Sunday, November 16, 2014

FYI: OH Sup Ct Rejects Borrower's Challenge to Foreclosure Based on Standing

The Ohio Supreme Court recently held that:


(1)  an allegation that a foreclosure plaintiff fraudulently claimed to have standing to foreclose on a mortgage is not a proper basis for a motion for relief from judgment brought under Ohio's Civ. R. 60(B);

(2)  a motion for relief from judgment under Civ.R. 60(B) cannot be used as a substitute for a timely appeal from the judgment in foreclosure on the issue of standing;

(3)  the doctrine of res judicata applies to bar the borrower from asserting lack of standing in a motion for relief from judgment; and

(4)  alleged lack of standing would not affect the subject matter jurisdiction of the court. 


A copy of the opinion is available at


A mortgagee initiated a mortgage foreclosure action, and the borrowers filed an answer challenging standing.  The mortgagee moved for summary judgment.  The borrowers did not respond.  The lower court granted the mortgagee's motion for summary judgment, and entered a decree of foreclosure.  The borrowers did not appeal. 


Shortly after the lower court scheduled a foreclosure sale, however, the borrowers moved to vacate the summary judgment and decree of foreclosure pursuant to Civ.R. 60(B)(3) ("Rule 60(B)(3)").  The borrowers argued for the first time that the mortgagee lacked standing, and had committed fraud by falsely claiming to own the relevant note and mortgage. 


The lower court denied the motion, and the borrowers appealed. 


The Ninth District Appellate Court reversed and remanded the lower court's decision, finding that standing is a jurisdictional matter and that the mortgagee's lack of standing, if proven, would warrant relief from the judgment.  The Ninth District also granted the mortgagee's motion to certify a question, due to a conflict between the Ninth and Tenth District's answer to the following question:  "When a defendant fails to appeal from a trial court's judgment in a foreclosure action, can a lack of standing be raised as part of a motion for a relief from judgment?" 


As you may recall, Rule 60(B)(3) provides that a court may relieve a party from a final judgment, order or proceeding based on fraud, misrepresentation or other misconduct of an adverse party. 


The borrowers argued that the judgment in foreclosure should be vacated based on both the Rules of Civil Procedure and common law jurisprudence relating to jurisdiction.  The Ohio Supreme Court considered each argument in turn. 


The Ohio Supreme Court began its analysis by noting that "the fraud...contemplated by [Rule 60(B)(3)] refers to deceit or other unconscionable conduct committed by a party to obtain a judgment and does not refer to conduct that would have been a defense to or claim in the case itself."  Thus, the Court sided with the view expressed by the Tenth District in PNC Bank, N.A. v. Botts, 10th Dist. Franklin No. 12 AP-256, 2012-Ohio-5383. 


With this standard in place, the Court noted that here, the borrowers did not allege any type of intrinsic fraud on the part of the mortgagee (such as attaching a materially false affidavit to its motion for judgment) or extrinsic fraud (such as persuading the borrowers not to defend the action by falsely promising that it would be dismissed).  Instead, the borrowers merely alleged that the mortgagee lacked standing to prosecute its foreclosure. 


Accordingly, the Ohio Supreme Court determined that because the mortgagee's alleged "lack of standing did not prevent the Borrowers from appearing and presenting a full defense," the alleged lack of standing did not establish the borrowers were entitled to relief due to fraud under Rule 60(B)(3). 


The Court also determined that because standing could have been and in fact was raised during the foreclosure proceeding, "res judicata prevents the [borrowers] from using the issue to establish entitlement to relief." 


In so holding, the Court relied on case law pertaining to Fed. R. Civ. P. 60(b) - which it noted is largely equivalent to Ohio's Rule 60(B) - finding that Rule 60(B) exists to resolve injustices that are so great that they demand a departure from res judicata.  Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 244 (1944).  Further, the Court noted that "[t]he rule does not exist to allow a party to obtain relief from his or her own choice to forgo an appeal from an adverse action."  Ackermann v. United States, 340 U.S. 193, 198 (1950).  


Applying those standards to the matter at issue, the Court held that the borrowers filed a Rule 60(B)(3) motion "in order to relitigate an issue that they had raised at the start of litigation and which they failed to appeal.  Thus, the doctrine of res judicata bars their attempted collateral attack against the judgment in foreclosure." 


Next, the Court turned to the issue of whether a court with subject matter jurisdiction might lose jurisdiction because a party to that action might lack standing.  It answered in the negative. 


To reach that conclusion, the Court first observed that the general term "jurisdiction" may refer to several distinct concepts: jurisdiction over subject matter, jurisdiction over a person and jurisdiction over a particular case." 


The Court explained that "subject matter jurisdiction" refers to the power of a court to adjudicate a particular class of cases, and is determined without regard to the rights of the individual parties involved - whereas jurisdiction over a particular case refers to a court's authority to rule on a case that is within its subject matter jurisdiction.  Further, the Court indicated that where a court has subject matter jurisdiction, any error in exercising jurisdiction over a particular case causes a judgment to be voidable, but not void. 


With that standard in place, the Court had little difficulty in determining that the lower court had subject matter jurisdiction over the bank's foreclosure action.  Therefore, the Court explained that any alleged lack of standing on the part of the mortgagee would not deprive the lower court of subject matter jurisdiction, and would not render its decision void ab initio. 


Accordingly, the Court reversed the judgment of the Ninth District appellate court, and reinstated the judgment of the lower court.     





Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
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Chicago, Illinois 60602
Direct: (312) 551-9320
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