Ohio Supreme Court Clarifies its Position on Standing to File a Foreclosure Action

In 2012, the Ohio Supreme Court held that a Plaintiff must establish that it has standing at the time it files a foreclosure action. The Court further held that lack of standing cannot be cured after a foreclosure complaint is filed.¹  On April 22, 2015, the Supreme Court issued its decision in Wells Fargo v. Horn, clarifying that a Plaintiff is not required to submit proof of standing in the complaint, but may submit such proof later on in the proceedings.²

In Federal Home Loan Mortgage Corp. v. Schwartzwald, the Court found that Plaintiff lacked standing because the assignment of note and mortgage to the Plaintiff were executed after the complaint had been filed. Following the decision, courts throughout Ohio began to scrutinize foreclosure complaints, specifically questioning the sufficiency of the Plaintiff's documentation to properly establish Standing.

The Ninth District Court of Appeal interpreted the Schwartzwald decision and held that a plaintiff in a foreclosure action must attach to its complaint documents which prove that it has standing at the time the complaint.³  Many experts felt that this decision was problematic because it eviscerated Ohio's notice-pleading requirements, and the Ohio Supreme Court agreed.⁴ 

In Horn, the Plaintiff attached to the foreclosure complaint a copy of the Promissory Note endorsed to blank identifying Norwest Mortgage as the lender, and a copy of the mortgage again identifying Norwest Mortgage as the lender.  The Complaint's caption provided the name of Plaintiff as "Wells Fargo Bank, N.A. successor by merger to Wells Fargo Home Mortgage, Inc. fka Norwest Mortgage, Inc.", tying together the direct relationship between Plaintiff and the original lender through its prior merger and name change. But the Plaintiff failed to attach any documentation proving the prior merger and name change. 

The borrower contested the foreclosure and Plaintiff filed a Motion for Summary Judgment and an affidavit averring that Plaintiff was the holder of the note and mortgage at the time the complaint was filed as a direct result of the prior merger and name change.  Plaintiff's affidavit also included documentation necessary to prove the prior merger and name change.  The trial court awarded judgment to the Plaintiff, but on appeal the 9th District reversed the judgment holding that Plaintiff failed to establish standing when it failed to attach to the complaint any proof of the prior merger and name change.  

In its review of the 9th District's application of Schwartzwald, the Supreme Court unequivocally stated that "Schwartzwald does not stand for the proposition that a foreclosure plaintiff must definitively prove in its complaint that it has standing."  The Court concluded that although the Plaintiff in a foreclosure must have standing at the time it files the complaint, it need not provide proof of standing in the complaint, but may submit such proof later in the proceedings.

The impact of this decision affects how pending foreclosures can be defended, and what documents lenders need to provide prior to filing new cases.  The rules of standing have not changed, Plaintiff must still be the holder of the note and mortgage prior to filing the complaint, and the Ohio Civil Rules require copies of the note and mortgage to be attached to the complaint.⁵  Therefore, lenders with best practices should continue to provide counsel with copies of the note and mortgage and all assignments prior to filing the complaint.  However, in those cases where documentation to prove standing does not exist at the time the complaint is filed, such as where the note is lost, the Plaintiff is not required to present its proof when it files the complaint, and pending cases with deficient documentation should now be able to survive a standing attack by offering evidence later in the proceedings to establish that standing existed at the time the complaint was filed. 

In another standing related matter, the Ohio Supreme Court declined to issue a decision in the matter of SRMOF 2009-1 Trust v. Lewis on the same date it issued the Horn decision.⁶  At issue in Lewis is whether a foreclosure Plaintiff must have an interest in both the note and mortgage to establish standing, or whether the interest in the note and mortgage can be severed making it sufficient for Plaintiff to have an interest in only one of them at the time the complaint is filed.  Because the Court declined to issue a decision, this question remains unanswered.  In keeping with the best practices outlined above, lenders should provide as much documentation as possible to counsel prior to filing the complaint in order to avoid any standing pitfalls.