Properly Recorded Notice of Default Gives Trustee Notice Where Mortgage Recording is Invalid

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The following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.

Minnesota Bankruptcy Case:

BowlNebraska, L.L.C. v. Omaha State Bank (In re BowlNebraska, L.L.C.) 2010 WL 2606336 (B.A.P. 8th Cir. (Neb.) 7/1/10) (Federman, J.).

Case Summary:

Properly Recorded Notice of Default Gives Trustee Notice Where Mortgage Recording is Invalid

The Eighth Circuit BAP reverses the bankruptcy court’s order that declared the bank’s mortgages invalid, because the properly-recorded notices of default gave the debtor in possession (with trustee powers) sufficient notice of the liens to defeat its strong-arm powers. The bank officer who notarized the debtor corporate officers’ signatures on a mortgage was the brother-in-law of one of the signers, and under Nebraska law he was not authorized to notarize that signature. Further under Nebraska law, an invalid acknowledgment nullifies the recording of an instrument, so the instrument cannot be constructive notice to a bankruptcy trustee. The DIP therefore sought to avoid the mortgages using §544 strong-arm powers under state law. The bankruptcy court ruled in the DIP’s favor on the pleadings, apparently unaware of or disregarding the notices of default that were also recorded by the bank. The BAP reverses, noting that the issue was whether recorded documents would provide a bona fide purchaser with notice of the bank’s liens. The bank made the recorded notices of default part of the record on appeal, and the BAP concludes that they were properly recorded and were sufficient to put the bona fide purchaser-DIP on notice.

Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.