Servicers Battle Ohio Courts

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MORTGAGE EXPERT
1 · 04 · 13

Ohio’s top court decided that website notice of foreclosures — a policy change made to accommodate a shrinking municipal budget — failed to satisfy due process requirements, and several lenders are finding that homeowners continue to fight foreclosures with accusations that the lenders weren’t filing the right paperwork. In another case, a mortgage servicer’s appeal of a trial court decision in a foreclosure turned out to be the right move financially as the appellate court enlarged the judgment on appeal.

In Aurora Loan Servs., LLC v. Sansom-Jones, the Court of Appeals of Ohio sent the case back to Franklin County Court of Common Pleas in order that it may award judgment in favor of Aurora in the amount of $140,913. The trial court handed Aurora $43,108 on a note and mortgage signed by Victoria Sansom-Jones. The trial court had reduced the damage award by $80,000, in part, because of Aurora’s failure to accept an offer of a short sale.

An Ohio state appellate court reversed a Portage County Court of Common Pleas decision against BAC Home Loans Servicing in the case, BAC Home Loans Servicing, L.P. v. Testa. The trial court had dismissed BAC’s complaint with prejudice without providing BAC or its counsel with notice of its intent to dismiss. Also, relying on the mediator’s report, the court determined that BAC failed to negotiate in good faith, violating the court’s mediation policy and also deciding that the mediator had gone beyond his permitted authority by disclosing more information than was required under the law.

A decision denying a couple’s motion for relief from judgment was reversed by an Ohio state appellate court in Bank of Am. v. Kuchta. It was an abuse of discretion for the trial court to deny the homeowners’ motion to vacate without holding a hearing.

In JPMorgan Chase Bank, N.A. v. Hunter, the Portage County Court of Common Pleas dismissed a pending foreclosure action on the basis that JPMorgan had failed to cooperate in the mediation process. Chase appealed, arguing that the dismissal must be reversed because the trial court lacked the authority to render such a judgment when a foreclosure decree had already been issued in the case. The appellate court reversed.

Chase Home Finance appealed the judgment of the Erie County Court of Common Pleas which dismissed the its complaint in Chase Home Fin., LLC v. Yost. The trial court granted Larry Yost’s motion to dismiss in December 2011. Yost had received a $92,000 loan from Flagstar Bank in order to finance the purchase of a home located at 10811 Angling Road, Wakeman, Ohio. The appellate court reversed declaring that the trial court erred in dismissing Chase’s complaint for foreclosure for failure to allege that it is the holder and owner of the note; the relevant inquiry is not “ownership” but whether Chase is a person entitled to enforce the note, the appellate court said.

A judgment by the Erie County Court of Common Pleas was appealed in CitiMortgage Inc. v. Shupe by the lender. The appellate court concluded that summary judgment was not appropriate because there was a question of fact as to whether the homeowners were in default at the time the lender refused to accept further payments on the mortgage loan. The homeowners had argued that some of their payments were misapplied.

An appellate court concluded that the Erie County Court of Common Pleas in Deutsche Bank Natl. Trust Co. v. Moore erred in dismissing the complaint and reversed the trial court’s decision. Deutsche Bank sued borrowers Gary L. and Stephanie A. Moore seeking foreclosure on a promissory note and mortgage secured by a Sandusky, Ohio, property. The homeowners filed a motion to dismiss, arguing that, although the lender sought judgment on the note and mortgage, the lender failed to allege and prove that it was the “owner and holder” of both the note and mortgage. The homeowners argued that the lender’s failure to allege ownership constituted the failure to allege all essential elements required for an action in foreclosure. The trial court granted the motion.

In this case, “whether by artifice or merely poor drafting, the complaint does not specifically allege that the bank is a ‘holder’ with the right to enforce the note,” the appellate court wrote, “rather, it states that ‘plaintiff says it is due upon a certain promissory note * * *.’ The copy of the promissory note initially attached to the complaint, filed on June 28, 2011, did not include an indorsement in blank, and the holder on that copy was the original lender, IndyMac Bank, F.S.B.”

However, Deutsche later filed an amended exhibit, which was a copy of the complete promissory note. As a result, the court said, the complaint, along with the amended exhibit, allege sufficient facts to provide notice that the bank is a holder, since it alleges that it holds the original note indorsed in blank by IndyMac. “Whether that factual allegation is invalid is not a matter for determination on a motion to dismiss,” the court said.

The appellate court said that despite the lack of a specific designation of the bank as a holder, the complaint, along with the later filed copy of the note, provided the minimum notice of the complaining party and the nature of the action filed, as required under Ohio pleading rules. Consequently, the complaint was not so vague and ambiguous that the homeowners would not be able to frame responsive pleadings. In addition, based upon an earlier decided case, Deutsche was not required to plead that it was both the holder and the owner, the court said in reversing the judgment of the Erie County Court of Common Pleas and remanded the case for proceedings.

In Fifth Third Mtge. Co. v. Berman, Jeffrey C. Berman, appeals from a judgment of the Franklin County Court of Common Pleas granting summary judgment in favor of Fifth Third Mortgage Co., in this mortgage foreclosure action. Berman asserts that there remains a genuine issue of material fact as to whether Fifth Third provided the requisite notice of default and acceleration under the terms of the note and mortgage. The copy of the default notice supports the proposition that Fifth Third mailed it to a post office box rather than the address of the subject property. There remains a genuine issue of material fact regarding whether the notice was sent according to the terms of the note and mortgage, the appellate court said in reversing the lower court.

The judgment of the court of appeals was reversed in Fifth Third Mtge. Co. v. Bihn, and the case remanded to the trial court for further proceedings.

Dannie Edmon appealed the judgment of the Court of Common Pleas of Erie County which awarded summary judgment to HSBC Mortgage Services Inc. in HSBC Mtge. Servs., Inc. v. Edmon. The appellate court reversed, finding that there remains a genuine issue of material fact as to the authenticity of the promissory note filed with HSBC’s motion for summary judgment. After reviewing the record, the appellate court found that the trial court erred by awarding summary judgment to HSBC because HSBC was unable to properly authenticate the promissory note.

Borrowers Robert J. and Julie G. VanCott appealed the Dec. 5, 2011, judgment of the Lucas County Court of Common Pleas in a foreclosure action brought against them by Nationstar Mortgage, LLC. The trial court granted Nationstar’s motion for summary judgment and overruled appellants’ motion to dismiss on a Sylvania, Ohio property. Although not a party to the contract, Nationstar filed a foreclosure complaint against appellants on Aug. 23, 2010, alleging that payments due under the terms of the note and mortgage had not been made. Nationstar alleged in the complaint that it was “entitled to enforce the note pursuant to Section 1303.31 of the Ohio Revised Code, and the mortgage was given to secure the note.”

But Nationstar did not attach a copy of either the note or mortgage to its complaint and alleged that the note had been misplaced and could not be located. In their answer, the defendants alleged as a defense that Nationstar did not own the note and mortgage. They appealed the trial court’s judgment granting Nationstar’s motion for summary judgment and overruling the homeowners’ motion to dismiss.

The Ohio Supreme Court resolved this issue in its recent decision on appeal in Federal Home Loan Mtge. Corp. v. Schwartzwald, Slip Opinion No. 2012-Ohio-5017. The decision was issued after the parties submitted their briefs in this appeal. The court held in that case that a party bringing an action in foreclosure must establish an interest in the note or mortgage at the time it filed suit for it to have standing to invoke the jurisdiction of the common pleas court in the case. The court held that lack of standing at the commencement of a foreclosure action cannot be cured by subsequently obtaining an interest in the subject of the litigation. Under the decision, “lack of standing at the commencement of a foreclosure action requires dismissal of the complaint * * * without prejudice.” In this instance, the appellate court concluded that the trial court erred in granting summary judgment to Nationstar on the grounds that ownership of the note and mortgage at the time of judgment was sufficient to establish standing to bring the foreclosure action. The court said the lower court also erred in granting Nationstar’s motion for summary judgment.

In PHH Mtge. Corp. v. Prater, the issue was whether a county sheriff could meet the constitutional obligation of providing notice of a sheriff’s sale to a plaintiff by letter directing the plaintiff’s attorney to monitor a website for a listing of the date, time, and location of sale. The state’s top court said no and reversed the decision of the court of appeals. PHH had moved to set aside the sale, claiming that it had not received written notice of the date, time, and location of the sale. PPH held the mortgage and intended to bid on the property. The trial court held a hearing and denied PHH’s motion to set aside the sheriff’s sale. PHH appealed, and the Clermont County Court of Appeals affirmed the judgment of the trial court.

The Supreme Court of Ohio granted discretionary review and reversed the judgment of the court of appeals because of due process issues. In Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 94 L.Ed. 865 (1950), the Supreme Court of the United States held that an “elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” The recently adopted Internet notice procedure was lacking because it shifted the burden of notification from the sheriff’s office to the persons to whom the notice is directed, the court said. Rather than sending notice by mail to those parties whose names and addresses are known, the new notice system of the sheriff’s office transferred the burden to the parties to take active steps to research and monitor the information.

“While we understand the interest in using technology to conserve resources, we find that notice by Internet posting is more akin to publication in a newspaper, and due process demands more in this instance,” the court said, explaining that when a party’s address is known or easily ascertainable and the cost of notice is little more than that of a first-class stamp, the balance will almost always favor notice by mail over publication and that if regular mail was going to be abandoned in favor of electronic media, then email was the better way.

A summary judgment in the foreclosure action Third Federal S. & L. Assn. Of Cleveland v. Farno was reversed because Third Federal failed to attach certain documents in its affidavit in support of its motion for summary judgment. Third Federal indicated that it had reviewed documents pertaining to the loan history and evidence of payment default; but, the court noted, no documents or portions of documents relative to those matters were attached or served with the affidavit, or for that matter, found anywhere in the record. And, the court said, there was no indication in the record that Third Federal asked to supplement the record and its affidavit after Farno raised the issue with the trial court and no indication the trial court took the opportunity to order the record supplemented.

“We do not suggest that Third Federal was required to attach every document in its file on Farno’s note, but Third Federal needed to attach or serve with its affidavit some document or documents material to the issues in this case, to wit, the default in payment and applicable portions of the payment history,” the court said.

In Wells Fargo Bank, N.A. v. Hazel, Wells Fargo appeals from a judgment of the Franklin County Court of Common Pleas in a case involving a foreclosure. The trial court adopted the magistrate’s decision. The court concluded that, because Wells had not filed a transcript with its objections, the court must accept the magistrate’s factual findings and limit its review only to the magistrate’s legal conclusions.

The court further concluded that, without a transcript, it could not determine that the magistrate erred with her legal conclusions “because those conclusions are directly based on the findings of facts she took into consideration during the hearing.” In so concluding, the trial court overruled Wells’ objections and adopted the magistrate’s July 11, 2011 decision granting the homeowners’ motion to set aside the judgment. The appellate court reversed and remanded the case to the lower court for consideration of the objections and to determine compliance with the rules.

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