FYI: Ohio Sup Ct Rules Mortgage Servicer Not Subject to Ohio's UDAP Statute

The Ohio Supreme Court recently held that the servicing of residential mortgage loans is not  a "consumer transaction" under Ohio's Consumer Sales Practices Act, and that a mortgage servicer is not a "supplier" subject to the statute.

 

A copy of the opinion is available at:  http://www.sconet.state.oh.us/rod/docs/pdf/0/2013/2013-ohio-1933.pdf.

 

Defendant residential mortgage loan servicer ("Servicer") was the loan servicer for plaintiff's residential mortgage loan and, as such, received and distributed the mortgage loan payments and other fees, penalties and assessments charged to plaintiff's mortgage loan account.  Among other things, Servicer purchased homeowner's insurance on behalf of customers who Servicer believed did not purchase insurance as required by their notes and mortgages, and made the decisions as to which customers received loan modifications or other loss mitigation assistance and which customers would not.  

 

Finding no controlling Ohio precedent in Ohio case law and determining that the interpretation of subsections 1345.01(A) and (C) of the Ohio Consumer Sales Practices Act ("OCSPA") may be determinative of the case pending before it, the U.S. District Court, Northern District of Ohio, certified two questions of state law for the Ohio Supreme Court to answer:  (1) whether the Act applies to the servicing of residential mortgage loans; and (2) whether a mortgage servicer is a "supplier" under the OCSPA. 

 

Reasoning in part that Servicer performed services for financial institutions, not for mortgage borrowers, the Ohio Supreme Court concluded that the OCSPA does not apply to the servicing of residential mortgage loans and that mortgage servicers are not "suppliers" under the OCSPA.

 

As you may recall, the OCSPA prohibits unfair or deceptive acts and unconscionable acts or practices by "suppliers" in "consumer transactions" before, during or after the transaction.  R.C. 1345.02(A) and 1345.03(A).  The OCSPA defines in pertinent part a "consumer transaction" as "a sale, lease, assignment . . . or other transfer of an item of goods, a service, a franchise, or an intangible, to an individual for purposes that are primarily personal, family, or household, or solicitation to supply any of these things."  R.C. 1345.01.(A).  The OCSPA, however, does not apply to real estate transactions, as such transactions are expressly excluded from the OCSPA's definition of "consumer transaction."  See Id.

 

In addition, the OCSPA defines a "supplier" as "a seller, lessor, assignor, franchisor, or other person engaged in the business of effecting or soliciting consumer transactions, whether or not the person deals directly with the consumer."  R.C. 1345.01(C).

 

In concluding that under a plain reading of the OCSPA, the servicing of a residential mortgage loan did not constitute a "consumer transaction" under subsection 1345.01(A),  the Ohio Supreme Court noted that such servicing was not a "sale, lease, assignment . . . or other transfer of a service to a consumer."  

 

Rather, as the Court pointed out, Servicer had a contractual agreement with the owner of the note and mortgage that did not involve the plaintiff borrower, even though Servicer may have had direct interaction with the plaintiff on behalf of the loan owner, such as when modifying the terms of the loan on behalf of the owner of the loan.  

 

Comparing Servicer's services to those of appraisers and title companies associated with so-called "pure" real estate transactions, the Ohio Supreme Court determined that the OCSPA did not apply to such "collateral services that are solely associated with the sale of real estate and are necessary to effectuate a 'pure' real estate transaction."  See U.S. Bank v. Amir, 8th Dist. No. 97438, 2012 Ohio 2772 ¶ 42-43 (holding that the Act did not apply to escrow services).

 

Moreover, the Ohio Supreme Court explained that the OCSPA did not apply to transactions between servicers and homeowners because there was no "transfer of an item of goods, a service, a franchise, or an intangible, to an individual"  to trigger application of the OCSPA.    Noting that  mortgage servicers provide services to financial institutions rather than "transfer" a service to borrowers, the Court refused to extend the OCSPA to apply to instances in which financial institutions contract with servicers to administer their loans and mortgages. 

 

To support its conclusion that transactions that are part of land transactions are excluded from the OCSPA, the Court turned to the Uniform Consumer Sales Practices Act, on which the OCSPA was modeled, and the commentary to which essentially states that because land transactions are regulated by specialized legislation, they are excluded from the Uniform Consumer Sales Practices Act.   

 

The Ohio Supreme Court also found notable the fact that the Ohio legislature omitted real property transactions and mortgage servicing from the OCSPA's coverage despite numerous opportunities to amend the OCSPA to extend its applicability to them. 

 

Thus, reasoning that Servicer's acceptance and application of mortgage payments and management of loans in default continue to be part of the original land transaction, the Court determined that such transactions are excluded from the OCSPA and thus do not "transfer a service" to a borrower or impose liability on Servicer under the OCSPA. 

 

Finally, rejecting the plaintiff borrower's argument that Servicer functioned as a collection agency and was thus a "supplier" under the OCSPA, the Ohio Supreme Court noted that the OCSPA's definition of "supplier" did not include a mortgage servicer and, further, that under the OCSPA, "'suppliers' are those that cause a consumer transaction to happen or that seek to enter into a consumer transaction," neither of which pertained to mortgage servicing. 

 

Accordingly, the Court answered the certified questions in the negative, concluding that, under the OCSPA, mortgage servicing is not a "consumer transaction" and a mortgage servicer is not a "supplier."

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

 

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FYI: 9th Cir Reverses Approval of Class Settlement Involving Coupons and Injunctive Relief, Due to Miscalculation of Atty Fee Award Under CAFA

The U.S. Court of Appeals for the Ninth Circuit recently ruled that a class action settlement involving relief in the form of both coupons and injunctive relief violated section 1712 of the federal Class Action Fairness Act.

 

In so ruling, the Ninth Circuit explained that the lower court erred when it awarded attorney's fees using solely a so-called hourly "lodestar" method of calculating fees without first calculating the actual redemption value of the coupons, as required when any relief is in the form of coupons.  The Court also stressed, however, that an award of fees based on attorney time spent on the class action is appropriate for non-coupon relief, such as injunctive relief. 

 

A copy of the opinion is available at:  http://cdn.ca9.uscourts.gov/datastore/opinions/2013/05/15/11-16097.pdf.

 

Plaintiffs consumers filed three putative class actions in federal court in California alleging that the defendant manufacturer ("Manufacturer") of inkjet printers engaged in unfair business practices relating to its printers and ink cartridges.  The three actions were separately and extensively litigated and the parties eventually agreed to a global settlement.  The settlement agreement provided for both coupon and injunctive relief. 

 

Specifically, in exchange for the plaintiffs' release of all claims, Manufacturer agreed to among other things provide class members "e-credits" redeemable for printers and printer supplies on the Manufacturer's website, make additional disclosures on its website and elsewhere about its business practices with respect to its printers and ink, and to pay almost $3 million in attorneys' fees.  The "e-credits" were non-transferable coupons redeemable only on Manufacturer's website, expired six months after issuance, and could not be combined with other discounts or coupons.  The face value of the coupons varied between $2 and $6.

 

The lower court granted final approval of the settlement, finding that the settlement was fair, reasonable and adequate, and, having calculated the ultimate value to the class at roughly $1.5 million, reduced the proposed award of attorneys' fees.  Ruling that the hourly "lodestar" method was applicable under the relevant provision of the Class Action Fairness Act ("CAFA"), the trial court cited reasonableness as the "key consideration" in light of the results achieved, while acknowledging that the coupons were worth significantly less than their face value and that the injunctive relief would confer some benefit on the class members.   Certain consumers ("Objectors") objected to the settlement and appealed, opposing the lower court's approval of the settlement and award of attorney's fees. 

 

As you may recall, section 1712 of CAFA governs the calculation of attorney's fees in coupon class action cases, and provides in part that "the portion of any attorney's fee award to class counsel that is attributable to the award of coupons shall be based on the value to class members of the coupons that are redeemed."  28 U.S.C. § 1712(a). 

 

CAFA also provides that if "a portion of the recovery of the coupons is not used to determine the attorney's fee to be paid to class counsel, any attorney's fee shall be based upon the amount of time class counsel reasonably expended working on the action."  28 U.S.C. § 1712(b)(1). 

 

Finally, section 1712 also provides: "If a proposed settlement in a class action provides for an award of coupons to class members and also provides equitable relief, including injunctive relief -- (1) that portion of the attorney's fee to be paid to class counsel that is based upon a portion of the recovery of the coupons shall be calculated in accordance with subsection (a); and (2) that portion of the attorney's fee to be paid to class counsel that is not based upon a portion of the recovery of coupons shall be calculated in accordance with subsection (b)."  28 U.S.C. § 1712(c). 

 

Pointing out that the issue in this case turned on the meaning of the phrase "attributable to the award of the coupons," where the settlement consisted of both coupons and injunctive relief, the Ninth Circuit relied in part on CAFA's legislative history to conclude that the district court should have employed a two-step approach to the award of attorney's fees.  

 

Noting in part that CAFA does not define "attributable to," the Ninth Circuit parsed the language in section 1712 and stressed that each subsection presented a formula to follow depending on whether the relief obtained in a class action consisted of coupons only, or on a combination of coupons and equitable relief, and on whether the fees were based on something other than a "portion of the recovery of the coupons." 

 

Accordingly, the Ninth Circuit reasoned that if a settlement provided only coupon relief, 100 percent of the attorney's fees would be "attributable to" the redemption value of those coupons.  Similarly, the Ninth Circuit explained that where attorney's fees are not calculated according to the recovery of the coupons, then the payment must be calculated "based upon the amount of time class counsel reasonably expended working on the action," that is, according to the lodestar method. 

 

In so ruling, the Ninth Circuit criticized the dissent's reasoning as ignoring the language in subsection (a) that "any attorney's fee" awarded for obtaining coupon relief be must be calculated using the redemption value of the coupons, and pointed out that subsection (b)'s language indicates that it applies only where recovery of the coupons is not used to determine attorney's fees.  Again citing CAFA's legislative history, the court continued, "[t]he Committee Report does not say that § 1712(b) 'confirms the appropriateness' of awarding lodestar fees in cases based 'solely' on coupon relief.  . . . Rather, the legislative history of § 1712(b) confirms the . . . understanding of § 1712(b) – a district court may award lodestar fees under subsection (b)(1) but only where the settlement is based 'in part' on coupon relief."

 

Finally, turning to subsection (c), the Ninth Circuit noted that in practice this provision requires a two-step calculation and that, accordingly, the lower court should have, first, under subsection (a), determined a reasonable fee based on the actual redemption value of the coupons awarded and, second, under subsection (b), should have determined an amount to compensate class counsel for any non-coupon relief obtained based on the amount of time reasonably expended in the class action.   As the Court explained, the final amount awarded under subsection (c) will be the sum of the amounts calculated under subsections (a) and (b).

 

In reaching this conclusion, the Ninth Circuit pointed out that section "1712(c) confirms that lodestar fees may only be awarded in exchange for obtaining non-coupon relief.  Indeed, it can be no other way.  If a settlement contains only equitable relief, then it is not a coupon settlement and § 1712 simply does not apply."

 

With respect to Objectors' argument that the lower court improperly awarded attorney's fees using solely the lodestar method without first calculating the actual redemption value of the coupons, the Ninth Circuit agreed.  The Court noted the lower court's supposition that the "ultimate value" of the settlement was $1.5 million, which included both the injunctive and coupon relief but did not reflect the redemption value of the coupons. 

 

The Ninth Circuit thus determined that the award of attorney's fees violated section 1712, because the award was "attributable to the award of coupons" and thus was required to be based on the value of "coupons that are redeemed."  Accordingly, the Court reversed and remanded.

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

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FYI: Ill App Ct Reverses Default Foreclosure Judgment for Failure to Make Due Inquiry for Personal Service on Corporate Defendant

Reversing the lower court's default judgment, the Illinois Appellate Court, Third District, recently ruled that the lower lacked jurisdiction in a mortgage foreclosure action, as the dissolved corporate defendant was entitled to an evidentiary hearing to establish plaintiff bank's due inquiry efforts at personal service prior to substitute service by publication and through the Illinois Secretary of State. 

 

In so ruling, the Appellate Court noted that the mortgagee was statutorily required to send notice to an address where the defendant corporation was likely to receive actual notice, and that the corporation had presented facts challenging the mortgagee's due inquiry efforts, including that the mortgagee allegedly knew where the corporation's registered agent and owner resided and the parties were already involved in other litigation in which the corporate defendant had been personally served.

 

A copy of the opinion is available at:  http://www.illinoiscourts.gov/Opinions/AppellateCourt/2013/3rdDistrict/3120397.pdf.

 

After defendant corporation ("Corporation") defaulted on its mortgage loan with plaintiff bank ("Bank"), Bank filed a foreclosure complaint against Corporation and others in Will County, Illinois.  Allegedly, Bank unsuccessfully attempted to serve Corporation through an individual who was Corporation's registered agent, president and owner.  

 

The special process server's affidavit of due and diligent search and inquiry indicated that the residence of the subject person was unknown, no telephone listing for Corporation could be located, the Illinois Secretary of State ("Secretary") records showed that Corporation had been dissolved, and that service was attempted at the registered office but Corporation no longer occupied the office space.  Additionally, an affidavit of compliance for service on the Secretary was filed, stating among other things that a copy of service had been mailed to Corporation at its Chicago address.  Finally, an affidavit for service by publication was also filed, stating in part that upon diligent inquiry, Corporation's residence could not be ascertained and its last known address was unknown. 

 

Notice by publication appeared in regional papers and a copy of the notice was mailed to Corporation's Chicago address but was returned as undeliverable.

 

Bank moved for default judgment of foreclosure and sale, which the lower court granted.  Several months later, Corporation moved to vacate the default judgment, alleging that it had not received notice of publication, that the same parties and attorneys were involved in other pending lawsuits, and that the parties in those actions had been personally served, including Corporation's registered agent. 

 

At the hearing to vacate, Corporation argued that service by publication was improper because Bank failed to conduct a diligent inquiry to personally serve it.  The lower court denied the motion to vacate.  Bank purchased the mortgaged property at the subsequent foreclosure sale. 

 

Corporation filed a motion for reconsideration, arguing that the lower court lacked jurisdiction due in part to Bank's failure to satisfy the requirements for service by publication.  Corporation's registered agent submitted an affidavit attesting in part that he had a business relationship with Bank, that he had been close friends with Bank's loan officer who had been to his home and knew where his office was located, and that Bank previously served him as Corporation's officer in another action in which Bank was represented by the same attorney. 

 

Denying the motion to reconsider, the lower court ruled that service on Corporation was proper, and approved the foreclosure sale of the property to Bank.  Corporation appealed.  The Appellate Court reversed and remanded.

 

As you may recall, in an action affecting property, service may be made by publication where the plaintiff files an affidavit attesting that the defendant "on due inquiry cannot be found" and that "upon diligent inquiry" the defendant's place of business cannot be ascertained.  735 ILCS 5/2-206(a).  Also, a trial court may set aside a final judgment entered against a defendant served by publication who did not receive a copy of the complaint or statutory notice by mail "as appears just" after a hearing.  735 ILCS 5/2-1301(g). 

 

In addition, a corporation is served "by leaving a copy of the process with its registered agent or any officer or agent of the corporation found anywhere in [Illinois]" or by any manner permitted by law, and it may be notified by publication and mail in the same manner and with the same effect as individuals."  735 ILCS 5/2-204. 

 

Moreover, the Illinois Business Corporation Act ("BCA") permits service of process on the Secretary of State when the "registered agent cannot with reasonable diligence be found at the registered office in [Illinois]" or, when the corporation has been dissolved, the registered agent cannot be found at the registered office and a civil action is instituted against the corporation within five years of its dissolution.  805 ILCS 5/5.25.  In addition, the BCA requires that notice of the service be sent to the corporation by registered or certified mail at its last registered office "[a]t such address the use of which the person instituting the action . . . knows or, on the basis of reasonable inquiry, has reason to believe, is most likely to result in actual notice."  805 ILCS 5/5.25(c)(2(ii).

 

Focusing primarily on service by publication and observing that both due inquiry and due diligence are statutory requirements for such service, and that the party claiming substitute service bears the burden of showing strict compliance with the statute, the Appellate Court pointed out that an evidentiary hearing should be held in cases where there is a question as to whether the plaintiff made such due and diligent inquiry.  See, e.g., Citimortgage, Inc. v. Cotton, 2012 IL App (1st) 102438 ¶ ¶18, 33 (where no such hearing was conducted, the court's judgment should be reversed and the matter remanded to determine whether diligent and due inquiry were conducted in order to locate the defendant prior to service by publication); Bank of New York v. Unknown Heirs and Legatees, 369 Ill. App.  3d 472, 476 (2006); Equity Residential Properties Management Corp. v. Nasolo, 364 Ill.App. 3d 26, 32 (2006); First Fed. Sav. & Loan Ass'n of Chicago v. Brown, 74 Ill. App. 3d 901, 905 (1979) (concluding that default judgment is void for lack of jurisdiction when service fails to comply with the statutory requirements for substitute service). 

 

Rejecting Bank's assertion that Bank's obligation to make further inquiry ended once it attempted to serve Corporation at its registered address, the Appellate Court stressed that Bank was required to send notice to Corporation at an address where it would likely receive actual notice.   In so doing, the Appellate Court noted Corporation's allegations that:  Bank could have located Corporation's owner and registered agent with minimal effort since Bank knew where Corporation's owner lived and worked; there were pending lawsuits between the parties with the same attorneys in which Corporation had been personally served; and that there was nothing in the record to show that Bank ever attempted service on Corporation through Corporation's owner at his residence or new business address.

 

Thus, because Corporation had presented evidence that with either minimal effort or due and diligent inquiry Bank could have personally served Corporation, the Appellate Court concluded that the lower court should have granted Corporation's request for an evidentiary hearing and required Bank to establish due inquiry.  See National Wrecking Co. v. Midwest Terminal Corp., 234 Ill. App. 3d 750 (1992); Brown, 74 Ill. App. 3d at 906.  As the Appellate Court explained, the failure to establish Bank's due inquiry efforts at personal service rendered the substitute service in this case invalid, thus depriving the lower court of jurisdiction. 

 

Accordingly, ruling that the lower court erred in denying Corporation the opportunity to challenge substitute service of process, the Appellate Court reversed and remanded.

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

Admitted to practice law in Illinois

 

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FYI: Cal App Ct Holds Federal Law Does Not Immunize Bank and Bank Employees from Malicious Prosecution for Non-Money Laundering Reports

The California Court of Appeal, Second District, recently ruled that a bank customer made a prima facie case of malicious prosecution under California law against a bank and its employees arising out of an allegedly false report to police that the customer had threatened to blow up the bank. 

 

In so ruling, the Court concluded that the federal Annunzio-Wylie Anti-Money Laundering Act neither preempted California's malicious prosecution law, nor provided immunity to the bank or its employees for reporting a violation of law unrelated to suspected money laundering transactions.

 

A copy of the opinion is available at:  http://www.courts.ca.gov/opinions/documents/B243638.PDF.

 

Plaintiff bank customer ("Customer") went into defendant bank ("Bank") to cash two checks.  Bank refused to cash the larger of the checks for just over $7000 because Bank supposedly needed to verify the signature on the check.  An altercation erupted among Customer, the supervisor of the bank tellers ("Supervisor"), and the Bank's branch manager ("Manager").  Manager called the police, reporting that Customer had threatened to blow up Bank.   A short time later, police arrested Customer outside the Bank while he was smoking a cigarette and supposedly waiting for his check to be verified.

 

Customer sued Bank, Manager, and Supervisor (collectively, "Defendants") for malicious prosecution.  Defendants filed a special motion to strike under section 425.16 of the California Code of Civil Procedure.  The lower court entered judgment in favor of Defendants.  Customer appealed.

 

The appellate court reversed, ruling in part that Customer had established a prima facie case for malicious prosecution.

 

As you may recall, when filing a special motion to strike, a defendant bears the initial burden to demonstrate that a plaintiff's cause of action arises from protected activity, such as the exercise of free speech or to the right to petition a court for redress of grievances.  See Brill Media Co., LLC v. TCW Group, Inc., 132 Cal. App.4th 324, 329 (2005); Cal. Code Civ. Proc. § 425.16(a).  Next, after defendants show that the cause of action arose from protected activity, the plaintiff must demonstrate the probability of prevailing on the claim.  Equilon Enterprises v. Consumer Cause, Inc., 29 Cal 4th 53, 67 (2002); Wilson v. parker, Covert & Chidester, 28 Cal. 4th 811, 821 (2002). 

 

In addition, the federal Annunzio-Wylie Anti-Money Laundering Act (the "Act") grants immunity to banks for making disclosures to the government of suspicious activity and certain financial information potentially related to money laundering activity.  See 31 U.S.C. § 5318(g).  Specifically, the so-called safe harbors in the Act provide an affirmative defense to claims against a financial institution "for disclosing an individual's financial records or account-related activity."  See Lopez v. First Union Nat'l Bank, 129 F.3d 1186, 1191 (11th Cir. 1997); 31 U.S.C. § 5318(g)(3).

 

Pointing out that the Act contains no clear language manifesting Congressional intent to preempt California's malicious prosecution law, the Appellate Court rejected Defendants' assertion that the Act grants immunity to a bank or bank employees for reporting violations of law in matters other than money laundering.  In so doing, the Appellate Court explained that the Act's immunity provisions must be analyzed within the context of the Act itself and "no matter how broadly they apply to 'disclosures' concerning financial institutions, they cannot be read to immunize any report to law enforcement, by any bank  [or its employees or agents]."   

 

Next, applying California law in determining whether Customer made a prima facie showing that he was likely to prevail on his malicious prosecution claim, the Appellate Court noted that the test in a malicious prosecution case is whether the defendant was actively instrumental in causing the prosecution by knowingly making a false police report.   See Sullivan v. County of Los Angeles, 12 Cal. 3d 710, 720 (1974).  The Appellate Court also explained in part that in a malicious prosecution claim, malice may simply consist of a lack of a substantial ground for believing in the plaintiff's guilt, rather than actual hostility or ill will.  See Centers v. Dollar Markets, 99 Cal. App.2d 534, 544 (1950); Sycamore Ridge Apartments LLC v. Naumann, 157 Cal.App. 4th 1385, 1407 (2007).

 

Further, the Appellate Court noted that Defendants and Customer submitted evidence showing conflicting accounts of the events at the Bank and that within the context of a special motion to strike, it must accept as true all evidence favorable to the plaintiff.  The Appellate Court thus concluded that Customer's declaration that he never threatened to blow up the bank was sufficient to establish a prima facie case.  See Overstock.com, Inc. v. Gradient Analytics, Inc., 151 Cal. App.4th 688 (2007).    

 

Pointing out that under the facts before them, a police officer would not have arrested Customer for disturbing the peace, the Appellate Court concluded that Customer had met his burden in challenging Defendants' special motion to strike by establishing a prima facie case of malicious prosecution.  

 

The Appellate Court therefore reversed the judgment of the lower court. 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

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FYI: Ohio App Ct Rules Borrower Lacked Standing to Challenge Mortgage Assignment and PSA Compliance, Confirms Standing Does Not Affect Subject Matter Jurisdiction

The Ohio Court of Appeals, Tenth District, recently upheld the lower court's denial of a borrower's motions under Ohio Rules 60(B) and 12(B)(1) challenging a mortgage foreclosure action based on an allegedly improper assignment of the mortgage. 

 

In so ruling, the Court held that: (1) borrower lacked standing to challenge the mortgage assignment as he was not a party to the assignment or the applicable Pooling and Servicing Agreement, was indisputably in default on his loan, and had suffered no injury as a result of the assignment; and (2) his 12(B)(1) motion to dismiss was not the proper method for challenging the mortgagee's standing to foreclose, as such a motion pertains to a court's subject matter jurisdiction and not to a party's standing.

 

A copy of the opinion is available at:  http://www.sconet.state.oh.us/rod/docs/pdf/10/2013/2013-ohio-1636.pdf.

 

Several years after defendant borrower ("Borrower") obtained a home mortgage loan from a mortgage lender, the lender assigned the mortgage to plaintiff bank, as trustee of a pool of securitized mortgages ("Loan Owner").   Loan Owner subsequently filed a foreclosure action against Borrower after he defaulted on the loan, attaching various documents to the complaint including the relevant assignment of mortgage to Loan Owner.  The assignment referenced a Pooling and Servicing Agreement ("PSA") that was dated a few months after the loan transaction.

 

Borrower failed to answer or otherwise respond to the foreclosure complaint.  Accordingly, Loan Owner moved for default judgment, which the lower court granted.  The court entered judgment for Loan Owner on the note and entered an order of foreclosure and sale.  Borrower did not appeal the judgment or the order.

 

About two months before the scheduled foreclosure sale, Borrower filed a motion for relief from judgment under Ohio Civ.R. 60(B) ("60(B) motion"), seeking to vacate the default judgment and order of foreclosure. Borrower also filed a motion to stay the foreclosure sale, which the court granted.  

 

The lower court subsequently granted Borrower's 60(B) motion, vacating the earlier judgment and order.  However, Borrower then notified the court that he had failed to serve Loan Owner with his 60(B) motion.  Loan Owner thus moved to set aside the order granting Borrower's 60(B) motion. The lower court granted Loan Owner's motion, and granted Loan Owner leave to file a response to the 60(B) motion.  Borrower later filed a motion to dismiss Loan Owner's foreclosure complaint under Ohio Civ.R. 12(B)(1).  

 

Without holding a hearing, the lower court ruled against Borrower on his 60(B) motion and on his 12(B)(1) motion to dismiss.  Borrower appealed.  The appellate court affirmed. 

 

As you may recall, in order to prevail on a Ohio Civ.R. 60(B) motion, similar to an Fed. R. Civ. P. 60(b) motion, the moving party must demonstrate:  (1) a meritorious defense or claim; (2) entitlement to relief under one of the grounds listed in 60(B), such as mistake or fraud; and (3) the timeliness of the motion.  See Ohio Civ. R. 60(B); GTE Automatic Elec., Inc. v. ARC Industries, Inc., 47 Ohio St.2d 146 (1976).  

 

In addition, Ohio Civ.R. 12(B)(1) -- similar to Fed. R. Civ. P. 12(b)(1) -- provides for dismissal of a complaint for lack of subject matter jurisdiction.  See Ohio Civ.R. 12(B)(1).

 

In rejecting Borrower's assertions that (1) he had a meritorious defense in that Loan Owner lacked standing because the assignment of the mortgage to Loan Owner was invalid, as it had allegedly been "robo-signed" and violated the terms of the PSA and (2) that a hearing on his 60(B) motion would have provided him the opportunity to challenge the foreclosure, the Appellate Court noted in part that as a non-party to the PSA, Borrower lacked standing to challenge the assignment under the terms of the PSA.

 

Additionally, relying on a prior decision reached after the lower court entered judgment in this case, the Appellate Court concluded that Borrower lacked standing to challenge the validity of the assignment of the mortgage because he was not a party to the assignment.  See LSF6 Mercury REO Investments Trust Series 2008-1 c/o Vericrest Fin., Inc. v. Locke, 10th Dist. No. 11AP-757, 2012 Ohio-4499.  See also Bank of New York Mellon Trust Co. v. Unger, 8th Dist. No. 97315, 2012-Ohio-1950; Bridge v. Aames Capital Corp., Case No. 1:09 CV 2947 (N.D. Ohio 2010). 

 

In so ruling, the Appellate Court noted that there was no dispute between Loan Owner and the original lender as to whether the note and mortgage were properly assigned, and that Borrower was the only party challenging the assignment's validity.  Further, stressing that the mortgage assignment did not alter Borrower's obligations under the note and mortgage, and that he was indisputably in default on his loan, the Appellate Court pointed out that Loan Owner filed the foreclosure action because of the default, not because of the mortgage assignment, and that Borrower had thus suffered no injury as a result of the assignment.

 

Moreover, Appellate Court held that Borrower's 60(B) motion alleged fraud of a type that should have been presented as a claim or defense in the underlying foreclosure action.  See PNC Bank, N. A. v. Botts, 10th Dist. No. 12AP-256, 2012 Ohio-5383, ¶15 (explaining that "[t]he fraud or misconduct contemplated by Civ.R. 60(B)(3) is fraud or misconduct on the part of the adverse party in obtaining the judgment by preventing the losing party from fully and fairly presenting his defense, not fraud or misconduct which in itself would have amounted to a claim or defense in the case.") . 

 

With respect to Borrower's contention that the trial court improperly denied his 12(B)(1) motion to dismiss the foreclosure complaint because Loan Owner failed to establish that it had standing to foreclose, the Appellate Court distinguished a party's standing from a court's subject matter jurisdiction, and observed that a plaintiff's lack of standing does not deprive a court of subject matter jurisdiction, as standing depends on party's personal stake in the outcome of litigation and subject matter jurisdiction concerns a court's power to hear a case on the merits.  Thus, ruling that the Civ.R. 12(B)(1) motion was not the proper vehicle for challenging Loan Owner's standing, the Appellate Court affirmed on this basis as well.

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

 

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FYI: CFPB Announces Online Sign-Up Portal to Receive Consumer Complaints for Response

The Consumer Financial Protection Bureau recently announced an online sign-up portal for companies to receive complaints submitted to the CFPB regarding the company.

 

The online sign-up portal is accessible here:

 

http://www.consumerfinance.gov/company-signup/

 

The CFPB states: 

Every day, consumers submit complaints to us. Companies can respond to those complaints using a secure website. Sign up to start reviewing and responding to any complaints we have about your company.  After you sign up, we'll call your point of contact for more detailed information and make sure you have the information you need to respond effectively to your complaints.

 

The CFPB describes the complaint and response process here:

 

http://www.consumerfinance.gov/complaint/

 

  

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mwbllp.com

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates are available on the internet, in searchable format, at:
http://updates.mwbllp.com