By order of the Bankruptcy Appellate Panel, the precedential effec t of this dec ision is limi ted to the case and parties pu rsuant to 6t

h Cir. BAP LB R 8013 -1(b). Se e also 6th C ir. B AP LBR 8010- 1(c).

File Name: 05b0013n.06 BANKRU PTCY APPELLATE P ANEL OF THE SIXTH CIRC UIT

In re: MICHAEL

M. NOWAK and ) CHRISTINE

S. NOWAK , ) ) Debtors. )

_____________________________________ ) ) LYDI A SPRAGIN, TRUSTEE , ) ) Plaintiff - Appellee, ) ) v. ) No. 03-8051 ) NOWAK, et al. , ) ) Defendants, ) and ) ) PCFS FINANCI

AL SERVI CES (PROVIDENT ) BANK), ) ) Defendant - Appellant. ) Appeal from the United States Bankruptcy Court for the Northern District of Ohio, Northen Division, at Akron

.

No. 01-50913

. Argued : August 3, 2005 Decided and Filed: September 16, 2005
Befor e: AUG, LATTA, and PARSONS , Bankr uptcy Appellat e Panel Judg es.

____________________ COUNSEL
ARGUED: David A. Freeb urg, McFADD EN & ASSO CIAT ES, Clevel and, Ohio , for App ellant. Michael J. Moran, Sr., WEICK, GIB SON & LOWRY, Cuy ahoga Falls, Ohio, for Appellee. ON BRIE F: David A. Freebur g, McF ADDEN &

ASSOCI ATES, Clevelan d, Ohio, f or Appel lant. Michael J. Moran, Sr., WEICK, GI BSON & LOWRY, Cuy

ahoga Falls, Ohio, for Appellee.-2- ____________________ OPINION

____________________ JE NNIE D. LATTA, Bankr uptcy Appellate Panel Judge. Provident Bank appeals from the bankruptcy

court’s judgmen t in favor of the Cha

pte r 7 Tr ustee avoiding a mortgag e lien and preserving

it for the benefit of the bankruptcy estate on the basis that the mortgage wa s not executed by two witnesses as re quired by Ohio law. F or the reasons below, we AFFIRM

.

I. ISSUES ON APPEAL There are two issues raised in this appeal: (1) whether the bankruptcy court’s factual finding that only one of two re quired witnesses was presen t at the Debto

rs’ mortg age c losing is

clearly

errone ous, and (2) whether the bankru ptcy cour t improperly shifted the burde n of proof from the Trustee to the Appellant

in making the finding that only one of two required witnesses was present at tha t clos ing.

II. JURISDIC TION AND STANDARD OF REVIEW The Bankruptcy

Appellate Panel has jurisdiction to hear a nd decide this appe al. The United States District Court for the Northern District of Ohio has authorized appeals to the BAP. A final order of a bankruptcy

court may be a

ppealed by r

ight under 28 U.S.C. § 158(a)(1). An order by a bankruptcy

court determining the validity of a lien is a final order for purpo ses of 28 U.S .C. § 158(a)(1). See 28 U.S.C. § 157(b)(2)(K). The Pane l mus t “affir

m the unde

rly ing fac tual dete rmination s unless th ey

are cle arly erroneous.” Bailey v. Bailey ( In re Bailey ), 254 B.R. 901, 903 (B.A.P. 6th Cir. 2000) (quoting Nat’l City Bank v. Plechaty (

In re Plechaty), 213 B.R. 119, 121 (B.A.P. 6th Cir. 1997)). A factual determination

is clearly e

rroneous “when although there is ev idence to support it, the reviewing court

on the entire evidence is left with the definite andfirm conviction that a mistake has been committed.” Bailey , 254 B.R. at 903 (citations omitted).-3-

The Panel reviews conclusions of law de novo. “De novo review requires the Panel to review questions of law independent of the bankruptcy court’s determination.” First Union Mortgage Corp. v. Eu banks (

In re Eubanks ), 219 B.R. 468, 469 (B.A.P. 6th Cir. 1998) (citations omitted).

III. FACTS OnMarch 6, 1998, the

Debtors, Michael and Christine Nowak, executed a mortgage in favor of Provident Bank (“Providen t”) at their resid ence. T he mor tgage is facial ly valid . The m ortgage bears th e signa

tures of the Debtors; the mo rtgage bears the signature of a notary public, Robert A. Voss, indicating that the Debtors’ signatures we re acknowledged b efore him; and the mortgage be ars the signatures of two witnesses, Robert A. Voss and Timothy Herrick. The Debtors filed a petition for relief under chapter 7 of the Bankruptcy

Code on March 20, 2001. On October

4, 2001, the duly-appointed Chapter 7 Trustee, Ly

dia Spragin, filed a complaint pursuant to 11 U.S.C. § 544(a)to avoid th e lien of Provident

on the bas is that t he mor tgage was not executed in accordance with the laws of the state of Ohio and thus was not entitled to be recorded under Ohio Revised Code § 5301.25. Trial was held on March 21, 2003. In a ddition to certain stipulated facts, the c ourt made extensive findings of fact based upon the testimony and exhibits. Ultimately, the court found that Voss was present

during s ome portion of the c losing a t the Debt ors’ home , but that H errick was not. This finding was based upon the court’s findings that the D ebtors were highly credibl e witness es; that neither of them remembered

either Voss or Herrick, but did recall that their mortg age broker was present at the closing; that Mrs. Nowak questioned why some of the documents called for two witnesses but only one

was present; that Mrs. Nowak was told that that deficiency

would be taken

care of later; th at the De

btors acknowledg ed that Pol aroid photographs of their driver’s licenses we re taken at their dining room table; that neithe r Voss nor Herrick could recall the closing of the Debtors’ loan, but certain notes on the closing order were made by Voss, indicating that he was present ; that no doc

uments retained

by V os s o r H er ri ck , o r t he ir em pl oye r, To we r C it y Ti tl e A ge nc y, linked Herrick to the closing; and that Tower City ’s procedures genera lly did not call for two loan closers to go to a

home closing when it was known beforehand that the mortgage broker would be present.-4-

The bankruptcy c ourt entered its Memorandum of Opinion and Order on June 9, 200 3 , granting judgmen t for the T

rust ee. The court found that, notwithstanding the strong presumption of valid ity given a facia lly vali d mort gage under Ohio law, the presumption was rebutted by the clear and convincing evidence of the mortg agors’ testimony and other evidence. Provident filed its notice of appeal on June 13, 2003. Providentinitially raised four issues

on appeal: (1) whether the bankrup tcy

court’s finding s of fac t were in consiste nt and cle arly

errone ous; (2) whether

the bankruptcy c ourt committed reversible error by ruling that Ohio Revised Code § 5301.234 was uncon stitutiona l; (3) whether the

bankrup tcy

court vio lated the

require ments of federa lism by finding Ohio Revis ed Code § 5 301.234 un constituti onal acc ording t o the Ohio constitution; and (4) whether the bankruptcy c ourt committed reversible error by failing to apply the per se rule that the testimony of the mortga gors alone is insufficient

as a matte

r of law t o overcome the presumptionof validity of a mortg age. The Panel certified the question of constitutionality of Ohio Revised Co de § 5301.234 to the Supreme Court of Ohio, which found that section unconstitutional on December 17, 2004. In re Nowak , 104 OhioSt. 3d 466, 2004-Ohio-6777, 820 N.E.2d 335, ¶ 76. Providentand

the Trust ee wer e given the oppor tunity to file sup

plementa l briefs i n this cas e inlight of the supre me court’s ruling. The parties agr eed that the issues raised in the original appeal pertaining to the constitutionality of the state statute are no longer relevant, but that the remaining issues sho

uld be re solved by

the Panel

.

IV. DISCU SSION Pursuant to 11 U.S.C. § 544, the

trustee i n bankru ptcy may avoid any transfe

r of property

of the debtor that is voidable by “ a bona fide purchaser of rea l property, other tha

n fixtures, from the debtor, against whom

applicable law permits such transfer to be perf ected, that obtains the status of

a bona fide purchaser and has perf ected such transfer at the time of the commenc ement of the case, whether or not such a purchaser exists.” A bona fide purchase r of real propert

y is not char ged wit h constructive knowledge of a prior unrecor ded mortgage. Nowak at ¶ 1 1 . A mortgage that is not eligible for recordation, even thoug h it is in fact recorded, cannot serve as constructive notice to a subsequent

bona fide purc haser. Id. Former Ohio Revised Code § 5301.234, declared-5-

unconstitutional by the Oh io Supreme Court, sought to change this result as to facially valid, but defectively

executed mortgages. Id. Pursuant to Ohio law, a mortgage is eligible f or recordation onl y if it is signed by the mortgagor; the mortgagor acknowledg es his signature before a notary public who signs the mo rtgage
as notary public; a nd the mor

tgag e is execu

ted in the presence of two attesting witnesses. Ohio Rev. Code Ann. § 5301.25. While a fa cially valid mortgage bears a strong presumption of validity, the presumption may be over come by clear and convincing evidence

. Simon v. Chase Manhattan Bank (In re Zaptocky) , 250 F.3d 1020, 1024-25 (6th Cir. 2001) (citing Coshocton Nat’l Bank v. Hagans , 40 Ohio App. 190, 178 N.E. 330 (1931)). The burde n of proof li es with the party c ontesting the validity of the mortga

ge. Id. In Z aptoc ky , although two witnesses’ signatures appea red on the mortgage, the de btors testified that only one of those witnesses, the closer (who also notarized the signatures of Mr. and Mrs. Zaptocky

), was present at the closing in the debtors’ home. The closer in Zaptocky

testified that he had no specific recollection of the closing , but that his employer had a policy of not

closing loans unless two witnesses were present and that he would not ha ve violated that policy. The bankruptcy

court found that the closer’s testimony was outweighed by

the debtors’ testimony that only one witness was present, particularly in light of the importan ce of the loa n to the bor

rowers. The bankruptcy

appellate panel and the court of appea ls affirmed. Zaptocky , 250 F.3d at 1023. The f acts of the present case are ve ry similar to those of Zaptocky . In both ca ses, th e testimony of the bor rowers i s unequivo cal that only one person

was present when the mortgag e was executed, while the subscribing witnesses had no specific recollection of the cl osing. I

n both cas es, the cl osin g t ook place in the home of the borrowers, and the bankr uptcy court in both case s
c onsid ered

that fact significant, reasoning that the bor rowers were likely

to know how many strangers were prese

nt in their home. In Zaptocky , neither the loan closer nor the borrowers knew

or recognized

the na me of the alleged second witness. I n this case, although the Debtors did not recog niz e Herrick’s name, and Voss, the loan closer, did not rec all Herrick being at the clos ing , Herrick was known by Voss to be an e mployee of Towe

r City. Herrick testified that he has never signed a document as witness that he did not see signed. Despite the testimony of Voss, Herrick, and the CEO of Tower City that Towe r City an d its e mployees usually maintain documents such as-6-

closing schedule s, mileag e logs, a nd calen dars, whichwould have reflected who was prese nt at the Nowaks’ closing, none of these documents was pr oduced at trial. Providentargues that the ba nkruptc y court’s re liance on the lack of evidence of He rrick’s presence effec tively

shifted the burden

of proof from the T

rustee to Provident. The evidence upon whichthe bankr

uptcy court pr imarily relied w as the De

btors’ te sti mony, howe ver, and the bankruptcy

court explicitly found the Debtors’ testimony to be cred ible. Provident ’s failur e to provide evidenc e of Her

rick’s p resen ce serves merely to underscore the Debtors’ testimony and undermine the testimony by Herrick that

he never signed as a witness unless he wa s actually pre sent at a closing. The bankruptcy court did not improperly shift the burde n of proof. Providentasserts

that the bankruptcy c ourt cannot find the Debtors to be credible witnesses and at the same time, find

that somet

hing tha t they testifie d to – that V oss was ne ver pre sent in the ir home – was incorrect. Provident urges either ( 1) that if the Debtors were mistaken about the absence of Voss in their home, then they must also be mistaken a

bout the a bsence o f Herri ck in

their home,

or (2) that if the D ebtors were mistaken about the absence of V oss in their home, their testimony concerning the abse

nce of H errick , without more, can not overc ome the pr

esumption

of validit

y afforded to the facially

valid mortgage. The first proposition is logically invalid. I t does not follow that a finding of mistake about

one fact necessitates a finding of mistake about a nother, unrelated fact. The presenc e or absence of Voss says nothing a

boutthe presence or absence of H errick. The fact that the Debtors were mistaken about the absence of Voss at most indicates that the Debtors may have been mistaken about other facts. The cre dibility

of the De btors as to

these oth er fac ts is still a

question to be determined by the bankruptcy judg e. The second proposition is no more log ically valid than the f

irst, but c alls upon t

he Panel t o infer a per se rule that the testimony of a witness who has be en found to be mistaken about one fac t, without more, cannot overcome the presumption of validity . The court of appea ls specifically f

ound in Zaptocky

that the O hio court s have not established a per se rule that precludes a party

from relying solely on the mortgagor’s testimony to establish that a mortgage has been imp roperly e xecuted. Zaptocky , 250 F.3d at 1025. The court indicated that Ohi o’s pe r serule applies only whe n the mortga gor’s t estimony is rebutte d by

a notary public’s certifi cate of

acknowl edgmen

t. Id. Just as-7-

in Zaptocky , the notary’s ce rtificate in this case relates only to the sig natures of the De btors, not to the signatures of the attesting witnesses. No per se rule applies to prevent the court from considering the testimony of the Debtors as mortg agors, and no per se rule pre vents the court from crediting their testimony even when they

have been found

to be mista

ken abou t another fact. Un less the two fa

cts
are re lated, su

ch that mis take abo

ut the fir st

somehow c ompels mistake about the second, the trier of fact is still left to determine the credibility and weight to be giv en the te stimony of the wit

ness. Inthis case, the court could have concluded that at any one time, there was only

one person other than the D ebtors in

the Debtors’ home at the time of the loan closing. This view is consistent with the testimony of

both the Debtors that only one pe rson was at

the closin

g. I t is consist

ent with Mrs. Nowa

k’s quest ion about t

he need for two witnesses. It is c onsistent w ith Voss’ note that the loanbroke r was l eavin g as h e came to the Debtors’ home. I t is consistent with Voss taking the photographs of the Debtors’ driver’s licenses. I t is consistent with

the inability of Tower to produc e businessrecords indicating the presence of Herrick at the closing. It is c onsistent w iththe inabi lity of Herrick to recall the closing, but inconsistent with his statement that he never signed a

document

as witness that he did not see signed. The bankruptcy court noted that Herrick also testified that at the time of t he Nowaks’ cl osing, he was clo sing 600 -800 tra nsaction s a year. Th e court f ound it unlikely that a pe rson with that workload would drive an hour to a closin

g mere ly to

function as a witness. Imp li ci tl y, the cour t did not cr

edit Her rick’s te stimony . The cou rt express ly

credited the De bt or s’ te st im on y. Where the fact finders’ “account of the e vidence is plausible in light of the re cord vie

wed in its entirety,” a

nd “[w]here there are two permissible views of the evidence, the fa ct finders’ choice between them cannot be clearly

erroneous.” Simon v. Cha se Man hatt an Ban k (In re Z apto cky), 232 B.R. 76, 81 (B.A.P . 6th Cir. 199 9), aff’d , 250 F .3d 10 20 (6t h Cir . 2001 ) (quo ting Sicherman v. Diamoncu t, Inc. (

In re Sol Bergman Estate Jewelers, Inc. ), 225 B

. R. 896, 904 (B.A.P. 6th Cir. 1998)). Provident

offere d no explana

tion of the

facts that takes into account all of the evidence. If both Voss and Herrick were present a t the clos ing, the n Pr ovident cannot explain Mrs. Nowak’s question about the need

for two witnesses, nor can it explain the inability of Tow er City to produce businessrecords linking Herrick to the closing . The ban

kruptcy court did not impermissibly shift the burden of proof to Provident, but took into a

ccount a ll of the evidence presented which, taken-8-

together, was clear and convincing. The f inding of the bankruptcy

court that only one

witness was present at the mortgage c losing is not clearly e rroneous.

V. CONCLUSION For the f orego ing rea sons, the j udgmen t on appea

l is AFFI RMED

.