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Ohio: Developments re SOLs in Foreclosure Actions

Posted By USFN, Thursday, February 1, 2018
Updated: Monday, January 29, 2018

February 1, 2018

by Michael L. Wiery
Reimer Law Co.
USFN Member (Kentucky, Ohio)

State Supreme Court Decision in Holden — In 2016 the Ohio Supreme Court held that “[a]n action at law on a promissory note to collect a mortgage debt is separate and distinct from an action in equity to enforce the mortgage lien on the property.” Deutsche Bank National Trust Company, Trustee v. Holden, 147 Ohio St. 3d 85, 2016-Ohio-4603, 60 N.E.3d 1243, ¶ 35 (2016) (emphasis added), reconsideration denied, 146 Ohio St. 3d 1493, 2016-Ohio-5585, 57 N.E.3d 1172, ¶ 35 (2016).

The Court stated that courts “have previously recognized that upon a mortgagor’s default, the mortgagee may elect among separate and independent remedies to collect the debt secured by a mortgage.” Id. at ¶ 21 (emphasis added). Specifically applicable to foreclosures, the mortgagee may seek: (1) “a personal judgment against the mortgagor to recover the amount due on the promissory note, without resort to the mortgaged property;” (2) “a foreclosure action to cut off the mortgagor’s right of redemption, determine the existence and extent of the mortgage lien, and have the mortgaged property sold for its satisfaction;” or (3) an action for ejectment [an older legal remedy, pre-dating modern foreclosure laws, which is still available yet presents some practical challenges to recovery]. Id. at ¶¶ 22-24.

The Court noted that a party seeking to enforce only the mortgage is still obligated to present evidence concerning their interest in the note, stating “[e]ven in a case in which the personal liability of the debtor has been discharged in bankruptcy, however, the creditor seeking to foreclose on the mortgage must prove that it was the person or entity entitled to enforce the note secured by the mortgage.” Id. at ¶ 26.

With this platform laid by the Ohio Supreme Court, Ohio’s Courts of Appeal have applied these concepts to determine the proper statute of limitations in Ohio foreclosure actions. In those foreclosure actions, the note most commonly qualifies as a negotiable instrument under R.C. 1303.16(A) [UCC 3-118], which sets the statute of limitations at six years after the note’s natural maturity date(s) or, if the note is accelerated, within six years after the date on which the note was accelerated. Actions on a mortgage in Ohio would be subject to an eight-year (or possibly fifteen-year, depending on date of mortgage) statute of limitations under R.C. 2305.06. In addition, actions for ejectment are subject to a twenty-one year statute of limitations under RC. 2305.04.

Post-Holden
— Recent Ohio decisions examining these concepts have permitted plaintiffs to proceed in foreclosures being brought as actions to enforce the mortgage, stating that “[w]hen a statute of limitations is properly applied, the debtor’s obligations on the note are not extinguished but instead the remedies for enforcement are limited.” U.S. Bank National Association v. Robinson, (Ohio Ct. App. 8th Dist. Cuyahoga) No. 105067, 2017-Ohio-5585, ¶ 10. “As a matter of law, R.C. 1303.16(A) does not apply to actions to enforce the mortgage lien on the property after the payment on the note becomes unenforceable through the running of the statute of limitations.” Id. at ¶ 11 (emphasis added). “R.C. 1303.16(A) only applies to prohibit a party from enforcing obligations to pay on the note … R.C. 1303.16(A) does not affect the mortgagee’s mortgage right created by virtue of the failure to pay the note; the statute only precludes the remedy of a money judgment upon the unsatisfied note.” Id. (emphasis added).

Other recent cases have acknowledged the availability in Ohio of the longstanding remedy of ejectment under RC 2305.04. “The mortgagee may bring an action in ejectment that is governed by a 21-year limitations period as set forth in R.C. 2305.04.” Bank of New York Mellon v. Walker, (Ohio Ct. App. 8th Dist. Cuyahoga) No. 104430, 2017-Ohio-535, 78 N.E.3d 930, ¶ 19 (citations omitted). An action in ejectment allows a mortgagee to “take possession of the mortgaged property, receive the income from it, and apply the proceeds to the debt, restoring the property to the mortgagor when the debt is satisfied.” While this age-old action provides a longer statute of limitations, practical considerations (such as potentially renting the property and returning it to the borrower when the debt is satisfied) present modern-day challenges to effective use of this alternative.

These developments in Ohio case law concerning the statute of limitations and the clarifications provided therein are proving to be beneficial in overcoming certain statute of limitations defenses raised in foreclosure actions. The law will continue to be developed and interpreted in the state’s jurisdictions. In the meantime, a lender or servicer considering a foreclosure action, and believing that it might be barred due to statutes of limitation, may find additional paths for proceeding based on recent decisions in the Ohio courts.

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