Lenders take it on the chin in the latest round of Ohio foreclosure cases — with several losing on appeal. Ohio’s top court issued a ruling on proving standing, and, an Ohio appellate court observes that it has recently seen significant problems in the affidavits submitted by bank employees accompanying requests for summary judgment in foreclosures.
In Wells Fargo Bank, N.A. v. Horn, the Supreme Court of Ohio on April 22 held that a plaintiff in a foreclosure is not required to attach to the complaint all of the evidence upon which it will rely to show standing.
“We hold that Schwartzwald does not require the plaintiff to prove standing at the time the foreclosure action is filed. Rather, although the plaintiff in a foreclosure action must have standing at the time suit is commenced, proof of standing may be submitted subsequent to the filing of the complaint,” the court wrote.
The attorney for the borrowers in the lawsuit, Brian and Carol Horn, doesn’t see the decision as a game changer.
“I really don’t see Horn as being a significant decision. Most Ohio Courts of Appeals already followed the reasoning stated in Horn. The lower appellate decision in Horn was something of an anomaly to begin with, so the clarification of Schwartzwald wasn’t really much of a clarification,” Andrew Engel said in a statement emailed to Mortgage Daily. “The court’s holding in Horn did two things. First, it clarified that standing need not be proved at the commencement of a case. Schwartzwald stated – and I agree – that standing must be established as of the commencement of the action. Therefore, the hard evidence to prove standing can be introduced after suit is filed.
“The decision also clarified what must be done to address standing in the complaint. Ohio is a ‘notice-pleading’ state, meaning that, generally, a complaint need only allege facts sufficient to support a finding that the plaintiff has standing. In Horn, the court found that the general allegation that the plaintiff was the holder of the note was sufficient to support a finding of standing. My argument in Horn was that the plaintiff must allege fact, not merely assert legal conclusions, relative to standing. It is a subtle distinction, but the court declined to adopt that standard.”
A Wells Fargo spokesman said Wells Fargo was pleased that the Ohio Supreme Court found that the bank followed the appropriate procedures under Ohio law.
An Ohio state appellate court ruled on March 23 in Chaco Credit Union, Inc. v. Hodge that a trial court made a mistake when it allowed a lender to amend a judgment against a couple in the foreclosure of their home. Chaco obtained a default judgment against Larry and Debbie Hodge. Shortly before the sale of the property, the couple filed for Chapter 13 bankruptcy. Chaco filed a motion asking the court to file an amended judgment to reflect the payments made during the bankruptcy.
The court granted the request.
The homeowners appealed, arguing that the court erred when it amended the judgment. They said that their attorney was not given notice of the request to amend the judgment and that the judgment amount did not reflect the payments they made during the bankruptcy. The appeals court said the trial court erred in entering the amended judgment as a modification of the judgment because the judgment included a substantial change based on events happening well after the original judgment. More than five years after Chaco was granted default judgment, Chaco filed a motion for leave to amend the judgment to reflect payments made during the bankruptcy.
Freddie Mac failed to prove standing, an appeals court said in Federal Home Loan Mortgage Corp. v. Grindall. The Ohio appeals court said that because none of the documents attached to the affidavit of the witness selected to testify to get the records in to admission under the business record exception to hearsay, supported the proposition that PNC — the apparent assignee before Freddie Mac — held possession of the note, that the trial court’s award of summary judgment to Freddie Mac should be reversed. As a result, Freddie Mac failed to prove that it had standing to enforce the note or seek foreclosure, the court said.
In HSBC Mortgage Services Inc. v. Watson, the appellate court reversed an award of summary judgment in favor of the lender. In admissions filed in the case, HSBC admitted that it did not have possession of the original note on the mortgage and that its employee did not personally observe the original note prior to signing the affidavit attached to HSBC’s motion for summary judgment. The homeowners argued, among other things, HSBC admitted that it filed affidavits which were not based on personal knowledge and that it litigated foreclosure proceedings without confirming possession of promissory notes. Demonstrating possession of the note — or alternatively, entitlement to enforce the note — is a prerequisite to obtaining summary judgment in a foreclosure action, and a plaintiff’s inability to demonstrate possession of the note or entitlement to enforce it will preclude summary judgment, the appellate court said.
The appellate court on Feb. 2 reversed an award of summary judgment for a lender in a foreclosure in U.S. Bank v. Greenless. The court concluded that U.S. Bank failed to demonstrate that it had performed all conditions precedent prior to acceleration and foreclosure of the loan. The court said that the lender had offered a “mere two sentences” addressing its performance of the conditions necessary to initiate foreclosure. In addition, the court noted in a footnote that the bank’s witness averred that her knowledge that the bank was in possession of the note was based upon her review of the business records attached to her affidavit. However, the records attached were not sufficient to permit her to make that attestation. The court also observed that it had “recently noted a significant problem in foreclosure cases with affidavits submitted by bank employees in support of the banks’ motions for summary judgment.”
An award of summary judgment was reversed by the appeals court on April 2 in U.S. Bank National Association v. Lavelle because of inconsistent and undated special indorsements, leading to the court being unable to effectively determine the chain of assignments and ultimately the legitimacy of the assignment of the note to U.S. Bank. Ordinarily, the court said, the original note does not need to be produced in order to grant summary judgment. U.S. Bank had submitted two inconsistent notes that were presented as true and accurate copies of the original note signed by the borrower. Two complaints for foreclosure were filed with the courts, one in 2006 and one in 2010 — after the homeowners had obtained a loan modification.
In Wells Fargo Bank v. Goebel, a trial court’s award of summary judgment for a lender was reversed and the case sent back to the trial court for further legal proceedings. The borrower argued that genuine issues of material fact existed as to whether Wells Fargo complied with the face-to-face meeting requirement.
With some exceptions, 24 C.F.R. § 203.604 requires an FHA lender to attempt an in person meeting with the borrower before three full monthly installments due on the mortgage are unpaid. Courts regularly hold that failure to comply with the HUD regulations can be used defensively in an action on a note and mortgage, especially where they are said to apply in the contract, the appeals court said. The borrower stated in her affidavit that she did not have such a face-to-face interview with Wells Fargo and presented sufficient evidence to raise a genuine issue of material fact as to whether Wells Fargo complied with the requirement. Wells Fargo cited no evidence that any of the exceptions to the face-to-face meeting applied.
In Wells Fargo Bank v. Fridley, an award of summary judgment for a lender was reversed when the appellate court ruled that the lender failed to join the estate of the deceased owners as a party to the legal action after the daughter who inherited the house allegedly failed to make payments.
