Order and Opinion Granting Defendants' Motion to Dismiss and Denying Plaintiff's Motion for Summary Judgment. The adversary proceeding centered on the Plaintiff-Trustee’s request for a finding under 11 U.S.C. § 544(a) that the acknowledgment in the Debtor’s deed of trust contained a tally defective notarial certificate. Specifically, the notary omitted the Debtor’s name from the blank space provided within the acknowledgment. The Plaintiff asserted that the defective certificate rendered the recordation of the deed of trust invalid as against the property interests of the Plaintiff and the Debtor’s bankruptcy estate. The Plaintiff requested that, to the extent the Defendants’ lien under the deed of trust is avoidable, that he be entitled to obtain and retain any avoidance or recovery for the benefit of the bankruptcy estate pursuant to 11 U.S.C. § 550 and 551.
      Because the Trustee’s ability to avoid a given lien is dependent upon state law, the Court found decisions from other jurisdictions to be of limited utility to determining the validity of the acknowledgment at issue in this proceeding. Under North Carolina law, N.C. Gen. Stat. § 10B-99 ensures that the “presumption of regularity” created by the doctrine of substantial compliance shall apply to all notarial acts. If an acknowledgment is found to substantially comply with the requirements of the Notary Public Act, a presumption of regularity will apply to that notarial act. The party challenging the acknowledgment would then need to rebut the presumption by proving factual allegations of irregularity such as forgery, fraud, or a knowing and deliberate violation on the part of the notary.
      While there is no brightline understanding of the substantial compliance standard, the North Carolina Supreme Court has provided examples of acknowledgments that may be technically deficient but otherwise substantially comply with the law. Two noteworthy cases provide key principles that the Court applied to the facts of this case. In Freeman v. Morrison, 199 S.E. 12 (N.C. 1938), the North Carolina Supreme Court adopted a “liberal construction” toward certificates of acknowledgment. In Freeman, the acknowledgment of a lease did not state the name of the lessor, but the court reasoned that the acknowledgment was nevertheless in substantial conformity with the statute and valid. In Manufacturers’ Finance Co. v. Amazon Cotton Mills Co., 109 S.E. 67 (N.C. 1921), the North Carolina Supreme Court found an acknowledgement that omitted the name of the grantor was still in substantial compliance and thus valid.
      Based on the guidance in Freeman and Amazon Cotton, the Court here found the deed of trust to be in substantial compliance. First, the acknowledgment included all elements required under the statute save for the name of the grantor and was much closer to the model form than those found in Freeman and Amazon Cotton. Second, the Debtor’s name and signature appear on and refer to the same instrument referenced in the acknowledgment. Third, there are no open questions about which signatory appeared before the notary and acknowledged the security instrument because the Debtor was the only signatory to the deed of trust. The Court found the finding to be bolstered by considering the effect of a notary’s certification under N.C. Gen. Stat. § 10B-40.
      Accordingly, the Court found the acknowledgment to be substantially compliant with the Notary Public Act and, because the complaint did not allege facts that would rebut the presumption of regularity, there was no basis for invalidating the deed of trust and no basis for awarding the Trustee relief under 11 U.S.C. § 544(a). The Court, therefore, granted the Defendants’ motion to dismiss and denied the Trustee’s motion for summary judgment as moot.