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Standing to Sue

Posted By USFN, Wednesday, February 6, 2013
Updated: Monday, November 30, 2015

February 6, 2013

 

by Peter L. Mehler
Reimer, Arnovitz, Chernek & Jeffrey Co., L.P.A.
USFN Member (Ohio)

On October 31, 2012, the Ohio Supreme Court unanimously held that a party seeking to foreclose on a mortgage must have standing at the time the complaint is filed by having an interest in the note or mortgage, and this defect cannot be cured by acquiring an interest prior to judgment. The decision, Federal Home Loan Mortgage Corp. v. Schwartzwald, slip op. No. 2012-Ohio-5017, 2012 Ohio LEXIS 2628, resolved a split among Ohio’s appellate courts as to whether or not a foreclosing party who did not hold the note and mortgage prior to the filing of the complaint could properly foreclose as long as the foreclosing party became the holder of the note and mortgage prior to judgment. The facts underlying Schwartzwald are not in dispute and are as follows.

In November 2006, the Schwartzwalds gave a mortgage and executed a promissory note on behalf of Legacy Mortgage. The note and mortgage were immediately thereafter assigned to Wells Fargo Bank. Federal Home Loan Mortgage Corp. filed its complaint for foreclosure on April 15, 2009 and was not assigned the note and mortgage until May 15, 2009. The trial court granted summary judgment on behalf of Federal Home Loan Mortgage Corp. and denied the Schwartzwalds’ cross-motion for summary judgment, rejecting the Schwartzwalds’ argument that Federal Home Loan Mortgage Corp. lacked standing to have brought the action.

The decision was upheld on appeal and later accepted by the Ohio Supreme Court for review because the Court of Appeals’ ruling was in conflict with several other Ohio appellate courts. In a unanimous decision, the Ohio Supreme Court held that Federal Home Loan Mortgage Corporation lacked standing at the time the complaint was filed because it did not have an interest in the note and mortgage. Moreover, the court held that standing could not be later acquired by becoming the holder prior to judgment. The court rejected Federal Home Loan Mortgage Corporation’s argument under Civil Rule 17(A) that a party could be substituted as the real party in interest anytime prior to judgment. The court’s reasoning was that a party lacking standing at the time of the complaint filing could not later acquire standing via substitution using Civil Rule 17(A).

The appellant filed a request for reconsideration by the court, which was denied. Furthermore, the Eighth District Court of Appeals interpreted Schwartzwald to stand for the following, “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.” Citimortgage v. Patterson, 2012 Ohio 5894.

Best practices over the past couple of years have dictated that no foreclosure complaints be filed without the plaintiff being the holder of the note and mortgage. Therefore, the ruling by the court in Schwartzwald is likely to have a de minimis impact. It remains to be seen, however, whether or not members of the debtors’ bar will seek to have the ruling applied retroactively to undo cases long since decided.

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Winter 2013 USFN Repor

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