By Robert E. Altman, III, Esq.
With contributions from Carrie L. Rouse, Esq.
While standing has and will always be a critical issue for any litigation, standing became a central area for litigation and dispute in Ohio beginning around late 2007 when counterclaims asserting lack of standing began arising with more frequency asserting essentially that the foreclosing plaintiff was not the real party in interest and therefore did not having standing to pursue the foreclosure action. Although much of the “noise” created by the defendant’s bar has been silenced, Ohio courts are beginning to issue rulings interpreting the Ohio Supreme Court’s ruling in Fed. Home Loan Mtge. Corp. v. Schwartzwald, 134 Ohio St.3d 13, 2012-Ohio-5017. In Schwartzwald, the Ohio Supreme Court held that “standing is to be determined as of the commencement of suit,” and that a party may not later rely on the Rules of Civil Procedure to cure a lack of standing, such that “[t]he lack of standing at the commencement of a foreclosure action requires dismissal of the complaint[.]” Id. The following three cases reflect the various interpretations of Schwartzwald and the lack of clarity on the issue of standing.
In Chase Home Finance LLC v. Byrd, 2013-Ohio-2076, 9th Appellate District (May 22, 2013), Plaintiff filed three recorded assignments of mortgages (AOMs) at the time the complaint was filed, with the last AOM from Federal National Mortgage Association to Chase Home Finance LLC. Subsequently, Chase Home Finance LLC filed a motion to substitute the party plaintiff due to a corporate merger with JP Morgan Chase Bank, NA. Defendants opposed Plaintiff’s summary judgment motion arguing that genuine issues of material fact existed as to whether the substitute Plaintiff had standing since it was not the original mortgagee in the case. At issue was a limited power of attorney authorizing Chase Manhattan Mortgage Corporation to assign the Byrds’ mortgage as Attorney in Fact for Federal National Mortgage Association. The corresponding assignment indicated that FNMA assigned the mortgage to Chase Home Finance LLC, signed by Chase Finance LLC as successor by merger to Chase Manhattan Mortgage Corporation as Attorney in Fact for Federal National Mortgage Association. The Court held that while at the commencement of the action JPMorgan Chase Bank provided copies of all three assignments of the Byrd’s mortgage as well as a copy of a limited power of attorney authorizing Chase Manhattan Mortgage Corporation to act as Attorney in fact for FNMA as well as proof of merger between Chase Home Finance LLC and JPMorgan Chase Bank, that the case is remanded to be dismissed pursuant to Schwartzwald because JP Morgan Chase Bank did not provide documentation of the original merger between Chase Manhattan Mortgage Corporation and Chase Home Finance LLC.
In Wells Fargo Bank NA v. Horn, 2013-Ohio-2374, 9th Appellate District (June 10, 2013), Defendant asserted that Plaintiff was not the real party in interest and lacked standing to bring the foreclosure action. Wells Fargo identified itself throughout the action as “successor by merger to Wells Fargo Home Mortgage, Inc., fka Norwest Mortgage, Inc.” The Court held that even though Wells Fargo identified itself as successor by merger to Wells Fargo Home Mortgage, Inc. fka Norwest Mortgage Inc, since the Complaint did not include any documents evidencing a name change or a merger as an attachment, the Plaintiff had not established standing at the time the Complaint was filed and the case should be dismissed. It is important to note that the Court did not find it sufficient that Wells Fargo tried to demonstrate that a merger and name change had occurred by attaching those exhibits to its motion for summary judgment. The Court held that pursuant to the Ohio Supreme Court’s decision in Schwartzwald, the case must be dismissed for lack of standing.
Most recently, in U.S. Bank National Association v. Gray, 2013-Ohio-3340, 10th Appellate District (July 30, 2013), Plaintiff filed its foreclosure action attaching a copy of the Note which lacked endorsements. The assignment of mortgage to Plaintiff was defective as it was executed by First Franklin Division, rather than the proper entity, First Franklin Corporation. Said assignment was attached to the Complaint. Defendant contested summary judgment on the basis of standing. At trial, Plaintiff produced a copy of the note that included all necessary endorsements including a final endorsement in blank. Plaintiff contended that it had standing as the holder of the note pursuant to its possession of same. Additionally, Plaintiff asserted that it was the equitable holder of the mortgage through “equitable assignment.” The trial court held for the Plaintiff. The Appellate Court held that “although a court must determine whether standing exists by examining the state of affairs at the time the action commenced, its examination is not limited to the complaint’s allegations or documents attached to the complaint.” As such, the Court held that if a Plaintiff has “established with trial evidence that it had ““an interest in the note or mortgage at the time it filed suit,”” then it suffered the necessary injury to pursue its foreclosure action against the Grays.” Citing Schwartzwald. The court held that Plaintiff had standing at the time the complaint was filed pursuant to the evidence put on at trial and stated that “an interest in the note alone establishes standing.” Citing CitiMortgage, Inc. v. Patterson, 8th Dist. No. 98360, 2012–Ohio–5894, 984 N.E.2d 392.
The Court held that Plaintiff was the holder of the mortgage under Ohio common law, stating that “the negotiation of a note operates as an equitable assignment of the mortgage, even though the mortgage is not assigned or delivered.” Thus, the Court upheld the trial court’s ruling in favor of Plaintiff under Schwartzwald and long standing Ohio common law.
As demonstrated by these three cases, one thing is clear…the law on standing is anything but settled. Future litigation is inevitable. However, one thing is certain, when filing a foreclosure complaint in Ohio, the majority of Court’s are likely to interpret Schwartzwald as requiring all necessary documentation to establish the standing of the named plaintiff to be filed with the foreclosure Complaint. While doing so will certainly not prevent litigation, it should avoid the death bell from the Court…dismissal.