Seelen v. Melissa Marie Arnette & Wells Fargo Bank N.A. (In re Arnette)

584 B.R. 304
CourtUnited States Bankruptcy Court, W.D. Wisconsin
DecidedMarch 23, 2018
DocketCase No.: 17–11795–7; Adversary No.: 17–74
StatusPublished
Cited by1 cases

This text of 584 B.R. 304 (Seelen v. Melissa Marie Arnette & Wells Fargo Bank N.A. (In re Arnette)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, W.D. Wisconsin primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Seelen v. Melissa Marie Arnette & Wells Fargo Bank N.A. (In re Arnette), 584 B.R. 304 (Wis. 2018).

Opinion

Hon. Catherine J. Furay, U.S. Bankruptcy Judge

On May 18, 2017, Debtor Melissa Arnette filed a voluntary Chapter 7 petition. Debtor owns real estate located at 608 Gilbert Street, Eau Claire, Wisconsin (the "Property"). The Trustee, Christopher Seelen, commenced an adversary proceeding seeking a declaratory judgment that the mortgage of Wells Fargo is void on its face and, further, that the mortgage may be avoided as not properly recorded. The parties agreed there were no contested material facts and agreed to submit their dispute to the Court on briefs.

The following discussion constitutes the Court's findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052 and Rule 52 of the Federal Rules of Civil Procedure.

The schedules list Wells Fargo as a secured creditor with a mortgage on the Property. The parties agree that a Mortgage was executed in favor of Century Lending Co. on January 29, 2010, and recorded on February 9, 2010. The Mortgage was then assigned to Wells Fargo on December 10, 2013, and the Assignment *307was recorded on December 11, 2013. The Mortgage contains a street address but does not include a legal description of the Property.

The Trustee argues the mortgage can be avoided under 11 U.S.C. § 544(a)(3) because the Trustee, in the shoes of a bona fide purchaser, did not have notice of the Mortgage due to the absence of a legal description. In re Thulis , 474 B.R. 668, 674 (Bankr. W.D. Wis. 2012) and Seelen v. Couillard (In re Couillard) , 486 B.R. 466, 477-78 (Bankr. W.D. Wis. 2012). Further, the Trustee contends the Mortgage is void under the Wisconsin statute of frauds because it lacks a legal description.

Wells Fargo contends the absence of a legal description is not dispositive. Rather, it argues that if the property is described with "reasonable certainty," the description is sufficient. If not, then Wells Fargo asserts it is entitled to equitable relief to enforce its mortgage under Wis. Stat. § 706.04. It also contends that the Trustee is not a bona fide purchaser because indexing in a grantor/grantee index is sufficient to provide constructive notice. Wenzel v. Green Tree Servicing, LLC (In re Wenzel) , 554 B.R. 861, 865 (Bankr. W.D. Wis. 2016).

The Trustee brought this action under 11 U.S.C. § 544 which provides that a trustee may avoid certain transfers of estate property under the Code. Section 544(a)(3) provides in relevant part:

(a) The trustee shall have ... the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by-
...
(3) a bona fide purchaser of real property, other than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists.

For purposes of determining whether the Trustee would be a bona fide purchaser under section 544, Wisconsin law governs. Wis. Stat. § 706.08(1)(a) provides that:

[E]very conveyance that is not recorded as provided by law shall be void as against any subsequent purchaser, in good faith and for a valuable consideration, of the same real estate or any portion of the same real estate whose conveyance is recorded first.

If a mortgage is not properly recorded, therefore, a subsequent good faith purchaser would acquire a superior interest. The Trustee argues that because the Mortgage lacked a legal description and because it was not recorded in the tract index, it is not a valid conveyance of an interest. The Trustee therefore insists he is a subsequent good faith purchaser and can avoid the Mortgage.

The Trustee concedes he would only qualify as a subsequent bona fide purchaser if he did not have constructive or actual notice of the Mortgage. Under Wisconsin law, "[s]omeone who actually knows about a prior claim or interest cannot claim the benefit of the recording statute." In re Thulis , 474 B.R. at 674. Even if the description in the Mortgage is inadequate, Wells Fargo's interest would still be superior if a hypothetical subsequent purchaser had constructive notice. Id. "Wisconsin law charges prospective purchasers with constructive notice of certain things that might be ascertained by a review of the land or an inquiry of those in possession." Id. at 675.

The Wisconsin Supreme Court provided guidance to understanding constructive notice when it held that such notice *308arises when a "purchaser without knowledge is subjected ... to the liabilities he would be subject to had he in fact had knowledge, because he was in such a position that if he had exercised a reasonable degree of care in availing himself of the avenues of information open to him he could have acquired the knowledge." Bump v. Dahl , 26 Wis. 2d 607, 613, 133 N.W.2d 295, 299 (Wis. 1965).

The scenario in In re Wenzel was similar to this case. There, the court sought to determine the validity of a mortgage that lacked a legal description. The Wenzel mortgage contained only an address and was recorded in the grantor-grantee index, but not the land tract index.

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Bluebook (online)
584 B.R. 304, Counsel Stack Legal Research, https://law.counselstack.com/opinion/seelen-v-melissa-marie-arnette-wells-fargo-bank-na-in-re-arnette-wiwb-2018.