• An Ohio Foreclosure Plaintiff's Standing as the Real Party in Interest Must be Established as of the Time of Filing the Complaint
  • November 2, 2012
  • Law Firm: Weltman Weinberg Reis Co. L.P.A. - Cleveland Office
  • Years ago, it was common for foreclosure actions in Ohio to be commenced prior to the time the notes and mortgages were formally assigned to the plaintiff.   As long as the chain of assignments to the plaintiff was complete prior to the entry of the judgment, courts routinely granted judgment on the basis that the plaintiff's standing as the real party in interest had been established.

    On October 31, 2008, Judge Andrew Boyko of the Federal District Court in Cleveland issued his opinion and order entitled In Re Foreclosure Cases, in which he disapproved of that practice and stated that exhibits establishing the chain of assignments to the plaintiff must be attached to the complaint.   However, his decision was not binding on the state courts, where the great majority of foreclosure cases are processed, and various state courts in Ohio conflicted with each other as to whether to adopt Judge Boyko’s opinion.

    Nevertheless, in order to ensure clean cases and avoid the risk of a foreclosure being voided, Weltman Weinberg and Reis’ practice has been to obtain the complete chain of assignments and attach them as exhibits to the complaint.  Although this may have slightly delayed the commencement of some cases, judgments were ironclad on the issue of standing.

    On October 31, 2012, five years to the day since Judge Boyko’s decision, the Ohio Supreme Court issued its decision in Fed. Home Loan Mtge. Corp. v. Schwartzwald, resolving the issue statewide.  The case arose in 2009 in Greene County, located in Southwest Ohio.  The plaintiff attached a copy of the mortgage, which was to the original lender but did not attach an assignment to the plaintiff.   In addition, rather than attaching a copy of the note as an exhibit, the complaint stated that "a copy of [the note] is currently unavailable."  Nine days after filing the complaint, the plaintiff filed a copy of the note, which contained an endorsement from the original lender to Wells Fargo, and an endorsement-in-blank from Wells Fargo.  An assignment of the note and mortgage to the plaintiff was executed 30 days after the complaint was filed, and a copy of the assignment was filed with the court 33 days thereafter.  The trial court subsequently granted summary judgment in favor of the plaintiff, and the Court of Appeals affirmed the decision, holding that the plaintiff's lack of standing had been cured retroactively.

    However, in Schwarzwald, the Ohio Supreme Court reversed the Court of Appeals decision, and conclusively established that a lack of standing cannot be cured retroactively, and therefore, because the plaintiff lacked of standing as of the date of commencement of the action, its complaint must be dismissed without prejudice.

    It is unfortunate that the plaintiff had not attached a copy of the note as an exhibit to the complaint.  Even though the mortgage had not been assigned until after the case commenced, if it could have been established that at the time the complaint was filed the plaintiff was in possession or control of the original note, which had been endorsed in blank, perhaps an argument could have been made that the plaintiff, as the party entitled to enforce the note as of the date the complaint was filed, was also entitled to enforce the mortgage because under existing case law, the mortgage follows the note.

    In any event, the Ohio Supreme Court's decision essentially erases any doubt throughout Ohio as to whether the complete chain of assignments to the plaintiff must be obtained prior to the commencement of the foreclosure.  Failing to do so will result in the dismissal of the case.

    For a complete copy of the Schwartzwald case, go here: http://www.sconet.state.oh.us/rod/docs/pdf/0/2012/2012-ohio-5017.pdf