As a business leader and Notary Public, you are approached by a member of your social club or homeowners association and asked to notarize a mortgage document for an acquaintance and his or her spouse. Giving it little thought, you hurriedly complete the notarial certificate and return the mortgage. A short time later, you pause and ponder the consequences of your actions.
Appointed by the Kentucky Secretary of State, notaries hold office for four years. Kentucky residents, or those working in Kentucky but not living there, who are at least 18 years old are eligible. After receiving a certificate of appointment, the notary must take an oath and provide security for the proper discharge of the duties of office. Kentucky notaries are authorized to take acknowledgments of deeds and mortgages.
The authentication of a deed or mortgage is not just a formality. In Kentucky, a purchaser of real property is placed on constructive notice of a prior interest in that property by the presence of a recorded deed or mortgage that is acknowledged according to law. Our Kentucky courts have consistently held that defectively acknowledged mortgages do not provide constructive notice, even if recorded. This has prompted a wave of recent attacks on improperly acknowledged mortgages in our bankruptcy courts.
Under the bankruptcy law, the bankruptcy trustee may avoid recorded but defective mortgages placed on a bankruptcy debtor's real property. Most of those attacks have been on improperly executed certificates of acknowledgment by a notary public attached to otherwise proper mortgages. After the mortgage is set aside, the mortgaged property is then placed into the bankruptcy estate free of the mortgage lien.
Kentucky law requires the notary to certify that the person signing appeared before the notary, acknowledged executing the document, and is known to the notary or provided satisfactory evidence of his or her identity to the notary. "Safe harbor" short form acknowledgments are provided for individuals, corporations and others; however, use of other conforming forms are not prohibited.
By using the words "acknowledged before me," the notary certifies receipt of the required information. As an example, if a person signs on behalf of a corporation, use of the words "acknowledged before me" advises the public that the signer acknowledged holding the position set forth in the certificate, signed on behalf of the corporation with proper authority, and that the signing was the act of the corporation itself, all of which are required. Care should also be taken by the notary to identify the persons signing, date and sign the acknowledgment, and include the expiration date of the notarial commission.
In a recent bankruptcy case, an acknowledgment on an $879,000 mortgage was found to be defective because it failed to contain the words "acknowledged before me" and establish that the corporate officer signed with proper authority. Similarly, a mortgage was avoided at the request of the bankruptcy trustee where the notary failed to include the name of the county where the acknowledgment was taken, the identity and/or names of those who signed the mortgage and the date of the acknowledgment. Other mortgages have been set aside where the notary simply failed to state who acknowledged or signed the mortgage.
Fairly recently, a bankruptcy court held that where there was no question that the individuals appeared before the notary, executed the mortgage and the notary knew or had satisfactory evidence of their identity, use of the words "subscribed and sworn to before me" was the substantial equivalent of the words "acknowledged before me," thereby saving the mortgage from attack. Caution should be taken, however, as an old Kentucky decision held that a deed containing a simple statement that it was subscribed and sworn to before a notary public was not a sufficient acknowledgment.
In 2006, the Kentucky legislature passed a law that provides that defective acknowledgments on deeds and mortgages lodged for record before July 12, 2006, are deemed properly recorded. The bankruptcy courts have refused to apply this curative change retroactively to bankruptcy cases filed before July 12, 2006. By its terms, this new law does not apply to deeds and mortgages lodged for record after July 12, 2006.
Although sometimes taken lightly, with increasing mortgage defaults and resultant bankruptcies, these recent attacks on recorded mortgages in the Bankruptcy Court highlight the need for notaries to honestly and diligently discharge the duties of their office. In some instances, where deeds or mortgages have been set aside, notaries have been sued personally along with their surety for damages caused by their failure to properly take or complete their certificate of acknowledgment. Although technical compliance is not required, a notary public would be prudent to use the statutory short forms as a "safe harbor" against attack and personal liability and the unpleasantries associated with having his or her acknowledgment called into question.
Robert Ryan is a member in the Lexington firm of Fowler Measle & Bell PLLC and advises and defends in business, real estate and homeowner association matters.
This article is provided as general information rather than legal advice. Questions about individual situations should be directed to legal counsel.