Ohio Foreclosure Plaintiffs' Standing to Sue: A Conservative Approach

Several years ago, it was common to commence an Ohio foreclosure prior to the plaintiff obtaining an assignment of the mortgage, as long as the assignment was obtained prior to the entry of the foreclosure judgment. That practice came to an end based on developments in the case law.  A recent Cuyahoga County, Ohio, Court of Appeals decision suggested that based on wording used by the Ohio Supreme Court, the pendulum might be swinging back partially.  However, Weltman, Weinberg & Reis recommends maintaining the current practice of not commencing a foreclosure until the documentation is complete and can be attached as exhibits to the complaint, to evidence that the plaintiff is the holder of both the note and the mortgage. Hence, the referral package should not be deemed complete until all necessary endorsements or allonges to the note, and assignments of the mortgage are provided. 

In 2007, the Federal District Court for the Northern District of Ohio, Eastern Division, issued its well-publicized decision in the case called In re Foreclosure Cases (S. D. Ohio 2007), 521 F.Supp.2d 650, in which the court dismissed a number of pending foreclosure cases because the exhibits to the plaintiffs' complaints did not establish that the plaintiffs were the holders of the note and mortgage when their complaints were filed.   As a decision of the Federal Court, the case was not necessarily binding on the state courts of Ohio.   Many (but not all) of the state courts in Ohio, even in uncontested foreclosure cases, started scrutinizing the loan documents and any assignments attached as exhibits to the complaint, in order to verify that the plaintiff was the party entitled to enforce the note and mortgage as of the date the complaint was filed.

In 2009, the Court of Appeals for Cuyahoga County, issued its restrictive decision in Wells Fargo Bank, N.A. v. Jordan, 2009 Ohio 1092, citing In re Foreclosure Cases, in holding that because the assignment of the mortgage to the plaintiff had not been executed until almost three weeks after the complaint was filed, the plaintiff lacked standing to bring the foreclosure action at the time the complaint was filed, and therefore, the case must be dismissed.  However, not every county in Ohio followed this reasoning.¹  

The case of Fed. Home Loan Mtge. Corp. v. Schwartzwald, 2012-Ohio-5017, made its way to the Ohio Supreme Court, which would seemingly resolve the issue for all counties statewide.  On October 31, 2012, the Ohio Supreme Court issued its decision holding that the plaintiff's failure to establish its standing as of the date its complaint was filed could not be cured retroactively by subsequently obtaining an assignment, and therefore, the complaint must be dismissed. In the Schwartzwald case, the plaintiff had not attached a copy of its promissory note as an exhibit to the complaint, and the copy of the mortgage that was attached to the complaint showed the original lender as the mortgagee. The court held that the fact that an assignment of the note and mortgage to the plaintiff was not executed until 30 days after the complaint was filed, was fatal to the plaintiff's case.

On December 13, 2012, the Court of Appeals for Cuyahoga County issued its decision in CitiMortgage, Inc. v. Patterson, 2012-Ohio-5894, in which the court used a careful reading of the wording used by the Supreme Court in Schwartzwald to find a distinction to limit its prior holding in the Jordan case.  

In the Patterson case, a copy of the promissory note together with an allonge bearing an endorsement in blank, was attached as an exhibit to the complaint.  However, the assignment of the mortgage to the plaintiff was not executed until nine days after the complaint was filed.  The court's close analysis of the difference between the word "or" and the word "and" as used by the Ohio Supreme Court in Schwartzwald resulted in its holding in Patterson that the exhibits to the complaint must establish that at the time the complaint is filed, the plaintiff is the holder of either the note or the mortgage, but not necessarily both.

In Patterson, the court explained: "… The Ohio Supreme Court concluded in Schwartzwald that [the plaintiff] did not have standing to invoke the jurisdiction of the [trial] court because 'it failed to establish an interest in the note or mortgage at the time it filed suit.'  (Emphasis added.) … Significant to the court's holding is its deliberate decision to use the disjunctive word 'or' as opposed to the conjunctive word 'and' when discussing the interest [the plaintiff] was required to establish of the time it filed the complaint. The language depicts an apparent distinction from our holding in Jordan, where we held that a party only has standing to invoke the jurisdiction of the court when the plaintiff has offered evidence that 'it owns the note and mortgage when the complaint was filed.'  (Emphasis added.)  …  In our view, Schwartzwald extends the limitations of our holding in Jordan and stands for the proposition that a party may establish its interest in the suit, and therefore have standing to invoke the jurisdiction of the court when, at the time it files its complaint of foreclosure, it either (1) has had a mortgage assigned or (2) is the holder of the note."

The Patterson decision, which suggests that the plaintiff will have standing to commence the foreclosure if the documentation attached as exhibits to the complaint establishes that the plaintiff is the holder of either the note or mortgage, is not binding in any other county.  Moreover, the decision is subject to reversal in the event the Ohio Supreme Court should hold in the future that the interpretation in Patterson was incorrect.  In addition, the federal regulators are not bound by the Patterson decision either.  There could be serious retroactive consequences if a foreclosure is processed and a sheriff's sale is completed in reliance on the Patterson decision if the law is subsequently established otherwise.  Therefore, the only totally safe approach continues to be refraining from commencing a foreclosure until the documentation is available to be attached as exhibits to the complaint, as evidence that the plaintiff is the holder of both the note and the mortgage.

For a copy of the Schwartzwald case, go here: http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2012/2012-ohio-5017.pdf. For a copy of the Patterson case, go here: http://www.supremecourt.ohio.gov/rod/docs/pdf/8/2012/2012-ohio-5894.pdf.