Michigan Bankruptcy Blog

Chapter 7 Trustee May Avoid Mortgage on Platted Land Where Legal Description Fails to Identify Plat

Richardson v. Wells Fargo Home Mortgage, Inc. (In re Brandt), Bankr. W.D. Mich., Nov. 30, 2009 (Adv. Pro. No. 08-80342, 421 B.R. 426, Hon. James D. Gregg), affirmed, W.D. Mich., Aug. 25, 2010 (Case No. 1:10-CV-55, Hon. Robert Holmes Bell).

Outside of bankruptcy, errors in legal descriptions in mortgages often can be corrected. But when a mortgagee files a Chapter 7 bankruptcy case, a mistake in a legal description can open the door for a trustee to avoid the mortgage and potentially liquidate the property for the benefit of the debtor's unsecured creditors.

In In re Brandt, the bank's mortgage on the debtor's property included a parcel ID number and a street address, and it referred to an "attached legal description." However, no legal description was attached. The property was platted, and the correct legal description – which was omitted from the mortgage – identified the plat in which the property was located by name and by liber and page number.

The trustee argued that he could avoid the mortgage under § 544, and the bankruptcy court agreed. The bankruptcy court, after noting that a trustee can avoid an interest if a hypothetical bona fide purchaser would not be on constructive notice of the interest, held that the mortgage failed to comply with Michigan law. The Land Division Act, at MCL 560.255, provides that a mortgage on lands included in an assessor's plat cannot be recorded by the register of deeds unless it makes "reference to such assessor's plat . . . ." The bankruptcy court therefore concluded that the mortgage was invalid and failed to place bona fide purchasers on constructive notice of the bank's interest.

The bank appealed, and the district court affirmed. The district court rejected the bank's argument that the mortgage was valid because Michigan's general recording statute, MCL 565.151, does not require mortgages to include a precise legal description. The district court reasoned that the recording statute also requires compliance with "any other act relating to the recording of instruments" and that the more specific requirements of the Land Division Act controlled. The district court concluded that because the mortgage was not eligible for recording, it was "entirely inoperative" and could not provide notice to a prospective purchaser.

Although Brandt is limited to descriptions of platted land, both banks and trustees should take note that failing to identify a plat is fatal to a mortgage on platted land in the Western District of Michigan. Debtors' attorneys may also wish to carefully inspect their clients' mortgages before filing bankruptcy to minimize the risk of a trustee's avoidance action. 

Categories: Chapter 7, Western District of Michigan