• Mortgage Execution and Legal Descriptions in Ohio: Important Points to Remember
  • September 26, 2013 | Author: James Todd
  • Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Cincinnati Office
  • The recent foreclosure crisis in Ohio has brought the state's courts to the national forefront of consumer mortgages and their enforceability in various situations, due in part to consumer foreclosure defense attorneys continuously exploring different legal avenues of foreclosure defense.

    O.R.C. §5301.01, which governs mortgage execution and acknowledgement, has emerged one of these avenues to defend against foreclosure. It has even been used in lien priority disputes between lienholders.1  The statute requires that any deed, mortgage, lease or other encumbrance of property be signed by the mortgagor, grantor, or lessor and acknowledged before a judge, mayor, or (most commonly) a notary public. The acknowledging party is also required to execute and attach a formal certificate of acknowledgement.2  A mortgage which does not meet these formalities is technically not entitled to be recorded.3  Most importantly, it will likely not operate as a lien against the property at all, and will not be valid against subsequent lienholders even if they have actual knowledge of its existence.  This means that foreclosing lenders can face attacks on the validity of their lien from both debtors and junior lienholders, not to mention bankruptcy trustees.4 

    In addition to the defective execution arguments is the statute governing the legal description of the property in mortgages.5  A number of today's mortgages do not identify the mortgaged property on their face.  Rather, they merely refer to "Exhibit A-Legal Description", and the legal description of the property is attached to the back of the executed mortgage.  This creates the potential for a debtor to assert that the legal description was not part of the mortgage that they executed, and therefore constitutes a defective acknowledgement, ergo a void lien.  The relevant Ohio statute, however, only requires "substantial compliance" with regard to the legal description.6    Further, Ohio courts have held that a legal description does not have to be 100% accurate, provided the correct common address and/or parcel identification number are on the face of the mortgage.7  Therein lies the problem, however.  The above-referenced mortgage does not have any property identification on the actual face of the mortgage. Rather, it is on an after-attached exhibit to the mortgage.  While Ohio law allows for errors or omissions in mortgages to be disregarded by a judge, the mortgage will only be upheld according to the "true, manifest intention of the parties."8  In other words, if a lender cannot show from the face of the mortgage exactly what property the debtor intended to encumber, the debtor may be able to simply assert that they did not intend to encumber that particular property.  At that point, the error or omission cannot be disregarded by a judge, and the lender may be stuck holding a mortgage of questionable validity. 

    The best way to avoid the problem is to follow Benjamin Franklin's advice that, "An ounce of prevention is worth a pound of cure."  Ideally, the mortgage would include the legal description, parcel identification number, and common address of the subject property on its face, or at the very least contain a reference to the parcel number and common address.  If the defect is not discovered until a foreclosure action has commenced, there are still a few methods by which the problem could be remedied, but time is of the essence.  If you come across mortgages which appear to have issues with the legal description, execution formalities, or other problems that could possibly affect its validity, contact your WWR attorney at the first available opportunity.

    1 Mortg. Elec. Registration Sys. v. Odita, 159 Ohio App.3d 1, 2004-Ohio-5546, 822 N.E.2d 821 (10th Dist. 2004).
    2 O.R.C. Ann. §5301.01(A)
    3 O.R.C. Ann. §5301.23
    4 See, e.g,. Odita, supra; Rhiel v. Cent. Mortg. Co. (In re Kebe), 469 B.R.778, 2012 Bankr. LEXIS 1419 (Bankr. S.D. Ohio 2012), Wells Fargo Fin. Ohio 1 Mortg. Group v. Lieb, 2nd. Dist. No. 23688, 2011-Ohio-1988 (Apr. 22, 2011).
    5 O.R.C. Ann. §5302.12.
    6 Id.
    7 See e.g. Argent Mortg. Co. v. Drown (In re Bunn), 578 F.3d 487, 2009 FED App. 0307P (6th Cir. 2009); Bank of N.Y. Mellon Trust Co., N.A. v. Loudermilk, 5th Dist. No. 2012-CA-30, 2013-Ohio-2296 (June 3, 2013).
    8 O.R.C. Ann. §2719.01.