev. Code § 5301.25; In re Nowak, 
    820 N.E.2d 335
    , 338 (Ohio 2004); Citizens
    Nat’l Bank v. Denison, 
    133 N.E.2d 329
    , 332–33 (Ohio 1956); Mortgage Elec. Regis. Sys. v.
    Odita, 
    822 N.E.2d 821
    , 825–26 (Ohio Ct. App. 2004)).
    Recently, however, the Ohio legislature enacted new legislation designed to protect
    mortgage holders. Ohio Revised Code § 1301.401, effective March 27, 2013, provides:
    (A) For purposes of this section, “public record” means either of the following:
    (1) Any document described or referred to in section 317.08 of the
    Revised Code;
    (2) Any document the filing or recording of which is required or allowed
    under any provision of Chapter 1309. of the Revised Code.
    (B) The recording with any county recorder of any document described in
    division (A)(1) of this section or the filing or recording with the secretary of state
    of any document described in division (A)(2) of this section shall be constructive
    notice to the whole world of the existence and contents of either document as a
    public record and of any transaction referred to in that public record, including,
    but not limited to, any transfer, conveyance, or assignment reflected in that
    record.
    (C) Any person contesting the validity or effectiveness of any transaction referred
    to in a public record is considered to have discovered that public record and any
    transaction referred to in the record as of the time that the record was first filed
    with the secretary of state or tendered to a county recorder for recording.
    Ohio Rev. Code § 1301.401.
    Shortly after this section was enacted, mortgagees in Ohio began to challenge bankruptcy
    trustees’ strong arm powers under 11 U.S.C. § 544(a)(3). The mortgagees argued that even a
    defectively executed mortgage provided constructive notice to the trustee under Ohio law,
    therefore eliminating a trustee’s ability to claim the status of a bona fide purchaser (“BFP”).
    Trustees responded that Ohio Revised Code § 1301.401 only applied to transactions governed by
    No. 17-8005                               In re Oakes                                      Page 7
    the Uniform Commercial Code and not to mortgages. Faced with these arguments, as noted
    above, the bankruptcy court in Messer v. JP Morgan Chase Bank, NA (In re Messer), 
    555 B.R. 656
    (Bankr. S.D. Ohio 2016), sought clarity on Ohio law from the Ohio Supreme Court. In
    response, the Ohio Supreme Court held that the act of recording a mortgage provides
    constructive notice to the world of the existence of the mortgage and its contents even if the
    mortgage is defectively executed. 
    Messer, 50 N.E.3d at 498
    –99. Thus, the bankruptcy court
    held—and the parties herein agree—that bankruptcy trustees may no longer avoid mortgages as a
    BFP under Ohio law when the defective mortgage was recorded.
    C.      The Bankruptcy Court Rejected PNC’s Argument that the Ohio Supreme Court’s
    Decision in Messer Precludes Trustees in Ohio from Avoiding Defective
    Mortgages as Hypothetical Judicial Lien Creditors under § 544(a)(1).
    In the present case, relying on the Ohio Supreme Court’s Messer decision, PNC argued to
    the bankruptcy court that Ohio Revised Code § 1301.401 also prohibited the Trustee from
    asserting the status of a judicial lien creditor pursuant to 11 U.S.C. § 544(a)(1). The bankruptcy
    court rejected that argument, explaining that “a review of Ohio case law demonstrates that notice
    of a prior recorded but defectively executed mortgage has no impact on the lien priority dispute.”
    
    Oakes, 565 B.R. at 624
    . The court reasoned, “judicial precedent has developed holding that a
    defectively executed mortgage derives no efficacy from being recorded and is not valid against a
    subsequent properly executed and recorded lien even if the subsequent lienholder has notice.”
    
    Id. (emphasis in
    original, citations omitted). The court concluded:
    While notice (or a lack thereof) is imperative to obtaining bona fide purchaser
    status, notice is irrelevant to prioritizing a defectively executed mortgage with
    other liens. Instead, the important factor in the lien priority dispute is determining
    which lien is the first in time that strictly adhered to recording statutes.
    The rationale for treating lien priorities in this manner appears to be a public
    policy favoring those who comply with the recording statutes over those who do
    not. The earliest explanation of this rationale comes from a Supreme Court of
    Ohio case decided in 1847 which gave priority to subsequent filed judgment liens
    over a defectively executed first mortgage:
    We can not aid him in correcting the error, which a little care
    would have prevented, by thrusting aside those who have equal
    equity, and the better legal claim. The complainant can not be
    preferred to the judgment creditors, without establishing a
    precedent that will in effect give more efficacy, in a numerous
    No. 17-8005                                In re Oakes                                       Page 8
    class of cases, to a negligently executed and defective mortgage,
    than to one in all respects executed in compliance with the law.
    White v. Denman, 
    16 Ohio 59
    , 61 (1847).
    The court cannot ignore a century of Ohio case law that has grown out of this
    policy consistently holding that a subsequent properly perfected lien takes priority
    over a defectively executed but recorded mortgage despite either actual or
    constructive notice.
    
    Oakes, 565 B.R. at 625
    –26 (footnote omitted). The bankruptcy court acknowledged that it
    reached a different result than the bankruptcy court handed down in Messer after the Ohio
    Supreme Court issued its decision:
    Following the decision of the Ohio Supreme Court in Messer, the parties in that
    case returned to the bankruptcy court for a status hearing. The plaintiffs argued
    that although Messer precluded their claim as hypothetical bona fide purchasers
    under § 544(a)(3), it did not affect their claim under § 544(a)(1) as hypothetical
    judgment lien creditors, the same issue now before this court. In a limited
    decision without citation to Ohio case law, the bankruptcy court concluded that
    “[w]hether one claims the status of a hypothetical judgment lien creditor or a bona
    fide purchaser, constructive notice under state law precludes avoidance through
    Section 544 of the Code.” Messer v. JPMorgan Chase Bank, NA (In re Messer),
    
    555 B.R. 656
    , 659 (Bankr. S.D. Ohio 2016). Because the fundamental purpose of
    recording statutes is to provide notice to third parties, this is not an illogical
    conclusion. See [GMAC Mortg. Corp. v.] McElroy, 
    2005 WL 1364580
    at *3
    [Ohio Ct. App. 2005] (“The purpose of the recording statutes is to put other lien
    holders on notice and to prioritize the liens[.]”). It is also logical to suppose there
    is no reason to treat lien creditors more favorably than bona fide purchasers for
    value. See Kellner v. Fifth Third Bank (In re Durham), 
    493 B.R. 506
    , 516 n.4
    (Bankr. S.D. Ohio 2013). Nevertheless, this court must respectfully disagree.
    As discussed in this decision, a long line of Ohio case law and subtle distinctions
    in the recording statutes compel a different result.
    
    Id., 565 B.R.
    at 626 n.4. PNC appeals this ruling, asking the Panel to follow the bankruptcy
    court’s decision in Messer with regard to the Trustee’s rights as a hypothetical judicial lien
    creditor.
    D.     Ohio Revised Code § 1301.401 Does Not Prevent the Trustee from Avoiding
    Defective Mortgages as a Hypothetical Judicial Lien Creditor under § 544(a)(1).
    The bankruptcy court in the present case reached the correct result. Ohio Revised Code
    § 1301.401 addresses constructive notice. It does not address whether a defective mortgage is
    No. 17-8005                                In re Oakes                                      Page 9
    entitled to be recorded or afforded priority over subsequent properly perfected liens. Contrary to
    the Messer bankruptcy court’s holding, judicial lien creditors are different than BFPs. Stubbins
    v. Wells Fargo Bank, N.A. (In re Gibson), 
    395 B.R. 49
    , 57 (Bankr. S.D. Ohio 2008) (“Neither
    the Bankruptcy Code nor Ohio law requires that a judgment creditor have the same attributes of a
    bona fide purchaser as it pertains to notice of a prior interest; neither requires a judgment creditor
    to lack notice of an unrecorded or defective lien in order to obtain a superior lien on a judgment
    debtor’s property.”).
    PNC’s argument that Ohio Revised Code § 1301.401 defeats the Trustee’s status as a
    hypothetical judicial lien creditor because a judicial lien creditor is always subordinate to a BFP
    fails. A person’s very status as a BFP presumes that they have taken their interest for value
    without notice of any prior interests. See, e.g., Bank of N.Y. v. Sheeley (In re Sheeley), Case No.
    08-32316, Adv. No. 11-3028, 2012 Bankr. LEXIS 1374, at *22 (Bankr. S.D. Ohio April 2, 2012)
    (“Under Ohio law, a bona fide purchaser is defined as one who takes in good faith, for value, and
    without actual or constructive notice of any defect.” (citations omitted)). If a properly perfected
    judicial lien existed, a subsequent party could not obtain BFP status. The fact that the Trustee
    cannot obtain BFP status due to the constructive notice provision of Ohio Revised Code
    § 1301.401 does not defeat his ability to step into the shoes of a hypothetical judicial lien
    creditor.
    PNC’s reliance on Kellner v. Fifth Third Bank (In Durham), 
    493 B.R. 506
    (Bankr. S.D.
    Ohio 2013), is misplaced.       In Durham, the Chapter 13 trustee sought to avoid a bank’s
    unrecorded mortgage on certain real property as a hypothetical judicial lienholder under
    11 U.S.C. § 544(a)(1). The bank had filed a state court foreclosure action and obtained a decree
    of foreclosure before the debtors filed their bankruptcy petition. As a result, the bankruptcy
    court agreed with the bank’s argument that Ohio’s codified doctrine of lis pendens, found at
    Ohio Revised Code § 2703.26, barred the trustee from avoiding the mortgage as a hypothetical
    judgment lien creditor. That statute provides: “When a complaint is filed, the action is pending
    so as to charge a third person with notice of its pendency. While pending, no interest can be
    acquired by third persons in the subject of this action, as against the plaintiff's title.” Ohio Rev.
    Code § 2703.26 (emphasis added).         The bankruptcy court explained: “Ohio Revised Code
    No. 17-8005                               In re Oakes                                   Page 10
    § 2703.26 has been held to prevent all third parties, not just subsequent bona fide purchasers,
    from acquiring an interest in the subject real estate during the pendency of a foreclosure action.”
    
    Durham, 493 B.R. at 516
    (citing Bates v. Postulate Investments, L.L.C., 
    892 N.E.2d 937
    , 940
    (Ohio Ct. App. 2008)). The Durham court thus distinguished Gibson because Durham involved
    the lis pendens doctrine and Gibson did not.
    The present case is not a lis pendens case, and Durham is inapplicable. Durham does not
    eliminate the basic rule stated in Gibson that, under Ohio law, an unrecorded mortgage does not
    take priority over the trustee as a hypothetical judicial lien creditor. “Under Ohio law, a
    defectively-executed mortgage is not entitled to record and is not binding as to a trustee in
    bankruptcy in his capacity as a hypothetical lien creditor/bona fide purchaser.”         Logan v.
    Kingston Nat’l Bank (In re Floater Vehicle, Inc.), 
    105 B.R. 420
    , 421 (Bankr. S.D. Ohio 1989);
    see also Mortg. Elec. Registration Sys. v. Odita, 
    822 N.E.2d 821
    , 825 (Ohio Ct. App. 2004) (“A
    defectively executed mortgage is not entitled to record, and even if it is recorded, the defective
    mortgage is treated as though it has not been recorded.”); 
    Gibson, 395 B.R. at 54
    (“The Trustee
    can avoid Wells Fargo’s interest in the Debtors’ real property because as a hypothetical lien
    creditor his interest takes priority over an unrecorded mortgage under Ohio law.”).
    For the reasons stated, the Panel holds that, pursuant to applicable Ohio law at the time
    the case was filed, the Trustee in his role as a hypothetical judicial lien creditor takes priority
    over PNC’s defective mortgage.        Thus, the Trustee may avoid the mortgage pursuant to
    11 U.S.C. § 544(a)(1).
    II.    Newly Amended Ohio Revised Code § 5301.07 Does Not Apply Retroactively To
    This Case.
    The bankruptcy court also acknowledged that subsequently enacted Ohio legislation
    might make its holding irrelevant in future cases.
    The court would be remiss if it did not mention new legislation that may limit the
    significance of this holding and further suggests that the Ohio General Assembly
    has recognized the need for additional statutory provisions in order to change lien
    priorities involving defectively executed mortgages. Wholly revised language in
    Ohio Rev. Code § 5301.07, effective April 6, 2017, appears poised to alter the
    lien priority analysis discussed in this decision. Because revised Ohio Rev. Code
    No. 17-8005                                 In re Oakes                                       Page 11
    § 5301.07 is not yet in effect, the court will refrain from discussing its potential
    impact leaving that for future determination.
    
    Oakes, 565 B.R. at 626
    –27 (footnote omitted). The new statutory language of Ohio Revised
    Code § 5301.07, effective April 6, 2017, provides, in pertinent part:
    (G) This section shall be given retroactive effect to the fullest extent permitted
    under Section 28 of Article II, Ohio Constitution. This section shall not be given
    retroactive effect if to do so would affect any accrued substantive right or vested
    rights in any person or in any real property instrument.
    Debtors’ bankruptcy petition was filed prior to the effective date of revised § 5301.07.
    The bankruptcy court correctly held that the newly enacted language does not apply
    retroactively. Under 11 U.S.C. § 544(a)(1), a bankruptcy trustee “steps into the shoes” of a
    hypothetical judicial lien creditor that perfected its lien as of the date of the filing of the petition.
    Thus, the Trustee accrued his rights prior to the enactment date of the newly revised § 5301.07
    and, pursuant to subsection (G), the statute cannot be applied retroactively. See Kovacs v. First
    Union Home Equity Bank (In re Huffman), 
    408 F.3d 290
    , 294 (6th Cir. 2005) (“the amended
    statute [Ohio Revised Code § 5301.01], though retroactive by its terms, cannot be applied
    retroactively to impair the trustee’s vested rights.”); Baumgart v. Potts (In re Potts), 
    353 B.R. 874
    , 884 (Bankr. N.D. Ohio 2006) (“[T]he version of § 5301.01 in effect when a debtor’s
    petition for relief is filed controls the law governing whether the trustee can avoid a defective
    mortgage under § 544(a)(3) because that is when a trustee’s rights as a bona fide purchaser
    vest.”); Buzulencia v. TMS Mortg. Inc. (In re Baker), 
    300 B.R. 298
    , 308 (Bankr. N.D. Ohio
    2003) (same). See also Select Portfolio Servs., Inc. v. Burden (In re Trujillo), 
    378 B.R. 526
    (B.A.P. 6th Cir. 2007) (similar analysis under Kentucky law).
    CONCLUSION
    The bankruptcy court’s order denying PNC’s motion for judgment on the pleadings is
    AFFIRMED.
    

Document Info

Docket Number: 17-8005

Filed Date: 2/6/2018

Precedential Status: Precedential

Modified Date: 2/6/2018

Authorities (17)

Logan v. Kingston National Bank (In Re Floater Vehicle, Inc.... , 1989 Bankr. LEXIS 1596 ( 1989 )

Treinish v. Norwest Bank Minnesota, N.A. (In Re Periandri) , 2001 FED App. 0008P ( 2001 )

Stubbins v. Wells Fargo Bank, N.A. (In Re Gibson) , 2008 Bankr. LEXIS 2462 ( 2008 )

Select Portfolio Services, Inc. v. Burden (In Re Trujillo) , 2007 Bankr. LEXIS 3786 ( 2007 )

Noland v. Burns (In Re Burns) , 435 B.R. 503 ( 2010 )

Rhiel v. Central Mortgage Co. (In Re Kebe) , 469 B.R. 778 ( 2012 )

Baumgart v. Potts (In Re Potts) , 2006 Bankr. LEXIS 2841 ( 2006 )

Rogan v. Litton Loan Servicing, L.P. (In Re Collins) , 2011 Bankr. LEXIS 3012 ( 2011 )

Palmer v. Washington Mutual Bank (In Re Ritchie) , 62 Collier Bankr. Cas. 2d 1405 ( 2009 )

Ransier v. Standard Federal Bank, FSG (In Re Collins) , 50 Collier Bankr. Cas. 2d 182 ( 2003 )

Simon v. Chase Manhattan Bank (In Re Zaptocky) , 1999 FED App. 0006P ( 1999 )

Rhiel v. Huntington National Bank (In Re Phalen) , 2011 Bankr. LEXIS 678 ( 2011 )

Drown v. Perfect (In Re Giaimo) , 2010 FED App. 0011P ( 2010 )

Buzulencia v. TMS Mortgage, Inc. (In Re Baker) , 2003 Bankr. LEXIS 1284 ( 2003 )

In Re: Daniel Fordu, Debtor. Harold A. Corzin v. Julie A. ... , 201 F.3d 693 ( 1999 )

Bates v. Postulate Investments, L.L.C. , 176 Ohio App. 3d 523 ( 2008 )

Mortgage Electronic Registration Systems v. Odita , 159 Ohio App. 3d 1 ( 2004 )

View All Authorities »