Hargrove v. Wachovia Mortg. Corp. (In re Hargrove)

Guy R. Humphrey

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Guy R. Humphrey

United States Bankruptcy Judge

This matter is before the court on the Plaintiff's Brief in Support of Motion for Default Judgment (doc. 6), which requests that the court reconsider its determination of the Plaintiff's Motion for Default Judgment on Complaint to Cancel the Invalid and Defective Mortgage Line of Wachovia Mortgage Corporation and Wells Fargo Bank, NA (doc. 6) set forth in the Memorandum Order Denying Plaintiff's Motion for Default Judgment and Ordering Other Matters (doc. 7) ("Memorandum Order").

Danielle P. Hargrove, the Plaintiff ("Hargrove"), contends that the mortgage, which is the subject of this adversary proceeding (the "Mortgage"), was not properly executed in compliance with Ohio Revised Code § 5301.01 and was therefore not entitled to be recorded pursuant to § 5301.23. According to Hargrove, if a defective mortgage is allowed to remain of record without validation or correction, the requirements of § 5301.01 would serve no purpose. The purpose of this statute, however, is to provide evidence of execution and authority for recordation, not a means of escape for a party who later wishes to renege on the agreement. See Seabrooke v. Garcia, 454 N.E.2d 961, 964 (Ohio Ct. App. 1982). See also Menninger v. First Franklin Financial Corp. (In re Fryman), 314 B.R. 137, 138 (Bankr. S.D. Ohio 2004) (purpose of statute is to prevent fraud and provide a reasonable assurance that the mortgage or other instrument is genuine). Here, Hargrove does not deny that she intended to execute the Mortgage. Hargrove likewise has not alleged any fraud and has not challenged the genuineness of the Mortgage. That the Mortgage was not entitled to be recorded may well be true, but it would still be valid as between Hargrove and the mortgagee. Under Ohio law, "[a] defectively executed conveyance of an interest in land is valid as between the parties thereto, in the absence of fraud." Citizens Nat'l Bank v. Dennison, 133 N.E.2d 329, 332 (Ohio 1956).

Nevertheless, Hargrove argues that Citizens does not stand for the proposition that the parties may dispense with the formalities of execution, but rather provides a means for the holder of an invalid instrument to assert an equitable lien in a judicial proceeding. Hargrove fails to explain, however, the need for Defendant Wachovia Mortgage Corporation or Defendant Wells Fargo Bank, its alleged successor, to assert an equitable lien. Because Hargrove and Wachovia intended to create a binding instrument, the Mortgage, even if defectively executed, remains valid and enforceable as to them and their successors. See Lasalle Bank, N.A. v. Zapata, 921 N.E.2d 1072, 1075-76 (Ohio Ct. App. 2009).

Hargrove's primary new argument is that this court has authority under § 105 of the Bankruptcy Code to issue an order cancelling the Mortgage because allowing it to stand would somehow violate the discharge injunction. See 11 U.S.C. § 524(a). This court disagrees. Section 105(a) permits a court to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. § 105. Although "[s]ection 105 undoubtedly vests bankruptcy courts with statutory contempt powers, ... it does not authorize the bankruptcy courts to create substantive rights that are otherwise unavailable under applicable law." Pertuso v. Ford Motor Credit Co., 233 F.3d 417, 423 n. 1 (6th Cir. 2000) (internal quotation marks and citations omitted). In its Memorandum Order, the court determined that Hargrove could not avoid the Mortgage under §§ 506, 522, or 544 of the Bankruptcy Code. In her motion for reconsideration, Hargrove does not challenge these findings and the only substantive provision she relies on for her requested relief is § 524(a). The Court of Appeals for the Sixth Circuit has expressly held that § 105 cannot be invoked to remedy supposed breaches of § 524(a). While the court may sanction a party for violating the discharge injunction and provide appropriate relief to a debtor harmed by a violation of the discharge injunction in order to carry out the protections of § 524(a), the court may not create new substantive types of relief such as lien avoidance to remedy such a violation. See Pertuso, 233 F.3d at 423. The court therefore lacks the authority to enter an order cancelling the Mortgage under § 105 even if the continued operation of the Mortgage would somehow violate the discharge injunction.

Lastly, Hargrove's assertion that this court is granting a mortgage to the defendants by not cancelling the Mortgage is unwarranted. The Mortgage was granted by Hargrove when she signed it. The fact that the Mortgage may not have been properly recorded and may not be enforceable against third parties, such as bona fide purchasers for value, does not mean that the Mortgage was not granted by Hargrove. Finally, if Hargrove truly believes that neither Wachovia nor Wells Fargo has any interest in retaining the Mortgage, she should request a voluntary release.

Based upon the foregoing, the court concludes that Hargrove has failed to show cause, in accordance with the court's Memorandum Order (doc. 7), why this adversary proceeding should not be dismissed for failure to state a claim upon which relief can be granted. Accordingly, the motion for reconsideration (doc. 6) is denied and this adversary proceeding is dismissed.

IT IS SO ORDERED. Copies to: David M. Hollingsworth, PO Box 52, Enon, Ohio 45323 (Counsel for the Plaintiff) Wachovia Mortgage Corporation c/o Prentiss-Hall Corporation System, 50 W. Broad Street, Suite 1800, Columbus, Ohio 43215 Wells Fargo Bank c/0 CSC Lawyers Incorporating Service, 50 W. Broad Street, Suite 1800, Columbus, Ohio 43215