United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT

_______________

No. 07-6056

________________

In re: *

*

Michael Frances Stradtmann and *

Deddra Faye Stradtmann *

*

Debtors. *

*

Ameriquest Mortgage Company, *

*

Plaintiff - Appellant *

*

v. *

*

Michael Frances Stradtmann, Jane *

Roe Stradtmann, Deddra Faye * Appeal from the United States

Stradtmann, and John Doe, * Bankruptcy Court for the District

* of Minnesota

Defendants, *

*

Dorraine Ann Larison, as Trustee of *

the Bankruptcy Estate of Michael F. *

Stradtmann and Deddra Faye *

Stradtmann; United States of America, *

Internal Revenue Service, *

*

Defendants - Appellees *

*

State of Minnesota, Department of *

Revenue; James A. Franklin, doing *

business as Franklin Outdoor *

Advertising Company; Jane Doe; *

John Roe; Fresh Start Capital, LLC, *

*

Defendants. *
1

 The Honorable Nancy C. Dreher, United States Bankruptcy Judge for the

District of Minnesota.

2

 We have jurisdiction over this appeal pursuant to 28 U.S.C. § 158(b).

3 Ries v. Wintz Properties, Inc. (In re Wintz Cos.), 230 B.R. 848, 857 (B.A.P.

8th Cir. 1999) (citing Peter v. Wedl, 155 F.3d 992, 996 (8th Cir. 1998)).

4

 Fed. R. Civ. P. 56(c), made applicable in bankruptcy cases by Fed. R.

Bankr. P. 7056; Williams v. Marlar (In re Marlar), 252 B.R. 743, 750 (B.A.P. 8th

Cir. 2000) (citing Dulany v. Carnahan, 132 F.3d 1234, 1237 (8th Cir. 1997)).

2

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Submitted: June 18, 2008

Filed: June 30, 2008

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Before SCHERMER, MAHONEY and VENTERS, Bankruptcy Judges.

_____

VENTERS, Bankruptcy Judge.

Ameriquest Mortgage Company (“Ameriquest”) appeals the bankruptcy court’s

order avoiding Ameriquest’s purported mortgage on the Debtors’ homestead.1

 For the

reasons set forth below, we affirm the judgment of the bankruptcy court.2

I. STANDARD OF REVIEW

 We review the bankruptcy court’s grant of summary judgment de novo,

applying the same standard used by the bankruptcy court and viewing the evidence

in the light most favorable to the non-movant, Ameriquest.3

 Summary judgment is

appropriate if the record shows that there is no genuine issue as to any material fact

and that the moving party is entitled to judgment as a matter of law.4
3

II. BACKGROUND

The facts are straightforward and undisputed.

On May 7, 2004, the Debtors executed and delivered to Ameriquest a mortgage

(“Mortgage”) to secure a $183,000 promissory note in favor of Ameriquest. The

Debtors and Ameriquest intended for the Mortgage to encumber the Debtors’

homestead in Stearns County, Minnesota. The Mortgage correctly stated the common

address of the Debtors’ homestead as 830 Chinook Avenue Southwest, Avon,

Minnesota, but the legal description in the Mortgage described an entirely different

piece of property – one that the Debtors had previously owned but had lost as a result

of a previous foreclosure. Ameriquest recorded the Mortgage containing the incorrect

legal description on May 20, 2004. 

On October 28, 2004, the Internal Revenue Service (“I.R.S.”) filed with the

Stearns County Recorder of Deeds three notices of tax lien.

On May 16, 2005, the Debtors filed for protection under Chapter 7 of the

Bankruptcy Code. Dorraine Ann Larison was appointed as the trustee of the Debtors’

bankruptcy estate. 

On August 4, 2006, Ameriquest sought relief from the automatic stay in the

Debtors’ bankruptcy case to commence a state-court action to reform the Mortgage

to replace the incorrect legal description with the legal description of the property the

Debtors had intended to encumber. Notably, Ameriquest represented in its motion

that: 

Ameriquest is not adequately protected because it cannot foreclose its

interest. Debtors remain in default, which has not been disputed. Indeed,

this Court has already granted relief from stay for Ameriquest to

foreclose the Mortgage. But such a foreclosure cannot occur because of

the legal description attached to the Mortgage. These circumstances
5 In re Stradtmann, Case No. 05-43229, Bankr. D. Minn., Docket No. 20 at

pp. 1-2 (emphasis added).

6

 In this appeal, neither the Trustee nor Ameriquest has challenged the

bankruptcy court’s ruling that the I.R.S.’s liens are superior to the Mortgage based

on the “choateness” doctrine. (Essentially, under this doctrine, another lien cannot

compete with a federal tax lien unless the competing lien is capable of being

summarily enforced, i.e., “choate.”) Despite the absence of an explicit challenge to

this ruling, we find that the bankruptcy court ruling on this issue is correct and

should be affirmed. See Samco Mortgage Corp. v. Keehn, et al, 721 F.Supp. 1209

(D. Wyo. 1989) (finding that I.R.S. tax lien trumped a mortgage that was filed

before the I.R.S. lien was filed but that contained an erroneous legal description in

need of reformation).

4

entitle Ameriquest to relief from the automatic stay in order to

commence an action to reform the Mortgage.5

The bankruptcy court granted Ameriquest relief from the stay to proceed with its state

court action, but the Trustee promptly removed the action to the bankruptcy court and

filed a counterclaim seeking to avoid Ameriquest’s apparently defective Mortgage

under 11 U.S.C. § 544. The I.R.S. also filed a counterclaim, seeking a determination

that the tax liens it recorded on October 28, 2004, are superior to the Mortgage.

On July 25, 2007, the bankruptcy court held a hearing on the competing

motions for summary judgment filed by Ameriquest, the Trustee, and the I.R.S. At

the conclusion of the hearing, the Bankruptcy Court orally ruled that Ameriquest’s

Mortgage was avoidable under § 544; that the interest avoided was preserved for the

benefit of the estate, to be administered by the Trustee; and that the I.R.S.’s tax liens

were superior to the interests of the Trustee. Accordingly, the bankruptcy court

denied Ameriquest’s motion for summary judgment and granted the Trustee’s and the

I.R.S.’s motions for partial summary judgment. Ameriquest timely appealed.6
7

 2008 WL 2264608 (8th Cir. June 4, 2008), aff’g 364 B.R. 668 (B.A.P. 8th

Cir. 2007), aff’g 352 B.R. 193 (Bankr. D. Minn. 2006) (“Vondall”).

8

 In re Marlar, 252 B.R. 743, 752 (B.A.P. 8th Cir.2000).

9

 Minn. Stat. § 507.34 (“Every conveyance of real estate shall be recorded in

the office of the county recorder of the county where such real estate is situated,

and every such conveyance not so recorded shall be void as against any subsequent

purchaser in good faith and for a valuable consideration for the same real estate, or

any part thereof, whose conveyance is first duly recorded.”).

5

III. DISCUSSION

The analysis in this case closely tracks the analysis applied in Lindquist v.

Household Industrial Finance Co. (In re Vondall),7

 a case decided by the bankruptcy

court for the District of Minnesota in 2006, affirmed by the Bankruptcy Appellate

Panel in 2007, and affirmed again by the Eighth Circuit Court of Appeals in June

2008. It is due to the similarity of this case to Vondall that we (with the consent of the

parties) withheld ruling on this case until the Court of Appeals ruled on the Vondall

appeal. As the parties might have expected, the summary affirmance of Vondall

supports the affirmance of the bankruptcy court in this case.

The Trustee’s counterclaim to Ameriquest’s mortgage reformation action seeks

to avoid Ameriquest’s mortgage under 11 U.C.C. § 544(a)(3). Section 544(a)(3)

provides that “the trustee shall have, as of the commencement of the case, and without

regard to any knowledge of the trustee or of any creditor, 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 . . . a bona fide purchaser of real property . . . whether or

not such a purchaser exists.” The rights and definition of a bona fide purchaser are

determined by state law.8

 

Under Minnesota law, a bona fide purchaser of real property may avoid prior

conveyances that have not been recorded in accordance with the law.9

 A bona fide
10 See Chergosky v. Crosstown Bell, Inc., 463 N.W.2d 522, 524 (Minn.

1990); Miller v. Hennen, 438 N.W.2d 366, 370 (Minn. 1989).

11 Chaney v. Minneapolis Community Development Agency, 641 N.W.2d

328, 333 (Minn. Ct. App. 2002).

12 Bailey, et al., v. Galpin, 41 N.W. 1054, 1055-56 (Minn. 1889) (“[W]here

the deed or record, in addition to a correct or sufficient description, contains false

particulars, the rule is, if there are certain particulars once sufficiently ascertained,

which designate the thing intended to be granted, the addition of a circumstance,

false or mistaken, will not vitiate the grant.”) (citations omitted).

13 In re Vondall, 352 B.R. at 198 (citing Howard, McRoberts & Murray v.

Starry, 382 N.W.2d 293, 296 (Minn. Ct. App. 1986)).

14 Id. at 198 (declining to find that a legal description was apparent where the

defect in the mortgage – an apparently non-existent lot designation – could also be

attributed to incorrect block or plat designation); Bank of Ada v. Gullikson, 66

N.W. 131, 132(Minn. 1896) (holding that a mortgage containing a nonsensical

addition designation did not provide constructive notice to subsequent judgment

6

purchaser is one who in good faith pays value for an interest in property without

actual, constructive, or implied notice of the inconsistent, outstanding rights of

others.10 Section 544 specifically excludes from consideration a trustee’s actual notice

of a creditor’s interest, so the determination of whether a trustee qualifies as a bona

fide purchaser turns on whether there is constructive or implied notice of the creditor’s

interest. In this case, the Mortgage did not provide either constructive or implied

notice of Ameriquest’s interest in the Debtors’ homestead.

Constructive notice of a mortgage arises as a presumption of law from the

existence of a properly recorded instrument.11 A mortgage containing a defective

legal description does not provide constructive notice to subsequent purchasers unless

the subject property can be determined with reasonable certainty12 or the defect is

apparent on the face of the mortgage.13 A facial defect is apparent if it renders the

legal description “impossible” and it can be cured in only one way.14 An apparent
creditors because it was impossible to tell from the face of the mortgage whether

the legal description misstated the plat, block, or addition).

15 See Miller v. Hennen, 438 N.W.2d 366, 369 (Minn. 1989).

16 The record suggests that the tax identification number noted in the

Mortgage no longer corresponds to the Debtors’ homestead; however, for purposes

of our de novo review of the parties’ motions for summary judgment, we will

assume that the tax identification number corresponds to the Debtors’ homestead.

17 In re Vondall, 364 B.R. at 672-673. 

18 Id. 

7

defect also gives rise to implied notice which charges a person with notice of

everything he could have learned by further inquiry into the circumstances.15 

Ameriquest argues that the defect in the Mortgage is apparent because the legal

description conflicts with the tax identification number and the common address noted

on the mortgage.16 However, under Vondall, a conflict between a tax identification

number and a legal description is not considered apparent.17 “[I]f there is nothing on

the face of a mortgage to alert a purchaser that the property description is defective,

then there is nothing on the face of the mortgage to trigger a duty of further inquiry

(to determine whether a legal description conflicts with the tax identification

number).”18 Here, there was nothing on the face of the Mortgage to alert a purchaser

that the property description was defective. To the contrary, the property description

in the Mortgage did not contain any defects. It may have described an entirely

different piece of property, but the description itself was complete and accurate. 

Ameriquest attempts to distinguish Vondall on the basis that the mortgage in

Vondall did not contain a common address, whereas the mortgage here does. The

attempted distinction fails. An address is no more immutable than a tax identification

number and, more important, the rationale the Vondall Panel used to analyze conflicts
8

between a legal description and a tax identification number applies with equal force

to conflicts between a legal description and a common address. If there is nothing in

the property description to trigger a duty of further inquiry, then a conflict between

the legal description and the common address is not apparent, and therefore does not

trigger constructive or implied notice.

In the absence of an apparent defect on the face of Ameriquest’s Mortgage, the

Trustee had neither constructive nor implied notice of the Mortgage. Therefore, it is

avoidable under § 544.

Ameriquest also argues that notice of its Mortgage should be imparted to the

Trustee because the Mortgage was “properly” recorded in, and discoverable by a

search of, the grantor-grantee index or the tract index. This argument, which was also

made (and rejected) in Vondall, fails to appreciate that notice of Ameriquest’s interest

in one piece of property – i.e., the Debtors’ homestead – does not arise from the

existence of a defective mortgage purporting to encumber an entirely different parcel

of property. It is simply not enough that a person searching the Stearns County real

estate record indices (grantor-grantee or tract) would find a mortgage between the

Debtors and Ameriquest. Unless there is an apparent error on the face of the

Mortgage, the only notice given is that the Debtors granted Ameriquest a mortgage

on property they no longer owned.

IV. CONCLUSION

For the reasons stated above, we affirm the decision of the bankruptcy court

granting partial summary judgment in favor of the Trustee and the Internal Revenue

Service.