791 F.3d 180
1st Cir.2015Background
- In 2005 Alvaro and Lisa Pereira executed and recorded a mortgage to Bank of America; the certificate of acknowledgement omitted the mortgagors' names (a material defect under Massachusetts law).
- In January 2012 the notary (an attorney) recorded an affidavit under Mass. Gen. Laws ch. 183, § 5B, stating he witnessed the Pereiras’ signatures, that they signed voluntarily, and that omission of their names was inadvertent.
- Alvaro Pereira filed Chapter 7 bankruptcy in July 2012; the Chapter 7 trustee, Debora Casey, sued to avoid the mortgage under 11 U.S.C. § 544(a)(3) (the trustee’s "strong-arm" power) on grounds the mortgage was voidable as against a bona fide purchaser.
- The bankruptcy court held the mortgage was defective and avoidable; the district court reversed, finding the § 5B affidavit cured the defective acknowledgement and provided constructive notice.
- The First Circuit certified two controlling questions of Massachusetts law to the Massachusetts Supreme Judicial Court because the state-law issues are determinative, unsettled by SJC precedent, and have broad policy implications.
Issues
| Issue | Plaintiff's Argument (Trustee Casey) | Defendant's Argument (Bank of America) | Held |
|---|---|---|---|
| Whether an affidavit recorded under Mass. Gen. Laws ch. 183, § 5B may correct a recorded mortgage whose certificate of acknowledgement omits the mortgagor’s name (i.e., cure a material defect) | § 5B cannot cure because a materially defective acknowledgement means there was no valid instrument/transfer to be "clarified," and § 184, § 24 provides the exclusive statutory cure procedure | § 5B affidavits may cure both technical and substantive defects by clarifying chain of title; § 24 is a statute of repose, not an exclusive cure mechanism | Certified to the Massachusetts SJC for authoritative resolution (no definitive federal holding) |
| Whether a § 5B affidavit recorded as described provides constructive notice of the mortgage to a bona fide purchaser (thus defeating § 544(a)(3) avoidance) | A defective recorded mortgage is outside the chain of title and cannot impart constructive notice; an affidavit that merely references a defective instrument likewise cannot charge subsequent purchasers | The affidavit identifies the parties, loan amount, and property and thus supplies the practical functions of an acknowledgement and imparts constructive notice | Certified to the Massachusetts SJC for authoritative resolution (no definitive federal holding) |
Key Cases Cited
- Easthampton Sav. Bank v. City of Springfield, 736 F.3d 46 (1st Cir. 2013) (factors for certifying state-law questions)
- DeGiacomo v. Traverse (In re Traverse), 753 F.3d 19 (1st Cir. 2014) (trustee’s strong-arm powers under § 544)
- Crane v. Richardson (In re Crane), 742 F.3d 702 (7th Cir. 2013) (context on trustee avoidance and bona fide purchaser rule)
- Stern v. Continental Assurance Co. (In re Ryan), 851 F.2d 502 (1st Cir. 1988) (constructive notice as a rule of state law)
- Eaton v. Federal National Mortgage Association, 969 N.E.2d 1118 (Mass. 2012) (use of § 5B affidavits to clarify title)