In Re: Bernard L. Zaptocky and Gloria J. Zaptocky, Debtors. David O. Simon, Chapter 7 Trustee v. Chase Manhattan Bank

OPINION

NATHANIEL R. JONES, Circuit Judge.

Plaintiff-Appellee David 0. Simon is the trustee of Bernard and Gloria Zaptocky’s bankruptcy estate. During the course of the Zaptocky bankruptcy proceedings, Simon filed an action to set aside a mortgage that the Zaptockys granted to Defendant-Appellant Chase Manhattan Bank (“Chase”). Simon asserted that the Bankruptcy Code’s strong arm clause allows the estate to avoid the mortgage because it was not properly executed under Ohio law. The bankruptcy court ordered judgement' for Simon. The Bankruptcy Appellate Panel of the Sixth Circuit (“BAP”) affirmed the bankruptcy court’s decision. Chase now appeals the BAP’s decision to this Court. For the reasons stated below, we AFFIRM the BAP’s decision.

I. Facts

In February of 1997, the Zaptockys refinanced their home with Chase. The second mortgage was executed on February 7th in the Zaptocky’s home, and Gary Williams of First Service Title Agency served as the “closer.” The mortgage bears the signatures of Bernard and Gloria Zaptocky as mortgagors, of Gary Williams as witness, and of “Taylor Lloyd” as witness.

On April 24, 1998, the Zaptockys filed for Chapter 7 bankruptcy. During those proceedings, the Bankruptcy Trustee, David O. Simon, filed an adversary proceeding against Chase. The Trustee asserted the “strong arm” power of 11 U.S.C. § 544(a) allows the estate to avoid the Chase mortgage because it was not validly executed under Ohio law. Specifically, Simon claimed that the mortgage documents did not comply with Ohio Revised Code § 5301.01, which requires that a mortgage be signed in the presence of two witnesses.

*1023At trial, both Bernard and Gloria Zap-tocky testified that they signed the mortgage at them dining room table in the presence of Gary Williams. They both insisted that Williams was the only witness present at the signing and that they did not know any person by the name of Taylor Lloyd. In response, Chase offered the testimony of Gary Williams. Williams testified that he had no specific recollection of the events of February 7, 1997 and that he did not know of any person by the name of “Taylor Lloyd.” However, Williams also stated that the company with which he was employed at the time of the Zaptocky closing, First Service Title Agency, maintained a policy of not closing loans unless two witnesses were present. He claimed that he would not have signed and notarized the Zaptocky mortgage in contravention of that policy because such actions would have led to his dismissal.

After weighing the evidence, the bankruptcy court found that the Chase mortgage was not validly executed under Ohio law because there was only one witness present at the signing of the mortgage documents. See Simpson v. Zaptocky (In re Zaptocky), 231 B.R. 260, 264 (Bankr.N.D.Ohio 1998). The court held that since the mortgage was not validly executed, Simon could avoid the mortgage under 11 U.S.C. § 544(a)(1), which allows bankruptcy trustees to avoid transfers of property that could be avoided by a judicial lien creditor. Id. at 265. Chase appealed this decision to the BAP.

The BAP reviewed the bankruptcy court’s legal determinations de novo and its factual determinations for clear error. It held that the trial court did not commit clear error when it found that only one witness was present at the signing of the Chase mortgage and that the mortgage was not validly executed under Ohio law. See Simon v. Chase Manhattan Bank (In re Zaptocky), 232 B.R. 76, 81 (B.A.P. 6th Cir.1999). The BAP also concluded that Simon could avoid the Zaptockys’ mortgage under the bankruptcy code. Unlike the trial court, however, the BAP relied on Section 544(a)(3) and reasoned that since a bona fide purchaser would have been able to avoid the improperly executed mortgage, the Trustee could also avoid Chase’s claim. Id. at 83. The BAP also held that Chase did not have an equitable right of subrogation against the bankruptcy estate. Id. at 84. On May 13, 1999, Chase filed a timely notice of appeal to this Court. We review the bankruptcy court’s legal holdings de novo and its factual determinations for clear error. See Corzin v. Fordu (In re Fordu), 201 F.3d 693, 696 n. 1 (6th Cir.1999).

II. Background

The “strong arm” clause of the Bankruptcy Code, 11 U.S.C. § 544(a), grants a bankruptcy trustee the power to avoid transfers of property that would be avoidable by certain hypothetical parties. Section 544(a) provides:

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—
(1) a creditor that extends credit to the debtor at the time of the commencement of the case, and that obtains at such time and with respect to such credit, a judicial lien on all property on which a creditor on a simple contract could have obtained such a judicial lien, whether or not such a creditor exists;
(2) a creditor that extends credit to the debtor at the time of the commencement of the case, and obtains at such time and with respect to such credit, an execution against the debtor that is re*1024turned unsatisfied at such time, whether or not such creditor exists; or
(3) a bona fide purchaser of real property, other than fixtures, from the debt- or, 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.

11 U.S.C. § 544(a) (1993).

As trustee, David Simon is entitled to avoid the Zaptockys’ mortgage under section 544(a)(3) if a hypothetical bona fide purchaser would be able to avoid this mortgage. Since this mortgage concerns real property located in Ohio, this inquiry is governed by Ohio law. See Watson v. Kenlick Coal Co., Inc., 498 F.2d 1183, 1190 (6th Cir.1974).

In Ohio, there are three major prerequisites for the proper execution of a mortgage: (1) the mortgagor must sign the mortgage deed; (2) the mortgager’s signature must be attested by two witnesses; and (3) the mortgagor’s signature must be acknowledged or certified by a notary public (or other designated official). See Ohio Rev.Code Ann. § 5301.01 (Anderson 1999). If any one of these prerequisites is not met, the mortgage is not validly executed and it may be avoided by a subsequent bona fide purchaser who does not have actual or constructive knowledge of the prior mortgage.1

III. Was the Mortgage Properly Executed Under Ohio Law?

In this case, the only prerequisite at issue is whether the mortgagors’ signatures were properly attested to by two witnesses. As noted above, the mortgage bears the names of two witnesses, Gary Williams, who also served as closer, and “Taylor Lloyd.” At trial, the Zaptockys both testified that no person by the name of Taylor Lloyd was present in their house when they signed the mortgage. In contrast, Gary Williams asserted that although he did not remember closing the Zaptocky’s mortgage and did not know anyone by the name of Taylor Lloyd, this person must have been present because he always adhered to First Service’s policy, which forbid its employees from closing loans unless two witnesses were present. Upon reviewing this evidence, the bankruptcy court concluded that Mr. Williams was the only witness present at the signing of the Chase mortgage and that the mortgage was not properly executed. In re Zaptocky, 231 B.R. at 264. The BAP held that although a facially valid mortgage is presumed to have been properly executed, the bankruptcy court’s holding was not clearly erroneous. In re Zaptocky, 232 B.R. at 81.

On appeal, Chase argues that the bankruptcy court and the BAP erred because they did not apply the correct legal standard when they determined that Gary Williams was the only witness present at the signing of the Zaptocky mortgage. Chase points out that under Ohio law a facially valid mortgage bears a presumption of validity and that those who contest such a mortgage must prove the instrument is defective by clear and convincing *1025evidence. See Coshocton Natl Bank v. Hagans, 40 Ohio App. 190, 178 N.E. 330 (1931) (a facially valid mortgage “carries with it a presumption of validity, and, in order to destroy its effect as a mortgage it must be shown to be defective by the contesters.”); see also Helbling v. Williams (In re Williams), 240 B.R. 884, 888-89 (Bankr.N.D.Ohio 1999). Citing Paramount v. Berk, Chase argues that the presumption of validity is so strong that Ohio courts have established a per se rule that the mortgagor’s testimony standing alone is not sufficient to invalidate a facially valid mortgage. 179 N.E.2d 788 (Ohio App.1962). Chase concludes that since the Zaptockys’ testimony is the only evidence that the mortgage was not properly executed, Simon has not introduced sufficient evidence to demonstrate that the mortgage was not validly executed.

A.Did the Bankruptcy Court Err by Failing to Apply a Per Se Rule?

Under Ohio law a facially valid mortgage does bear a strong presumption of validity. However, Ohio courts have not explicitly established a per se rule that precludes a parly from relying solely on the mortgagor’s testimony to establish that a mortgage has been improperly executed. In Paramount v. Berk, which the defendant cites, a plaintiff mortgagee challenged the validity of a prior mortgage on the grounds that it was not properly executed. Id. The plaintiff presented the testimony of the mortgagors, a husband and wife, who testified that the wife did not sign the mortgage in the presence of the notary or the witnesses, but rather signed the mortgage in the car outside the bank. The Ohio Court of Appeals rejected the evidence, holding that the testimony of the mortgagors “is insufficient in law to overcome the certificate of acknowledgement by the notary.” Id. The Court stated that, “[s]ince the evidence relating to acknowl-edgement is confined to the testimony of the mortgagors in this case, it is not sufficient to support a finding contrary to the certificate of acknowledgement and the affirmative testimony of the notary himself.” Id. at 788-89.

While the Paramount case holds that the testimony of mortgagors is not sufficient to overcome the certificate of ac-knowledgement, the court’s language clearly does not extend to all cases in which a party relies solely on the testimony of the mortgagors to prove that the mortgage was not properly executed. See Williams, 240 B.R. at 888 (holding that Paramount’s per se rule only applies to cases in which the mortgagor’s testimony is rebutted by a certificate of acknowledgement).2 The Ohio Supreme Court has de-*1026dined to extend the per se rule to any case in which a certificate of acknowledgement was not at issue. Id. (citing Citizens Nat’l Bank in Zanesville v. Denison, 165 Ohio St. 89, 133 N.E.2d 329 (1956); Williamson v. Carskadden, 36 Ohio St. 664, 1881 WL 49 (1881)).

In this ease, the per se rule is not applicable because the mortgagors’ testimony was not rebutted by the certificate of acknowledgment. As noted above, the mortgagors alleged that the mortgage was not properly executed because only one witness attested to the signing of the mortgage. Given that the notary’s certificate of acknowledgement does not purport to certify that two witnesses were present when the Zaptockys signed the mortgage, the certification is irrelevant to the factual dispute in this case.3 Accordingly, the bankruptcy court did not err by refusing to apply a per se rule.

B. Did the Bankruptcy Court Err by Failing to Give Gary William’s Testimony the Proper Weight?

In the alternative, Chase argues that the bankruptcy court erred by failing to give the proper weight to Gary Williams’ testimony that he adhered to his company’s policy of not closing a loan unless two witnesses are present. Citing Coshocton National Bank v. Hagans, Chase asserts that under Ohio law “a positive statement of an inflexible rule always adhered to by a notary or witness must carry great weight in the consideration of their evidence.” 40 Ohio App. 190, 178 N.E. 330 (1931). Chase alleges that the bankruptcy court did not give Williams’ testimony “great weight” and argues that if it had, it would not have found that only one witness was present at the mortgage closing.

Although it is true that a notary’s testimony that he always adhered to an inflexible rule is given “great weight,” this evidence is not conclusive. See Helbling v. Krueger (In re Krueger), No. 98-18686, Adv. No. 99-1016, 2000 WL 895601, at *3 (Bankr.N.D.Ohio Jun.30, 2000) (a notary’s testimony that he invariably required a second witness to be present was not conclusive). In this case, the bankruptcy court credited Williams’ testimony that he never closed a loan unless there were two witnesses. However, the court also found that this evidence was outweighed by the Trustee’s clear and convincing evidence that only one witness had been present at the signing of the Zaptockys’ mortgage. As the bankruptcy court indicated, several factors support this finding.

1. A home refinancing closing is an extraordinary event for the consumer.
2. Where the closing occurs in the home of the refinancing applicant, it can be reasonably expected that the homeowners would have greater cognizance of which individuals were in their personal residence for an extraordinary event such as a closing.
3. The purported second witness, Lloyd Taylor [Taylor Lloyd], is not an individual known to either of the Debt*1027ors or by the notary Williams. In fact, Williams has no personal recollection of this particular closing.
4. The Debtors testified unequivocally, that no one by the name of Taylor [Lloyd] was in their home on February 7, 1997 or at any other point in time.
5. Taylor [Lloyd], according to Williams was not an employee of the First Service Title Agency.
6. Gloria Zaptock/s mother was at the Debtor’s residence on the closing date but did not participate in the execution of the closing documents.

In re Zaptocky, 231 B.R. at 264.

We agree that the evidence introduced at trial creates a serious doubt as to the validity of Taylor Lloyd’s signature. If Williams had brought Lloyd with him to the house to act as a witness, it seems that Williams would at least recognize the name. On the other hand, if Lloyd had been a friend or neighbor of the Zaptock-ys, it seems likely that they would know who he was. The fact that both the Zap-tockys and Williams testified that they do not know who Taylor Lloyd is suggests that a second witness was not present at the closing of the Zaptockys’ mortgage.4

“A finding of fact is ‘clearly erroneous’ when, although there is evidence to support it, the reviewing court is left with the definite and firm conviction that a mistake has been committed.” Luper v. Columbia Gas of Ohio, Inc. (In re Carled, Inc.), 91 F.3d 811, 813 (6th Cir.1996). Given the evidence in this case, we do not believe that the bankruptcy court’s finding that clear and convincing evidence demonstrated that only one witness was present at the signing of the Zaptockys’ mortgage was clearly erroneous. Accordingly, we affirm the BAP’s decision that the Chase mortgage was not properly executed under Ohio law.

IV. Is Simon entitled to Avoid the Defectively Executed Mortgage as a Subsequent Bona Fide Purchaser?

As noted above, a bona fide purchaser may only avoid an improperly executed mortgage under Ohio law if he does not have actual or constructive knowledge of that transaction. On appeal, Chase argues that Simon had knowledge of the Zaptock-ys’ mortgage with Chase and, therefore, he cannot avoid the Chase mortgage. This claim is without merit.

First, given that the strong arm clause of the federal Bankruptcy Code provides trustees with the rights of a hypothetical bona fide purchaser “without regard to any knowledge of the trustee,” Simon’s actual knowledge does not undermine his right to avoid a prior defectively executed mortgage. See 11 U.S.C. § 544(a); Sandy Ridge Oil Co., Inc. v. Centerre Bank Nat’l Ass’n (In re Sandy Ridge Oil Co.), 807 F.2d 1332, 1335 (7th Cir.1986); McCannon v. Marston, 679 F.2d 13, 16 (3d Cir.1982); In re Kim, 161 B.R. 831, 837 (BAP 9th Cir.1993).

Second, although this court has held that the Bankruptcy Code’s strong arm clause does not immunize a trustee who has constructive knowledge of a prior mortgage, it is quite clear that Simon did not have constructive knowledge of the Zaptockys’ mortgage with Chase. See Owen-Ames-Kimball Co. v. Mich. Lithographing Co. (In re Mich. Lithographing Co.), 997 F.2d 1158, 1159 (6th Cir.1993) (per curiam). At the time that the Zap-*1028tockys filed for bankruptcy Ohio law provided that an improperly executed mortgage does not put a subsequent bona fide purchaser on constructive notice. See Amick v. Woodworth, 58 Ohio St. 86, 50 N.E. 437, 441 (1898); Thames v. Asia’s Janitorial Serv., Inc., 81 Ohio App.3d 579, 611 N.E.2d 948, 954 (1992).5 As noted above, the Zaptocky mortgage was not properly executed because its formation was not attested to by two witnesses. Accordingly, Simon did not have constructive notice of the Chase mortgage and is entitled to avoid it as a subsequent bona fide purchaser.

Y. Is Chase Manhattan Entitled to be Equitably Subrogated to the Rights of Nationsbank?

On appeal, Chase also argues that it is entitled to be subrogated to the rights of the holder of the Zaptoekys’ first mortgage, Nationsbank. See Straman v. Rechtine, 58 Ohio St. 443, 51 N.E. 44, 46 (1898). However, as the BAP pointed out, the doctrine of equitable subrogation does not apply against a bona fide purchaser without knowledge. See Amick v. Woodworth, 58 Ohio St. 86, 50 N.E. 437, 441 (1898) (equitable subrogation “is never allowed against an intervening bona fide purchaser without notice ... nor one who occupies a like position.”). Since the Bankruptcy Code gives trustee Simon the rights of a bona fide purchaser without actual knowledge and no constructive knowledge has been established, Simon is entitled to the rights of a subsequent bona fide purchaser without knowledge of the prior mortgage. Accordingly, Chase is not entitled to be subrogated to the rights of Nationsbank.

VI. Conclusion

For the foregoing reasons, we AFFIRM the BAP’s judgment.

. Section 5301.25(A) of the Ohio Revised Code states that "[a]ll deeds, land contracts ... and instruments of writing properly executed for the conveyance or encumbrance of lands ... shall be recorded in the office of the county recorder of the county in which the premises are situated, and until so recorded or filed for record, they are fraudulent, so far as relates to a subsequent bona fide purchaser having, at the time of purchase, no knowledge 0f the existence of such former deed or land contract or instrument.” Ohio Rev.Code Ann. § 5301.25(A) (Anderson 1999).

. At least one bankruptcy court in the Northern District of Ohio seems to have taken the position that the Paramount case created a rule that a mortgagor’s testimony standing alone can never overcome a notary’s affirmative testimony regarding the attestation of witnesses. See Baumgart v. Ford Consumer Finance, 231 B.R. 628, 633 (Bankr.N.D.Ohio 1999); Simon v. First Union Mortgage Co., 231 B.R. 270, 274 (Bankr.N.D.Ohio 1999). Although it is possible to extrapolate this holding from the facts and language of the Paramount case, we do not believe that the Paramount Court intended to create a new per se rule in its brief per curiam opinion, which is only a little over one page in length. Xhis per se rule is not enunciated by the plain language of the court’s decision which refers only to "acknowledgement” and it is not supported by any of the cases that the Paramount Court cited. See Ford v. Osborne, 45 Ohio St. 1, 3, 12 N.E. 526 (1887); Mack v. Edelstein, 1 Ohio Law Abs. 391, 1923 WL 2662 (Ohio App.1923); White v. East Ohio Gas Co., 30 Ohio Law Abs. 275, 277, 1938 WL 6780 (Ohio App.1938); see also Helbling v. Williams (In re Williams), 240 B.R. 884, 887 (Bankr.N.D.Ohio 1999).

Furthermore, even if Paramount did establish that a debtor’s testimony cannot, standing alone, overcome a notary’s affirmative testimony regarding attestation, it is not clear that *1026this holding would be decisive in this case. Although Gary Williams testified that he never closed a loan without two witnesses present, he was unable to remember any of the details of this closing including the identity of the second witness. Although, a positive statement of an inflexible rule is given great weight, it is not clear that Williams' statement constitutes "affirmative testimony” mentioned in Paramount.

. In accordance with § 5301.01, Mr. Williams's notarial acknowledgement on the mortgage at issue merely certifies that the debtors personally appeared before him and executed the foregoing instrument and "acknowledged that they did examine and read the same and did sign the foregoing instrument, and that the same is their free acts and deed.” Ohio Rev.Code Ann. § 5301.01.

. It is also worth noting that Gary Williams worked part time for a mortgage company when he gave his testimony in this case and therefore had an interest in vindicating his professional actions. Although this fact does not completely discredit William's testimony, it certainly supports the bankruptcy court’s finding. See Helbling v. Krueger (In re Krueger), No. 98-18686, Adv. No. 99-1016, 2000 WL 895601, at *3 (Bankr.N.D.Ohio).

. The long standing rule that an improperly executed mortgage does not provide constructive notice has recently been changed by statute. See 1999 Ohio Legis. Serv. 5301.234 (Banks-Baldwin). Ohio Revised Code section 5301.234 provides that, beginning on June 30, 1999, a defectively executed but recorded mortgage can be constructive notice to third parties, including bona fide purchasers. However, Section 5301.2? 4 is not applicable in this case because the Zaptoekys filed for bankruptcy on April 28, 1998, over one year before this statute was scheduled to take effect. See Williams, 240 B.R. at 885.