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Ohio Supreme Court tosses foreclosure action; sides with homeowner

By Peg Ritenour

In what is being called a victory for homeowners, the Ohio Supreme Court threw out a foreclosure action that will likely have implications for other foreclosure cases.  This case involves the issue of whether a third party mortgage company has standing to file a foreclosure action prior to the mortgage and promissory note being assigned to that third party.

The case involves a Xenia home that was purchased by Duane and Julie Schwartzwald in 2006. They financed the purchase through Legacy Mortgage, which subsequently assigned the mortgage and note to Wells Fargo. In 2008 Mr. Schwartzwald lost his job and the family moved to Indiana so he could accept a new position. The Xenia house was put up for sale and the owners continued to make payments. However the couple fell  behind on their mortgage payments and Wells Fargo agreed to a short sale in March, 2009. By April 8 the owners accepted an offer to purchase contingent on short sale approval.

A week later, however, Federal Home Loan Mortgage Corp. filed a foreclosure action identifying Legacy as the lender, but it did not did not attach a copy of the note, stating it was unavailable. When the owners contacted Wells Fargo about this action, they were assured that this was standard procedure and that it was going through with the short sale. As a result, the Schwartzwalds did not file an answer to the foreclosure action.

On May 15, 2009 Wells Fargo assigned the note and mortgage to Federal Home Loan and filed a copy with the court on June 17. During this time Wells Fargo continued to work with the Schwartzwalds on the short sale, but they ultimately lost the sale. On December 14 the Court allowed the Schwartzwalds to file an answer to the foreclosure action and on that same day Federal Home Loan filed court documents showing that  Legacy had previously assigned this paper to Wells Fargo.

The Schwartzwalds moved for summary judgment arguing that Federal Home Loan did not have standing to bring the foreclosure action because at the time it filed suit the mortgage and note had not yet been assigned to Federal Home Loan. The trial court denied the motion finding that any lack of standing was cured when Federal Home Loan filed the necessary documentation prior to judgment. The court therefore granted the foreclosure and the house was sold at sheriff sale to Federal Home Loan. This decision was upheld by the Court of Appeals.

Because the Court of Appeals decision conflicted with that of other appellate courts in Ohio, the Ohio Supreme Court agreed to take the case. In a unanimous decision, the Supreme Court overturned the lower court decision. In doing so, the court stated that standing is required to establish jurisdiction to file suit and that lack of jurisdiction can’t be later cured by obtaining that necessary  interest.

To read the Court’s decision, click here.

Tags: legal