Bankruptcy and Defective Acknowledgements

It is not avoidable that some mortgage agreements are found defective. The document becomes defective when there are errors upon filing, such as forgetting to type the name of the person who signed the mortgage agreement. The big question for defective acknowledgement is how it could affect a bankruptcy proceeding?

Avoidable Claims

In a bankruptcy proceeding, there are claims that are considered avoidable. One of these cases is when a mortgage has a defective acknowledgement. The bankruptcy trustee can avoid the claim as secured so that there are more assets left for unsecured creditors. The defective acknowledgement is not enough in the bankruptcy court to render the claim valid. The latest example of this case happened in Ohio.

Case Precedent

Mikki Sue Gray filed a chapter 7 bankruptcy in 2008. One of the creditors filed a loan document wherein the lawyer who facilitated the transaction retyped the debtor's name because it was forgotten the first time it was filed. The loan was signed in 2004 and the error was discovered a few months later. The defective acknowledgement was done by the notary and the re-recording occurred in 2005. This means that the correction occurred three years before the filing of the bankruptcy proceeding. The bankruptcy court, however, ruled that even if Gray herself had acknowledged that she made the mortgage and signed it, it was not enough. The court said that it was an improper acknowledgement because there was only the notary present.

How to Correct the Problem

In order for a claim to be non-avoidable under the bankruptcy proceeding, the correction should not only be corrected by the notary. The mortgagor should be present and re-acknowledged the document. Even if state courts allow the notary to correct errors of omissions in titles or loan documents, the bankruptcy court is stricter. The mortgagor should come back, re-acknowledge the document and the notary will re-record it.

Seeking Lawyer Advice

If you are a creditor and found out that some of the loan documents in your file are defective, contact your lawyer right away. Ask your lawyer to get hold of the mortgagor and let him or her come to the office to re-acknowledge the document. Even if you don’t think that the borrower will file for bankruptcy, it is still better to be prepared. You just don’t know how things will turn out in the future. You wouldn’t want your claim to be declared null and void.