• New State Lien Statute in Ohio Impacts Procedure in New and Pending Foreclosures
  • September 27, 2013 | Author: David Cliffe
  • Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Cincinnati Office
  • Commencing September 29, 2013, Revised Code Section 2329.192 regarding the treatment of all state liens in Ohio foreclosure cases takes effect.  The intent of the statute, passed last June with the blessing of the Ohio Attorney General as part of House Bill 59, was to reduce the inefficiencies associated with the treatment of state liens in the foreclosure process.  The statute will impact pending actions involving any "department, agency or other division of the state in whose name a state lien has been filed or recorded", including the Ohio Bureau of Workers' Compensation as well as Ohio Jobs & Family Services.1 

    Under the statute, the lender seeking a decree of foreclosure must serve the state lienholder with a copy of the preliminary judicial report (PJR).2  As part of complying with the statute, Weltman, Weinberg & Reis Co., LPA (WWR) plans to attach the PJR to the complaint as an exhibit so the state entity will receive it when served with the complaint.

    In accord with the legislation, the court will presume that the state lienholder has appeared in the litigation and, unless the lender seeking foreclosure disputes the validity of the state lien, that lien will be protected as a claim upon any sale proceeds in the priority spelled out in the PJR and the final judicial reports (FJR).   A lender wishing to challenge the validity of the state lien showing on the title must serve both the state lienholder and the attorney general with a notice of dispute.  The state lienholder will have an opportunity to file a responsive pleading as if it had been served with a summons.3

    In handling a disputed state lien situation, WWR plans to serve the state at both the particular entity and the attorney general with a separate notice of dispute at the same approximate time as the complaint is served to prevent any objections as to the sufficiency of service later.  Although the statute fails to indicate how a lender is to handle the situation where the state's lien is disputed and it nevertheless fails to file a responsive pleading, nothing in the statute indicates that a lender cannot default the unresponsive state entity.

    As a final feature of the legislation, foreclosing lenders are no longer to name a state entity as a party defendant unless that entity has a recorded lien against the owner of the real estate.4  Historically, lenders have determined it necessary to name state agencies, for purposes of title clarity and insurability in certain situations when there was no recorded lien, most notably foreclosure actions involving the residence of a deceased borrower.  In those cases, lenders commonly named the Ohio Department of Taxation for unpaid estate taxes as well as Ohio Jobs & Family Services to account for any unpaid medicaid expenses of the deceased borrower.  Despite the statutory prohibition, concerns remain about how the title insurance companies will respond in the situation where the borrower is deceased and these two state agencies were not named or notified of a pending foreclosure.  As obtaining an insurable sheriff's deed is as important to the lender as receiving the sheriff's deed in the first place, WWR intends to continue naming these state entities as parties and serving them with the complaint in this circumstance.

    In the short term, the fact that this statute, as of September 29, 2013, affects pending as well as new foreclosure actions, lenders may expect a few glitches with pending actions as the courts implement the statute's new procedures, such as a motion for judgment involving a state lien that was filed prior to the effective date of the statute but still pending when it becomes effective.  After this initial transition, however, the statute promises to benefit all parties involved in foreclosure litigation and improve the process.  The Ohio Attorney General, the state agency, the local county court and the taxpayer, for example, will benefit from filing, receiving and processing less paperwork related to liens that are not truly disputed.  In most cases, the lender’s attorney will have fewer resources invested in serving and then tracking state entities holding undisputed liens.

    Should a question arise concerning the impact of this Ohio statute on a particular account, lenders should contact the WWR attorney associated with the file for further discussion.

    1 R.C. 2329.192(A)(2)
    2 See R.C. 2329.192(B)(1)
    3 See R.C. 2329.192(B)(6)
    4 See R.C. 2329.192(B)(2)