Commercial and Residential Mortgage Foreclosure (OH)
A Practical Guidance ® Practice Note by Michael Carleton, Manley Deas Kochalski
Michael Carleton Manley Deas Kochalski
This practice note explains the commercial and residential foreclosure process in Ohio, from pre-suit requirements through sale of the foreclosed property and distribution of the proceeds. Although foreclosure is a lender-driven process, this practice note provides guidance to counsel for both lenders and borrowers.
For further guidance, see Foreclosure Resource Kit (OH). For general guidance on lending in Ohio, see Commercial Real Estate Financing Transactions (OH) and Commercial Real Estate Financing (OH)
For a mortgage templatefor use in Ohio, see Mortgage (Acquisition Loan, Long Form) (OH)
Overview and General Process
Ohio is a judicial foreclosure state. In Ohio, “[a] foreclosure action is a two-step process, the first part of which ends with the judgment and decree of foreclosure, which is a final appealable order. The second part of the process involves the sale of the property, culminating in a confirmation of sale and dispersal of proceeds. An order confirming the sale of property is also a final appealable order.” Fifth Third Bank v. Dayton Lodge LLC, 2012-Ohio-3387, 18 (Ct. App.); see also Countrywide Home Loans Servicing v. Nichpor, 990 N.E.2d 565 (Ohio 2013) (foreclosure proceeding is no longer “pending” after the decree of foreclosure has
been entered; the sheriff’s sale process is a separate and distinct proceeding, culminating the confirmation entry). The judgment and decree of foreclosure (which leaves only mechanical and ministerial calculations for the confirmation stage) is a final order. CitiMortgage, Inc. v. Roznowski, 11 N.E.3d 1140 (Ohio 2014).
Commercial vs. Residential Foreclosures
Commercial foreclosures in Ohio are, generally, contract disputes. Unlike residential mortgage foreclosures, plaintiffs are not subject to the rigors of many of the federal laws governing consumer debt collection and plaintiffs can collect attorney’s fees. Many aspects of the foreclosure process, such as standing, obtaining judgment, and selling the property through execution sale, remain the same regardless of whether the property is commercial or residential. Where necessary, the differences between residential mortgage foreclosures and commercial mortgage foreclosures are notated.
Two areas bear mentioning. For title work that must be filed for commercial mortgage foreclosures, Ohio Rev. Code Ann. § 2329.191(C) requires a title search, but also allows for a title commitment which can morph into an owner’s title insurance policy if the purchaser at the execution sale so chooses. For judicial sales in execution of commercial mortgage foreclosures, the sales may be online pursuant to Ohio Rev. Code Ann. § 2329.153(E)(1)(b).
Venue
Foreclosures on real estate are properly venued in the “county in which the property, or any part of the property, is situated[.]” Ohio Civ. R. 3(C)(5).
If the property straddles the county line, the case is usually filed in the county where the structure is located. For the other county (i.e., the county in which the action was not
filed), particular notice, in the form of a certified copy of the complaint, must be filed with that county’s clerk of courts of common pleas pursuant to Ohio Civ. R. 3(F). Ohio Civ. R. 3(F)(1). The same applies when the action is filed in federal court (i.e., the particular notice must be filed in the applicable state court). Id. If the property is a registered land (generally, registered land no longer exists in Ohio), then the documents are filed with the county’s recorder instead of the clerk. Ohio Civ. R. 3(F)(5). Subsequent to the complaint, certified copies of the judgment, dismissal, appeal, modification, or other similar documents are filed in the same manner. Ohio Civ. R. 3(F) (2) and (3). The result of not filing the documents as required is that third parties are not charged with notice as they otherwise would be. Ohio Civ. R. 3(F)(1) and (3).
Jurisdiction
Most foreclosure cases, residential and commercial, are filed in the courts of common pleas because the amount in controversy satisfies the jurisdictional requirements. Ohio Courts of Common Pleas have original jurisdiction in all civil cases in which the amount in controversy exceeds $500. Ohio Rev. Code Ann. §§ 2305.01, 1907.03(A).
Some foreclosure cases are filed in federal court. In those instances, the jurisdictional requirements of the federal court must be met (i.e., diversity and amount in controversy exceeds $75,000). This practice note, however, focuses on foreclosure cases in state court.
There are instances when a particular court of common pleas does not have subject matter jurisdiction over a foreclosure case. Examples include a land sale action being filed in the county’s probate court prior to the foreclosure case being filed, another case being filed in another county’s court of common pleas or in the federal court prior to the foreclosure case being filed, or the breach amount being less than $500.
The probate court and the court of common pleas have concurrent jurisdiction over a decedent’s real estate. Govt. Natl. Mtge. Assn. v. Smith, 277 N.E.2d 233, 234–35 (Ohio Ct. App. 1971). “[A]s between courts of concurrent and coextensive jurisdiction, the one whose power is first invoked by the institution of proper proceedings and the service of the required process acquires the right to adjudicate upon the whole issue and to settle the rights of the parties to the exclusion of all other tribunals.” Miller v. Court of Common Pleas of Cuyahoga County, 54 N.E.2d 130 (Ohio 1944).
Pre-suit Requirements Contractual Requirements
The note and mortgage provide the necessary pre-suit requirements. For example, most notes and mortgages in Ohio require that the borrower/mortgagor be given notice
of a default in payment and time period to cure. Often, this notice is called the “Breach Letter” (or the “Demand Letter”). In these situations, the Breach Letter need only be sent to the address in the documents or provided by the borrower/ mortgagor, not necessarily received, and the time to cure is typically 30 days. Further, if the default is not cured, the loan is accelerated without further notice.
Some notes and mortgages require notice of actual acceleration. In other words, first a Breach Letter will be sent and then a notice of actual acceleration. These provisions, however, are increasingly rare and, when they are found, are usually negated by other provisions of the note and mortgage that indicate that acceleration can occur without further notice.
Statutory and Regulatory Requirements
Ohio now has a statutory requirement to send written notice to a debtor of some mortgage liens – R.C. § 1349.78 (formerly R.C. § 1349.72). This requirement only applies to mortgage liens that are not in first lien position (e.g. a second mortgage or a Home Equity Line of Credit), often called “junior mortgages.” The statute requires written notice to be given not less than 30-days before the junior mortgagee files a foreclosure action and the notice must include certain provisions about the person collecting the debt, amount of the debt, that the debtor has a right to engage an attorney, and bankruptcy information. This being said, it is a good idea to just include the additional information in all breach letters to ensure compliance.
Ohio does not have a state-specific pre-suit requirement statute like some states (e.g., Pennsylvania, Florida, California). That being said, for residential foreclosures, the regulations promulgated by the federal Consumer Financial Protection Bureau (CFPB) may apply. These regulations require that a foreclosure on a loan governed by the regulations cannot be filed within 120 days of default, (12 C.F.R. § 1024.41(f)(1)) while a loss mitigation application is being reviewed (12 C.F.R. § 1024.41(f)(2)), or before other loss mitigation requirements are met. Another federal set of regulations is that promulgated by the federal Department of Housing and Urban Development (HUD Regulations). These regulations apply only to loans backed by the Federal Housing Administration (FHA) and provide for certain notice provisions (similar to those addressed above) as well as loss mitigation requirements.
Yet another federal set of regulations has been promulgated by the federal Veterans Administration (the VA Regulations). These regulations apply to only residential loans backed by the VA and provide for certain protections and notices.
Complaint Requirements
Once all pre-suit requirements are met, the next step is for the lender to file a complaint. Generally, the complaint should recite the elements of the foreclosure case. The plaintiff must demonstrate:
• The plaintiff is entitled to enforce the note and mortgage
• The chain of assignments and transfers (if the plaintiff is not the original mortgagee)
• The mortgagor is in default
• All conditions precedent to filing the action have been met
• The amount of principal and interest due Wachovia Bank v. Jackson, 2011-Ohio-3203, 40–45 (Ct. App.).
For a form, see Complaint for Foreclosure (OH)
Parties
Plaintiff and Standing
Much like any other civil case in Ohio, standing to bring a foreclosure action derives from “the nature and source of the claim asserted.” Deutsche Bank Nat’l Trust Co. v. Holden, 60 N.E.3d 1243, 1248 (Ohio 2016) (quoting Moore v. Middletown, 975 N.E.2d 977, 982 (Ohio 2012)). The irreducible minimums are that the plaintiff “suffered (1) an injury that is (2) fairly traceable to the defendant’s allegedly unlawful conduct, and (3) likely to be redressed by the requested relief.” Id. (quoting Moore v. Middletown, 975 N.E.2d 977, 982 (Ohio 2012)).
Commonly known from Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992), these are “injury, causation, and redressability.”
The Ohio Supreme Court has held that a plaintiff has standing if it has an interest in either the note or the mortgage at the time that the complaint is filed. See Fed. Home Loan Mtge. Corp. v. Schwartzwald, 979 N.E.2d 1214 (Ohio 2012); Wells Fargo v. Horn, 31 N.E.3d 637 (Ohio 2015); Deutsche Bank Nat’l Trust Co. v. Holden, 60 N.E.3d 1243 (Ohio 2016).
The plaintiff does not have to prove standing in the complaint because Ohio is a notice-pleading jurisdiction and “[p] roof of standing may be submitted subsequent to filing the complaint.” Horn, 31 N.E.3d at 641 (emphasis in original).
If the plaintiff seeks only to enforce the mortgage, the plaintiff needs only to show the existence of an assignment of mortgage to it prior to filing the complaint in order to have standing. Holden, 60 N.E.3d at 1251.
Defendants and Necessary Parties
The necessary defendants to a foreclosure case are those people or entities “holding an interest in mortgaged property . . . .” Western Mortgage & Realty Co. v. Bouquett, 1996 Ohio App. LEXIS 830 (Ct. App. Mar. 8, 1996); see also State ex rel.
Squire v. Kofron, 15 N.E.2d 783 (Ohio Ct. App. 1937) (noting that “[a]ll parties who have any title, right, or interest in real estate are necessary parties in a foreclosure action”).
Generally, the primary defendant(s) will be the borrower(s)— the person or people who signed the note and mortgage. It is not unusual, however, to have more (or different) people sign the mortgage than the note because more people may be in title than want to be personally obligated on the note. To that end, the contract documents will control, as will the laws of succession of ownership if the owner at the time the loan was taken / mortgage given is deceased.
The signatories to the note are not always required defendants in a foreclosure case. If the signer has been discharged in bankruptcy or is deceased, there is a good chance that person or entity need not be named a defendant (because there is no longer a personal obligation on repaying the loan). The signer is only necessary if the plaintiff seeks personal (in personam) judgment against it. If only judgment against the property (in rem judgment) is sought, and the note signer is not in title to the property (either actually or in law), the note signer is not a necessary defendant.
Married Couples and Dower
Dower still exists in Ohio. As a result, the spouse of an owner is a necessary party to the foreclosure action (although, no personal judgment will be taken against that person, only in rem to remove the dower interest from the title). RBS Citizens, NA v. Krasnov (8th Dist.), 2014-Ohio4217, 19 (Ct. App.). When a married couple is divorced, however, the divorce obliterates dower rights and also any survivorship rights, requiring a subsequent deed to reinstate those survivorship rights (as if it were any other joint tenancy).
Divorce and Separation
Divorce and separation create a challenging situation. Despite what the decree or separation agreement might say, the ex-spouses can still be obligated on the note or in title to the property such that they will be necessary parties to the foreclosure case. Generally, personal responsibility on the note can only be changed by agreement with the lender/ mortgagee, bankruptcy, or death.
Deceased Titleholders
If a titleholder is deceased, follow either the will, the probate court’s indication, or Ohio’s statute of descent and distribution, Ohio Rev. Code Ann. § 2105.06, to name the appropriate heir(s). However, the estate of the deceased is not a necessary party so long as the plaintiff is seeking in rem relief only. See e.g., Chaco Credit Union, Inc. v. Perry, 2012Ohio-1123 (Ct. App.).
Additional Necessary Parties
Land contract vendees have an equitable interest in the title to the property and are necessary parties.
Lienholders are necessary parties to the case if the plaintiff wishes that the execution sale of the property pass clear title. This includes senior lienholders. In Ohio, a junior lienholder can foreclose from the junior position and wipe out, or clear, a senior lien from the property if proper notice is given to the senior lienholder and the senior lienholder does not appear in the case and protect its interest. See Galt Alloys, Inc. v. KeyBank Nat’l Ass’n, 708 N.E.2d 701 (Ohio 1999).
Homeowners’ associations and condominium associations are necessary parties pursuant to Ohio Rev. Code Ann. § 5312.12.
Generally, the county treasurer is a necessary party because of its statutory tax lien interest pursuant to Ohio Rev. Code Ann. § 323.11. Some counties, however, specifically state that the county treasurer is not to be named in the action (Butler, Cuyahoga, Hamilton, Lucas, Medina, Richland, and Summit).
Generally, interests that run with the land (e.g., mineral, oil, or gas rights; covenants; easements) do not need to be named in the case.
Finally, if there is a mobile home on the property, consider naming the lienholders on the mobile home or other owners, either if known or unknown.
Title Search
Ohio Rev. Code Ann. § 2329.191 requires the plaintiff to submit title work to the court on at least two occasions. The initial report, called the Preliminary Judicial Report (PJR), is filed within 14 days of the complaint. The PJR must have an effective date of not more than 30 days before the date that the complaint is filed, be issued by a licensed title insurance agent, and must contain:
A legal description of each parcel of real estate to be sold at the judicial sale
• The street address of the real estate or, if there is no street address, the name of the street or road upon which the real estate fronts together with the names of the streets or roads immediately to the north and south or east and west of the real estate
• The county treasurer’s permanent parcel number or other tax identification number of the real estate
• The name of the owners of record of the real estate to be sold
• A reference to the volume and page or instrument number of the recording by which the owners acquired title to the real estate
• A description of the record title to the real estate (However, easements, restrictions, setback lines, declarations, conditions, covenants, reservations, and rights-of-way that were filed for record prior to the lien being foreclosed are not required to be included.)
• The name and address of each lienholder and the name and address of each lienholder’s attorney, if any, as shown on the recorded lien of the lienholder
For forms, see Preliminary Judicial Report (Foreclosure) (OH) and Notice of Filing of Preliminary Judicial Report (Foreclosure) (OH)
The second report must be ordered prior to the judgment entry and is called the Final Judicial Report (an FJR). The FJR updates the court’s record with the state of title between the effective date of the PJR and the date of lis pendens and must include a copy of the court’s docket. The date of lis pendens is now the date the complaint was filed. Ohio Rev. Code Ann. § 2703.26.
For forms, see Final Judicial Report (Foreclosure) (OH) and Notice of Filing of Final Judicial Report (Foreclosure) (OH)
As noted above, in commercial mortgage foreclosures, Ohio Rev. Code Ann. § 2329.191(C) requires the title search, but also allows for a title commitment which can morph into an owner’s title insurance policy if the purchaser at the execution sale so chooses.
Prayer and Deficiency Judgments
The prayer in the complaint will seek either in rem relief or in personam relief. Again, the type of relief sought determines the necessary parties to the case.
If in rem, then the plaintiff will recover only from the sale of the property in execution of the judgment. In other words, there will be no possibility of a deficiency collection.
If in personam relief is sought, the plaintiff may have the opportunity to obtain a deficiency judgment pursuant to Ohio Rev. Code Ann. § 2329.08. The deficiency will be determined by the difference of the full amount owed to the plaintiff and what the property sold for at the sale in execution of the judgment. If in personam judgment is granted and there is a deficiency, the plaintiff has two years from the date that the confirmation of sale entry was entered to collect on the deficiency.
Documents to Attach to Complaint
Ohio Civ. R. 10(D)(1) indicates that copies of the documents evincing the obligations be attached to the complaint or the complaint include an averment as to why those documents are not attached. Generally, the documents include the note, mortgage, and loan modification(s) (if any). Good practice indicates that the plaintiff also include copies of any assignment(s) of mortgage to establish plaintiff’s interest in the mortgage.
Not including the documents, however, is not fatal to the case. Generally, the plaintiff will be granted leave to amend to attach the documents.
Statutes of Limitation
Two sets of statutes of limitation are in play. The first is on the note. Generally, the statute of limitation on the note is six years from the date of acceleration or due date. Ohio Rev. Code Ann. § 1303.16(A). What constitutes acceleration can vary and then there is the question of whether the acceleration can be waived or “de-accelerated.”
The second is on the mortgage. The applicable statute is Ohio Rev. Code Ann. § 2305.06. If the mortgage was executed prior to September 28, 2012, the statute of limitation is 15 years after the cause of action accrued. If the mortgage was executed on or after September 28, 2012, the statute of limitations is eight years after the cause of action accrued. In some situations, the mortgage may allow for the mortgagee to control the property until the default is cured. If that is the case, the statute of limitations is 21 years after the cause of action accrued. Ohio Rev. Code Ann. § 2305.04. This statute, however, is more applicable to eviction situations.
Miscellaneous
Lost Notes
Simply because a note is lost or destroyed does not mean that it cannot be enforced. Ohio Rev. Code Ann. § 1303.38 provides the mechanism for enforcing the note.
To establish enforcement of a lost or destroyed note, the person not in possession must prove:
• The person seeking to enforce the instrument was entitled to enforce the instrument when loss of possession occurred or has directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred
• The loss of possession was not the result of a transfer by the person or a lawful seizure –and–
• The person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process
The above is usually proven by lost note affidavit. The affidavit usually comes from the servicer for the plaintiff.
Title Issues
Reformation Count or Equitable Mortgage
Title issues do arise in foreclosure cases. Generally, the issue is that the legal description of the property needs to be revised
in some way or the mortgage fails to identify the mortgagors correctly. The most common form of correction is a reformation count. A reformation count asks the court to reform the mortgage to meet the intention of the parties. While generally not challenged, the standard of proof for a reformation count is “clear and convincing evidence.” To that end, the plaintiff may choose an equitable mortgage count, which has a basic, “preponderance of the evidence” standard of proof.
Title Insurance Claims
Often, first mortgage lienholders purchase title insurance as part of the loan origination. If so, the plaintiff should consider making a claim if there is a title issue. While the title insurance company will likely indicate that the plaintiff should proceed with the foreclosure, not making a claim could eliminate coverage. Further, most title insurance policies will only pay out if there is an actual loss to the plaintiff. An actual loss does not include having to add a lienholder as a defendant in the case. Instead, an actual loss would be if that lienholder appeared in the case and defended it. Even then, however, the title insurance company may only retain counsel and pay out if the lienholder wins its claim.
Mobile Homes
Mobile homes present a unique challenge in foreclosure cases. Generally, the county auditor can tell the plaintiff whether a mobile home has been affixed to the real estate and taxed as real property. If it has been, there is likely no issue that the mortgage encumbers the mobile home. If not, then the question becomes whether the mobile home is encumbered by the mortgage. If the mobile home is encumbered, it can be sold along with the real estate at the execution sale regardless of whether it is affixed to the real estate. If the mobile home is not encumbered, only the real estate can be sold at execution sale and the mobile home must be addressed by the purchaser at the execution sale after the execution sale has confirmed and title passed. In that instance, the mobile home will remain personal property (and may carry with it criminal liability if handled in an inappropriate means).
If a mobile home is affixed, the question becomes whether the certificate of title for the mobile home has been surrendered to the county auditor’s office. If it has, then it is likely that the mobile home can be treated as a standard, stick-built home. If it has not, the plaintiff must determine whether to proceed with naming the titleholders and/or lienholders. If the status of the certificate of title cannot be determined, the plaintiff should name the unknown titleholders and unknown lienholders to address the potential interests.
If the mobile home is not affixed, but it is encumbered by the mortgage, the question is whether the certificate of title
for the mobile home is active. If it is active, the plaintiff will need to determine if the owners and/or lienholders need to be named as defendants. If the status of the certificate of title cannot be determined, then the plaintiff should name the unknown titleholders and unknown lienholders to address the potential interests.
If the mortgage identifies a mobile home, but the mobile home that is now on the property is not the mobile home that is identified in the mortgage, the plaintiff will need to establish that the current mobile home remains encumbered by the mortgage. Most mortgages have provisions that cover replacements such as this one. If not, then the plaintiff may need to bring a reformation count or an equitable mortgage count.
Service of the Complaint
Service in a foreclosure case is handled like any other civil case. A couple things bear mention.
The Ohio Supreme Court recognized in Moss v. Standard Drug Co., 112 N.E.2d 542 (Ohio 1953), that personal service is required to obtain a judgment in personam. See also Bank of N.Y. Mellon v. Frey, 2013-Ohio-4083, 14 (Ct. App.). (“When the mortgagee seeks a personal judgment against the defendant, the trial court must have in personam jurisdiction over the debtor.”). Therefore, if personal service on the defendant is not obtained, then judgment in personam is not available. Remember, however, personal service does not necessarily mean service on the actual addressee. Ohio Civ. R. 4.1 and 4.2 outline the methods of service allowed and should be followed.
If the plaintiff seeks to obtain a judgment in rem and sell the property, then service by publication is authorized. Ohio Civ. R. 4.4 allows for service by publication only “where such service is authorized by law.” Ohio Civ. R. 4.4(A)(1). Ohio Rev. Code Ann. § 2703.14 provides the authorization for service by publication, and subsections (A), (C), and (I) of Ohio Rev. Code Ann. § 2703.14 cover actions to foreclose mortgages or deal with real property.
If the plaintiff seeks both a judgment in personam and a judgment in rem, but service is perfected by publication pursuant to Ohio Rev. Code Ann. § 2703.14, then only the judgment in rem is available. See Scioto Sav. Ass’n v. Porter, 1979 Ohio App. Lexis 12322 (Ct. App. Mar. 13, 1979).
As of July 1, 2020, the Ohio Rules of Civil Procedure now allow for waiver of service akin to the Federal Rules of Civil Procedure. Ohio Civ. R. 4.7. The rule affords additional time to the defendant if the waiver is signed, but allows the plaintiff to seek certain service costs if the waiver is refused.
For related forms, see Praecipe for Service (Foreclosure) (OH) and Motion for Order Appointing Private Process Server (Foreclosure) (OH)
Pre-Trial
As of July 1, 2020, the Ohio Rules of Civil Procedure were amended to be in more in line with the Federal Rules of Civil Procedure. A key change was to Rule 16, which now requires a Scheduling Order to be issued by the court and for the parties to meet and confer regarding proposed scheduling dates prior to the initial scheduling conference. Ohio Civ. R. 16. The rule allows for each court to set up its own procedure, so referring to the local rules and to your specific court’s practices is crucial on this matter.
Discovery
Discovery does not happen very often in foreclosure cases. When it does happen, though, it is much like any other civil case and is governed by Ohio Civ. R. 26. Parties can use Requests for Admissions (Ohio Civ. R. 36), Interrogatories (Ohio Civ. R. 33), Requests for Production (Ohio Civ. R. 34), and, to a lesser extent, Depositions (Ohio Civ. R. 30) and Subpoenas (Ohio Civ. R. 45).
As of July 1, 2020, the Ohio Rules of Civil Procedure became more aligned with the Federal Rules of Civil Procedure with respect to discovery. Specifically, Rule 26(B) was updated to add early discovery requirements and mandatory disclosures. Ohio Civ. R. 26(B). Rule 26(B)(1), however, tempers discovery to be “proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” Each jurisdiction will likely interpret this differently, but it is possible that initial disclosures may not be needed if no party has appeared in the case. Additionally, be mindful of the necessity for a Rule 26(F) Discovery Plan and Conference.
The changes to the Ohio Rules of Civil Procedure, however, do not negate any local rules that may be in place. Therefore, be sure to review and follow any local rules that may be applicable.
Defenses to Foreclosures
There are numerous potential defenses to a foreclosure case. The predominate ones are addressed below.
Lack of Standing
In Bank of Am., N.A. v. Kuchta, 21 N.E.3d 1040 (Ohio 2014), the Ohio Supreme Court ruled that if there is a question of
standing, it must be either addressed before the trial court or on direct appeal of the judgment issued by that court. If the issue is not so addressed, then res judicata applies and the matter cannot be collaterally attacked (e.g., by an Ohio Civ. R. 60(B) motion). Kuchta, 21 N.E.3d at 1045.
Standing, however, does not have to be proved in the complaint. Wells Fargo Bank, N.A. v. Horn, 142 Ohio St.3d 416 (2015). Instead, the complaint must give notice that standing exists and standing is proven at judgment. Horn, 142 Ohio St.3d at 420–21.
Moreover, if the filing plaintiff transfers its interest in the note and mortgage, or a defendant transfers its interest that otherwise requires it to be in the case, Ohio Civ. R. 25(C) applies. Ohio Civ. R. 25(C) allows for the action to be continued by or against the original party, unless the court upon motion directs the person to whom the interest is transferred to be substituted in the action or joined with the original party.
The merger of banks issue has been addressed. The court in Midwest Business Capital v. RFS Pyramid Mgt., LLC (11th Dist.), 2011-Ohio-6214 (Ct. App.) held that the surviving bank stands in the shoes of the prior bank and no endorsement or assignment was necessary. The same result occurred in Bank of America v. Eten (12th Dist.), 2014-Ohio987 (Ct. App.) and is the prevailing position of the law.
The issue of standing has also been addressed in the context of a plaintiff being unable to enforce the note for whatever reason—be it bankruptcy, waiver, or beyond the statute of limitations. The question raised was whether the plaintiff could still enforce the mortgage when there is no right to enforce the note. The Ohio Supreme Court found that the plaintiff still has standing to enforce the mortgage. Deutsche Bank Nat’l Trust Co. v. Holden, 60 N.E.3d 1243 (Ohio 2016). The Eighth District Court of Appeals expanded on Holden and held that the plaintiff could have standing even if the statute of limitations had run on the note. Bank of N.Y. Mellon v. Walker, 78 N.E.3d 930 (Ohio Ct. App. 2017). In doing so, the court relied in Kerr v. Lydecker, 37 N.E. 267 (Ohio 1894), citing “the bar of the note, or other instrument secured by mortgage, does not necessarily bar an action on the mortgage.” Kerr, 78 N.E.3d at 936 (citing Kerr, 51 Ohio St. at 270). The reasoning stems from the fact that the note and mortgage are separate, enforceable instruments that, while they reference each other, are distinct in enforcement.
Payment
The best defense to a foreclosure case is that the borrower paid or is not actually in default. While this does occur, it is rare. The borrower should be prepared to present documentary proof of payments, including cancelled checks and correspondence.
Failure of Conditions Precedent
Failure of the plaintiff to comply with conditions precedent can be a defense to a foreclosure action. Remember, however, Ohio Civ. R. 9(C) requires a denial of a condition precedent to be made with specificity. What constitutes the requisite specificity varies among the jurisdictions in Ohio.
The two most common arguments for failure of condition precedent are the plaintiff’s failure to (1) send the Breach Letter and/or (2) comply with the applicable HUD Regulations. For the first, most mortgages do not require proof that the Breach Letter was received, only sent. To meet this threshold, the plaintiff typically presents testimony that the Breach Letter was sent in accordance with the terms of the mortgage.
The second, failure to comply with the HUD Regulations applies only to certain residential foreclosures and requires that the mortgage incorporate the HUD Regulations. These mortgages are, generally, FHA-backed mortgages that specifically reference the HUD Regulations. If the mortgage does not do so, the HUD Regulations do not apply. If the HUD Regulations apply, the plaintiff may have additional proof to provide before obtaining judgment. The applicable HUD Regulations are found at 24 C.F.R. § 203.600 et seq. The HUD Regulations cover everything from when notice of default has to be sent to how many times and when a review for loss mitigation must be done. Crucial are the provisions of 24 C.F.R. § 203.604, which require a physical visit to the property by the mortgagee or its agent to see the mortgagor unless an exception applies.
Judgment
Obtaining judgment in a foreclosure case is the conclusion of the first phase of the foreclosure process. Generally, the judgment is obtained by the same method as judgments in other civil litigation. However, discovery is not conducted regularly, and judgment is obtained fairly soon after the answer period expires.
Plaintiff’s Motion for Judgment
Foreclosure cases are civil actions. As a result, the Ohio Civil Rules outline when a judgment can be filed—generally, any time after the answer period expires (default judgment pursuant to Ohio Civ. R. 55) or the answer is filed (summary judgment pursuant to Ohio Civ. R. 56). However, as with filing the complaint, discussed above, the regulations of the CFPB may prevent the plaintiff from moving for judgment in a residential foreclosure when it is otherwise ripe to do so. 12 C.F.R. § 1024.41(g) outlines the possible provisions that can apply and should be assessed prior to moving for judgment. Generally, if a complete loss mitigation application is under review, the plaintiff cannot file for judgment until a rejection is processed (either the plaintiff or the borrower) or the loss mitigation fails.
For forms, see Plaintiff’s Motion for Summary Judgment (Foreclosure) (OH) and Plaintiff’s Motion for Default Judgment (Foreclosure) (OH)
Final Judicial Report Requirement
As noted above, when a complaint is filed, or within 14 days thereof, a PJR must be filed outlining the status of title to a date within 30 days before the complaint was filed. Before judgment is entered by the court, the plaintiff must file the FJR. Ohio Rev. Code Ann. § 2329.191(B). The FJR updates the court’s record with the state of title between the effective date of the PJR and the date of lis pendens and must include a copy of the court’s docket. The date of lis pendens is now the date the complaint was filed. Ohio Rev. Code Ann. § 2703.26.
For forms, see Final Judicial Report (Foreclosure) (OH) and Notice of Filing of Final Judicial Report (Foreclosure) (OH)
Military Affidavit Requirement
50 U.S.C. § 3931, a portion of the Servicemembers Civil Relief Act (SCRA), requires that an affidavit stating (1) whether or not the defendant is in the military or (2) that the plaintiff was unable to make such determination be filed before judgment is entered in the case.
If a defendant is in the military, then certain protections contained in SCRA likely apply. Most relevant here is 50 U.S.C. § 3931(b)(2), which prohibits the court from entering judgment against that defendant until the court appoints an attorney to represent the defendant.
For a form, see Affidavit Regarding Military Status (Foreclosure) (OH)
Affidavit for Judgment Requirements
Whether an affidavit for judgment is required depends upon what type of judgment is being sought (default judgment or summary judgment) and the individual jurisdiction. While Ohio Civ. R. 56 allows the plaintiff to move for summary judgment without an affidavit, generally, an affidavit from the plaintiff, or its agent, is recommended. For Ohio Civ. R. 55, the jurisdictions in Ohio are split on whether an affidavit is needed, and the local rules and judicial preference should be followed. Assuming an affidavit is used, this section provides recommendations on what should be in a general affidavit to obtain or oppose judgment. Finally, the Ohio Rules of Evidence must be adhered to when proffering any evidence, testimonial, or documentation to the court.
For a form, see Affidavit of Judgment (Foreclosure) (OH)
Movant/Proponent/Mortgagee
The movant, generally the plaintiff, must establish that there is no genuine issue of material fact for trial. Ohio Civ. R. 56. In the foreclosure context, that generally means establishing the elements of a foreclosure case. As noted above, the elements
of a foreclosure case are (1) the plaintiff is entitled to enforce the note and mortgage, (2) if applicable, the plaintiff can demonstrate the chain of assignments and transfers, (3) the mortgagor is in default, (4) all conditions precedent have been met, and (5) the amount of principal and interest due is stated. Wachovia Bank v. Jackson, 2011-Ohio-3203, 4045 (Ct. App.). Taking this a step further, the movant should outline the various items that can be recovered under the mortgage, not necessarily the amounts (see Roznowski and Sponaugle), including taxes, hazard insurance, inspections, appraisals, property protection, and maintenance.
The person making the affidavit must have “personal knowledge” of the information therein. Ohio Civ. R. 56(E). In the foreclosure context, personal knowledge is from the perspective of the business. “[A] witness providing the foundation [for a recorded business activity] need not have firsthand knowledge of the transaction.” JPMorgan Chase Bank, N.A. v. Burden, 2014-Ohio-2746, 13 (Ct. App.) (quoting CitiMortgage, Inc. v. Elia, 2011-Ohio-2499, 11 (Ct. App.)).
“The personal knowledge requirement is satisfied by the ‘mere assertion of personal knowledge’ when ‘the nature of the facts in the affidavit combined with the identity of the affiant create[] a reasonable inference that the affiant has personal knowledge of the facts in the affidavit.’” Elia, 2011-Ohio-2499 at 13 (quoting Central Mtge. Co. v. Elia, 2011-Ohio-3188, 7 (Ct. App.)). The key is that the person making the affidavit demonstrate he or she is “sufficiently familiar with the operation of the business and with the circumstances of the record’s preparation, maintenance and retrieval, that he can reasonably testify on the basis of this knowledge that the record is what it purports to be, and that it was made in the ordinary course of business consistent with the elements of Rule 803(6).” U.S. Bank NA v. Green Meadow SWS, LLC, 2013-Ohio-2002, 49 (Ct. App.) (internal citations omitted).
Generally, Ohio courts allow for affidavits from the plaintiff’s servicer (the entity that handles the day-to-day operation of the loan). The affidavit, however, should include a statement of the relationship (i.e., that of servicer) to the plaintiff and that the affiant is authorized to make the affidavit.
What needs to be in the affidavit to discharge the movant’s burden varies between the jurisdictions and how the matter is litigated. In some instances, an affidavit simply laying a foundation and stating that the loan is in default is sufficient. See, e.g., Bank One, N.A. v. Swartz, 2004-Ohio-1986 (Ct. App.). Generally, however, it is recommended to include copies of the note (include endorsements and/or allonges), mortgage, assignment (if applicable), Breach Letter, and payment history. If other issues are relevant in the case (e.g., HUD pre-foreclosure face-to-face requirement), then documentation and testimony regarding those issues should be included in the affidavit.
When preparing the movant’s affidavit, be mindful of the business records exception and the adoptive business records exception, both of which stem from Ohio Evid. R. 803(6). For the business records exception to apply, the affidavit must address that the affiant is a qualified witness and provide foundational and authentication information testimony, including testimony that shows the affiant knows:
• The business
• The business’s recordkeeping system
• That the specific items are a product of the recordkeeping system
• That the specific items are kept in the course of regularly conducted business activity –and–
• That the information or documentation was placed in the recordkeeping system at or near the time of occurrence by a person with knowledge
The adoptive business records exception applies when the movant relies on business records of another business that have been incorporated into the movant’s business records. Here, the affiant will need to establish the elements of the business records exception and then establish that the records were incorporated from a prior business, relied upon by the incorporating business, and provide further indicia of trustworthiness/reliability (e.g., an ongoing business relationship between the businesses). Although Ohio courts generally accept the adoptive business records exception, some have disagreed. See, e.g., Ohio Receivables, LLC v. Williams, 2013-Ohio-960 (Ct. App.).
Nonmovant/Opponent/Mortgagor
The opponent to the movant’s affidavit, generally the borrower/mortgagor, should meet its reciprocal burden under the Ohio Civil Rules and applicable law. This means setting forth facts demonstrating a genuine issue of material fact for trial. Dresher v. Burt, 662 N.E.2d 264, 273–74 (Ohio 1996). Generally, “a nonmovant does not meet their reciprocal burden by merely denying that they owe the amount claimed to be due.” Target Natl. Bank v. Loncar, 2013-Ohio-3350, 25 (Ct. App.). Instead, the nonmovant must set forth specific facts showing there is a genuine issue of material fact for trial. TD Reo Fund, LLC v. Citadel Analytics Grp., LLC, 2019-Ohio939, 19 (Ct. App.) (citing Ohio Civ. R. 56(E)). Further, “’[m]ere speculation and unsupported conclusory assertions are not sufficient’ to meet the nonmovant’s reciprocal burden[.]” U.S. Bank v. Bobo, 2014-Ohio-4975, 16 (Ct. App.) (quoting Loveday v. Essential Heating Cooling & Refrigeration, Inc., 2008Ohio-4756, 9 (Ct. App.)). “A self-serving affidavit that is not corroborated by any evidence is insufficient to establish the existence of an issue of material fact.” Id. (citing Wells Fargo Bank v. Blough, 2009-Ohio-3672, 18 (Ct. App.); Deutsche Bank Natl. Trust Co. v. Doucet, 2008-Ohio-589, 13 (Ct. App.)).
Requirements of Judgment Entry
The judgment and decree of foreclosure which leaves only mechanical and ministerial calculations for the confirmation stage is a final order. CitiMortgage, Inc. v. Roznowski, 11 N.E.3d 1140 (Ohio 2014). The key for the judgment and decree of foreclosure is to address the rights of the lienholders and the responsibilities of the mortgagor (“what the mortgagors would be liable for”), not a specific calculation of amounts due. Id. Specifically, the Roznowski court stated as follows: “A judgment decree in foreclosure that allows as part of recoverable damages unspecified amounts advanced by the mortgagee for inspections, appraisals, property protection, and maintenance is a final, appealable order pursuant to by the court pursuant to Ohio Rev. Code Ann. § 2505.02(B)(1).” Roznowski, 11 N.E.3d 1140 at 299. In other words, the litigation before the judgment and decree of foreclosure determines whether the mortgagor is liable, and the litigation during the confirmation stage determines for how much.
For a form, see Proposed Judgment Entry and Decree in Foreclosure (OH)
In Farmers State Bank v. Sponaugle, 2019-Ohio-2518 (issued June 27, 2019), the Ohio Supreme Court affirmed Roznowski and held that a foreclosure decree and judgment entry is a final, appealable order when it determines the extent of each lienholder’s interest, sets out the priority of the liens, and determines the rights and responsibilities of each party, even if no final amount due is listed. The decision cites this line from Roznowski: “Liability is fully and finally established when the court issues the foreclosure decree and all that remains is mathematics, with the court plugging in final amounts due after the property has been sold at a sheriff’s sale.” Sponaugle, 2019-Ohio-2518 at 32.
A word of caution—if a lienholder is defaulted out of the case, even a senior lienholder, it will have no right to participate in the distribution of the sale proceeds. Oberlin Sav. Bank Co. v. Fairchild, 194 N.E.2d 580 (Ohio 1963). While this may be a boon for a junior lienholder, it is a significant detriment to a senior lienholder that finds itself a defendant in a junior lienholder’s foreclosure case.
Either In Rem or In Personam
As addressed in the section on Prayer and Deficiency Judgments (see above in Complaint Requirements), the judgment in the case can be in personam (against the person) or in rem (against the property only). If the judgment is in personam, the ability to collect a deficiency judgment is created. If in rem, then the plaintiff receives the result of the execution sale only.