FYI: Fla 1st Dist App Ct Rules Prior Servicer's Records Not Properly Admitted Into Evidence

The Florida District Court of Appeal, First District, recently reversed a trial court’s final judgment of foreclosure, and remanded for dismissal of the action for lack of prosecution.

 

In so ruling, the Court held that the successor servicer’s witness offered only general knowledge of ordinary mortgage practices to support the prior servicer’s payment history records, which was insufficient to support the admissibility of those records. 

 

The Court also held, given a lack of record activity at all times material, combined with the mortgagee’s predecessor in interest’s failure to file a statement of good cause prior to the hearing on the borrower’s motion to dismiss for lack of prosecution, that the relevant Florida Rules of Civil Procedure mandated dismissal of the action upon remand.

 

A copy of this opinion is available at: https://edca.1dca.org/DCADocs/2013/2703/132703_DC13_10132014_093921_i.pdf

 

In this action arising from an action in foreclosure, the mortgagee’s predecessor in interest filed a complaint on March 19, 2009, alleging that it “owned and holds [the] note and mortgage.”  Notably, however, the note was signed by the bank responsible for the origination of the loan. The note was subsequently endorsed to the mortgagee’s predecessor in interest prior to the filing of the foreclosure action. 

 

However, litigation of the foreclosure became stalled, with neither party prosecuting the action. Because of this, on July 20, 2010, the borrowers’ filed their notice of inactivity pursuant to Florida Rule of Civil Procedure 1.420(e).  Notably, between September 16, 2009 and October 4, 2010, no paper was filed in the action by either party or the trial court.

 

As you may recall, rule 1.420(e) sets forth the following procedure and grounds for the dismissal of a civil action for a lack of prosecution: “In all actions in which it appears on the face of the record that no activity by filing of pleadings, order of court, or otherwise has occurred for a period of 10 months … any interested person … may serve notice to all parties that no such activity has occurred. If no such record activity has occurred within the 10 months immediately preceding the service of such notice, and no record activity occurs within the 60 days immediately following the service of such notice … the action shall be dismissed by the court on its own motion or on the motion of any interested person … unless a party shows good cause in writing at least 5 days before the hearing on the motion why the action should remain pending.”

 

Following the borrowers’ notice of inactivity, and a further period of inactivity of sixty (60) days, the borrowers filed their motion to dismiss for lack of prosecution.  Curiously, the mortgagee’s predecessor in interest did not file a response to the motion to dismiss, yet did file other papers on October 4, 2010 and afterward. 

 

The hearing on the borrowers’ motion to dismiss then occurred on November 8, 2010, and again, the mortgagee’s predecessor in interest curiously failed to submit a statement of good cause at least five (5) days prior to the hearing, as is required by the subject procedural rule, or at any time.  The trial court advised the parties at the hearing that the borrowers’ motion to dismiss was being “taken under advisement,” meaning that it reserved ruling on the motion.

 

Thereafter (during the pendency of the action) the loan appears to have again been transferred to the mortgagee, who was then substituted as party-plaintiff on January 25, 2013, and a bench trial occurred on May 13, 2013.  During trial, the mortgagee put forward the testimony of its predecessor in interest’s “default proceedings officer” (the “officer”). The officer testified that she had reviewed her bank’s computer-generated loan history records in preparation for trial. The mortgagee’s counsel then asked the officer about said records, to which inquiry the borrowers’ counsel objected, asserting that there was a lack of predicate for the officer’s testimony, that the officer was not a proper record custodian for the records in question, and that the mortgagee had failed to “otherwise qualify[] [the officer] to authenticate the … records.”  The borrowers’ counsel was granted a “standing objection” as to these arguments, and as such, ceased to raise them for the remainder of the officer’s testimony.

 

The officer further testified that the computer-generated loan history records were “a printout from … the system that we use,” and that her bank had “prepared and provided a printout” of the loan history records to the mortgagee’s counsel. Over borrowers’ objection, the officer read the principal balance, past due amount, and other fees and charges listed in the records.  The officer also testified, on cross examination, that her “knowledge of the amounts owed came from her review of the printout and that the printout was ‘on [her bank’s] system.’” She further testified that “everyone” at her bank used the system and that “they would input any transactions, any adjustments.” The officer stated further that the “initial principal balance of the loan would have been input by someone handling the origination of the loan.”

 

Following the close of evidence, the borrowers’ counsel renewed their motion to dismiss for lack of prosecution, which had remained under advisement since 2010. The borrowers also asserted, among other things, that the officer’s testimony was “multiple hearsay” because the testimony was based, in part, on what “the [originating bank] transferred over as the account.”  The mortgagee’s counsel argued that any hearsay objection had been waived because it was not raised concurrent with the subject testimony.  Ultimately, the trial court entered judgment in favor of the mortgagee, with an amount due of $822,677.79

 

However, in its opinion reversing the judgment of foreclosure and remanding the case for dismissal, the First DCA, as a preliminary matter, opined that the subject evidentiary issue had been properly preserved for appeal, noting that the trial court granted borrowers’ counsel a “standing objection” as to their objections regarding the sufficiency of the mortgagee’s loan history records and the testimony of the officer, despite not using the “magic words” of ‘hearsay’ or citing to the subject rule of evidence relating to same.

 

The Appellate Court then held that the evidence regarding the principal balance and amounts owed was “inadmissible hearsay,” as it was improperly authenticated. The First DCA pointed out that the mortgagee’s counsel “never asked the witness, and she never testified, whether [the subject loan history records] were (1) made at or near the time of the event; (2) made by or from information transmitted by the person with knowledge; (3) kept in the ordinary course of a regularly conducted business activity; and (4) made as a regular practice of that business.” See Yisrael v. State, 993 So 2d. 952 (Fla. 2008).

 

While the First DCA noted that “[l]oan payment history printouts, if properly authenticated, are routinely admitted as a business record in foreclosures cases,” it further noted that “proper authentication by a witness requires that the witness demonstrate familiarity with the record-keeping system of [the] business that prepared the documents and knowledge of how the data was uploaded into the system.” See Cayea v. CitiMortgage, Inc. 138 So. 3d 124 (Fla. 4th DCA 2014); see also Weisenberg v. Deutsche Bank Nat’l Trust Co., 89 So 3d. 1111 Fla. 4th DCA 2012).

 

Here, however, in deciding that the testifying officer failed to demonstrate the requisite knowledge of the data, the court opined that the testifying officer’s “assumption that the original loan amounts would have been input by someone handling the origination of the loan was merely supposition, based upon her general knowledge of ordinary mortgage practices, not any specific knowledge about this debt or the transaction of the information between the original lender and subsequent servicers, including [her bank].”

 

Accordingly, the Appellate Court believed that “[s]he was thus unable to show any of the requirements for establishing a proper foundation for the amounts or the documents she relied on.”  See Hunter v. Aurora Loan Services, LLC, 137 So. 3d 570 (Fla. 1st DCA 2014)(holding that, where a witness lacks knowledge about who had generated computerized records, the witness lacks the ability to establish the necessary foundation for admitting same into evidence under the business records exception to hearsay rule).

 

Finally, rather than remanding for further proceedings, the Appellate Court determined that the mortgagee was not entitled to another opportunity to prove its case.  Noting that the mortgagee’s predecessor in interest failed to prosecute the action from September 16, 2009 through October 4, 2010, that the borrowers’ notice of lack of activity was timely filed, and that the mortgagee’s predecessor in interest further failed to put forward a showing of good cause in advance of the hearing on the borrowers’ motion to dismiss for lack of prosecution, the Fifth DCA held that rule 1.420(e) mandated dismissal of the action upon remand.  See Wilson v. Salamon, 923 So. 2d 363 (Fla 2005)(noting that “the mandatory language of the rule – ‘the action shall be dismissed’ – leaves the trial court with no discretion in the matter.”)

 

Accordingly, the First DCA reversed the final judgment of foreclosure and remanded for dismissal for lack of prosecution.

 

 

 

 

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: SD Cal Rejects FCC's Interpretation of ATDS Under TCPA, Enters Summary Judgment in Favor of Defendant in TCPA Putative Class Action

The U.S. District Court for the Southern District of California recently ruled that a company’s promotional text message platform did not constitute an automated telephone dialing system (“ATDS”) as defined by the federal Telephone Consumer Protection Act, 47 U.S.C. § 227(a)  (“TCPA”).  The Court also held that the FCC has no authority to modify or definitively interpret § 227(a) of the TCPA, in which the term ATDS is defined.

 

A copy of the opinion is available at:  Link to Opinion

 

The defendant company (Vendor) operated a gym which used a third-party web-based platform to send promotional text messages to its members and prospective customers’ cell phones. 

 

The phone numbers were inputted into the platform by one of three methods: (1) when vendor or another authorized person manually uploaded a phone number onto the platform; (2) when an individual responded to vendor’s marketing campaigns via text message (a “call to action”); and (3) when an individual manually inputted the phone number on a consent form through vendor’s website which interfaced with the platform. 

 

The plaintiff consumer (Consumer) joined Vendor’s gym sometime before November 20, 2012.  He alleged that he received three unwanted text messages from Vendor between November 20, 2012 and October 18, 2013.  He filed a putative class action alleging violation of the TCPA.

 

As you may recall, an ATDS is equipment that “has the capacity (A) to store or produce numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.”  See 47 U.S.C. § 227(a)(1).

 

The Court granted Vendor’s motion for summary judgment.

 

First, the Court rejected Consumer’s efforts to rely on FCC commentary in support of his position.  Section 227(a)(1) defines an ATDS.  In contrast to § 227(b) and (c), section 227(a) does not include a provision giving the FCC rulemaking authority.  Further, § 227(b) and (c) expressly limited rulemaking authority to those subsections.  Thus, the Court held that any attempt by the FCC to modify the statutory language of § 227(a) was impermissible.

 

The Court acknowledged that FCC commentary broadly interpreted the definition of ATDS as “any equipment that has the specified capacity to generate numbers and dial them without human intervention regardless of whether the numbers called are randomly or sequentially generated or come from calling lists.” See In the Matter of Rules and Regulations Implementing the Tel. Consumer Prot. Act of 1991, 27 F.C.C.R. 15391, 15392, n. 5 (2012). 

 

However, the Court noted that because the definition of ATDS was clear and unambiguous, the FCC’s statutory interpretation of an ATDS was not binding on the court.  See Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

 

Next, the Court noted that other courts have defined “capacity” in the context of the definition of an ATDS as “the system’s present, not potential, capacity to store, produce or call randomly or sequentially generated telephone numbers.”  See Gragg v. Orange Cab Co., 995 F.Supp.2d 1189, 1193 (W.D. Wash. 2014). 

 

The Court also noted that the words “random or sequential number generator” in the definition of ATDS could not be construed to refer to a list of numbers dialed in random or sequential order.  According to the Court, this interpretation would effectively render the TCPA’s “random or sequential number generator” requirement superfluous.  Rather, the Court held, the term referred to the genesis of the list of numbers, not to an interpretation that rendered “number generator” synonymous with “order to be called.”

 

Applying these principles, the Court held that the platform at issue did not have the present capacity to store or produce numbers using a random or sequential number generator.  In the platform at issue, numbers only entered the system through three methods, all of which required human curation and intervention.  None could be termed a “random or sequential number generator.” 

 

Next, the Court concluded that even if potential or future capacity to randomly or sequentially autodial numbers were fairly included in the definition of ATDS, Vendor’s contractual obligations precluded such a finding in this case.  The Vendor used a third-party platform that audited users’ accounts pursuant to an “Anti-Spam Policy,” and it was contractually banned from inputting numbers into the system without either a response to a call for action or written consent.

 

Finally, the Court distinguished the case from a prior ruling from the Ninth Circuit in which a predictive dialer at issue in that case was treated as an ATDS because it had the “capacity to dial numbers without human intervention.” See Meyer v. Portfolio Recovery Assocs. LLC, 696 F.3d 943, 950 (9th Cir. 2012) (quoting 18 F.C.C.R. 14014, 14092 (2003)).  The Court noted that the Meyer opinion was inapplicable because challenges to the FCC’s authority regarding the definition of an ATDS had been waived at the district court level, and therefore were not at issue in the appeal.

 

Accordingly, the Court granted Vendor’s motion for summary judgment.

 

 

 

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

 

 

               McGinnis Wutscher Beiramee LLP

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FYI: Fla App Ct Requires Evidence of Adequate Protection Against Other Claimants to Lost Note, Vacates Foreclosure on Lost Note

The District Court of Appeal of the State of Florida, Fifth District, recently held that a mortgagee was not entitled to final judgment of foreclosure where the mortgagee failed to introduce any evidence of adequate protection for its lost note at trial, as required under Fla. Stat. 673.3091.

 

In so ruling, the appellate court followed the Florida Third District Court of Appeals’ decision in Guerrero v. Chase Home Fin., LLC, 83 So. 3d 970, 974 (Fla. 3d DCA 2012) and reversed the lower court’s granting of final judgment of foreclosure in favor of the mortgagee and against the borrower, and remanded the matter for establishment of the lost note and mortgage.

 

A copy of the opinion is available at: http://www.5dca.org/Opinions/Opin2014/101314/5D14-78.op.pdf.

 

The mortgagee filed a complaint against the borrower seeking foreclosure of a mortgage on real property.

 

At trial, the mortgagee advised the trial court and the borrower that it was not in possession of the loan documents and that it intended to re-establish the note and mortgage through testimony at trial. The mortgagee then presented testimony related to the issue of how the loan documents became lost and to the issue of the authenticity of its copies of the loan documents.

 

The trial court awarded final judgment of foreclosure in favor of the mortgagee.  The borrower appealed.

 

On appeal, the borrower argued that the trial court erred in concluding that the mortgagee sustained its burden of proving that it possessed standing to proceed on its lost note theory because the mortgagee failed to submit any evidence on the issue of adequate protection.

 

As you may recall Fla. Stat. 673.3091 governs the enforcement of lost, destroyed or stolen instruments, and provides in pertinent part:

 

(2) A person seeking enforcement of an instrument under subsection (1) must prove the terms of the instrument and the person's right to enforce the instrument. If that proof is made, s. 673.3081 [proof of signatures and status as holder in due course] applies to the case as if the person seeking enforcement had produced the instrument. The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument. Adequate protection may be provided by any reasonable means.

 

Fla. Stat. 702.11(1) explains the concept of adequate protection, and provides in pertinent part:

 

(1) In connection with a mortgage foreclosure, the following constitute reasonable means of providing adequate protection under s. 673.3091, if so found by the court:

(a) A written indemnification agreement by a person reasonably believed sufficiently solvent to honor such an obligation;

(b) A surety bond;

(c) A letter of credit issued by a financial institution;

(d) A deposit of cash collateral with the clerk of the court; or

(e) Such other security as the court may deem appropriate under the circumstances.

 

Applying these provisions, the appellate court found the mortgagee failed to present any evidence on the issue of adequate protection.

 

Accordingly, it reversed the foreclosure judgment and remanded the matter to the trial court for establishment of the lost note and mortgage.

 

 

 

 

 

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

 

 

               McGinnis Wutscher Beiramee LLP

CALIFORNIA   |   FLORIDA   |   ILLINOIS   |   INDIANA   |   OHIO   |   WASHINGTON, D. C.

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FYI: SD Ohio Rejects Borrower's Allegations of Insufficient Response to QWR, Holds No Liability for Responding With "Good Faith Investigation and Explanation"

The U.S. District Court for the Southern District of Ohio recently granted motions to dismiss and for summary judgment in favor of a mortgage loan servicer and loan owner, as to allegations that the servicer failed to timely and appropriately respond to the borrowers’ written request for information regarding their loan account, in supposed violation of the Truth in Lending Act, 15 U.S.C. § 1639g (“TILA”) and the Real Estate Settlement Procedures Act, 12 U.S.C. § 2605(e) (“RESPA”).

 

In granting the motions, the Court held that “[a] borrower cannot hold a servicer liable for failing to completely respond to every possible interpretation of a generic and vague QWR,” noting that “RESPA exists to prevent abuse of borrowers by servicers – not to enable abuse of servicers by borrowers.”

 

A copy of the opinion is available at:  Link to Opinion

 

The plaintiff borrowers financed the purchase of residential property in southern Ohio with a mortgage loan.  In February 2013, the mortgage loan servicer contacted the borrowers to inform them it was now servicing their account.  The servicer’s introductory correspondence included a provision instructing the borrowers to “send all written requests” to a specified address in Iowa.  Two days later, the servicer sent a second correspondence to borrowers, providing a different address in Iowa for qualified written requests under RESPA.

 

In March 2013, the borrowers allegedly sent a purported qualified written request to the servicer at an entirely different address in West Palm Beach, Florida.  The request denominated itself as a qualified written request, and sought eight types of information in separately numbered paragraphs.  The record indicated that someone named Earl Hill received the request on March 9, 2013, but did not indicate whether the Florida address was a valid address for the servicer or whether Earl Hill was in any way associated with the servicer.  The servicer acknowledged receipt of the written request on April 25, 2013, and substantively responded on May 1, 2013.

 

The borrowers filed an action against the servicer and the loan’s owner, alleging that the servicer neither timely nor sufficiently responded to their request for information, as required by 15 U.S.C. § 1639g and 12 U.S.C. § 2605(e).  The servicer filed a motion for summary judgment as to the borrowers’ allegations, and the loan owner moved to dismiss the borrowers’ complaint.

 

As to the borrowers’ TILA allegations, the servicer and owner both argued that § 1639g of TILA, which requires creditors and servicers to send payoff statements to borrowers within seven business days of receipt of a request, was not in effect at the relevant time of the borrowers’ complaint.  The Court held that section 1639g was enacted as part of Dodd Frank, and did not become effective until January 10, 2014, whereas the alleged events here all took place in 2013.  The borrower did not dispute this position, and the Court accordingly dismissed the borrowers’ TILA allegations without discussion.

 

As to the borrowers’ RESPA allegations, the Court first noted that the purported QWR was sent in 2013, and was therefore subject to the longer deadlines under pre-Dodd-Frank RESPA.

 

The Court found that the request constituted a qualified written request.  As you may recall, in order to constitute a qualified written request under RESPA, the request must “include[ ] a statement of the reasons for the belief of the borrower . . . that the account is in error or provide[ ] sufficient detail to the servicer regarding other information sought by the borrower.”  12 U.S.C. § 2605(e)(1)(B)(ii).  The Court held that, although the borrowers did not coherently state their reasons for belief that their account was in error, they did provide sufficient detail regarding the information they sought.

 

The Court next addressed whether the servicer had any obligation to respond to the purported qualified written request, as it was sent to an unknown address in Florida rather than either of the two addresses provided by the servicer.  The Court confirmed the general rule that “the response obligation under RESPA is only triggered when the QWR is sent to the designated address,” but determined that the rule does not apply under circumstances where no single exclusive address is designated.  The Court found that the servicer’s “closely-spaced correspondence setting forth two different addresses” was confusing, and held that the servicer therefore did have a duty to respond to the request.

 

Nevertheless, the Court recognized that the undisputed record in the case reflected only that the request was sent by the borrowers to West Palm Beach, Florida on March 5, 2013, received by someone named Earl Hill on March 9, 2013, and received at the servicer’s QWR facility on April 18, 2013.  However, the record did not indicate whether the servicer had an office in West Palm Beach, Florida, or even whether Earl Hill was an employee of the servicer or instead “a kindly old pensioner who forwarded the misaddressed letter.”

 

The Court therefore held that the servicer’s acknowledgment dated April 25, 2013 was timely, because there was no evidence to indicate that the servicer received the request prior to April 18, 2013, and the servicer thus acknowledged the request within the statutory timeframe then in effect.  The Court also held that even if the servicer had received the request on March 9, 2013, it still provided its substantive response within the timeframe then in effect.

 

Finally, the Court discussed the sufficiency of the servicer’s response.  Although the Court noted that its analysis “may be somewhat altered in future cases by the regulations promulgated by the CFPB,” it identified the three ways a servicer can respond to a qualified written request: (1) the servicer can make corrections to the account; (2) the servicer can explain or clarify whey the account is already correct; or (3) the servicer can provide the borrower with a written explanation that includes the information requests and explains why information not provided cannot be obtained.  The Court stressed that “the servicer must, whatever response it chooses to make, fairly meet the substance of the QWR.”

 

In this case, the Court held that the servicer fairly met the substance of the borrowers’ request by providing what documentation it could to answer the borrowers’ request, and specifically explaining why it could offer no more than it did. 

 

The Court noted that it has previously “taken a dim view of generic form responses by servicers to QWRs,” but in this case chose to “elucidate[ ] the previously unwritten corollary: A borrower cannot hold a servicer liable for failing to completely respond to every possible interpretation of a generic and vague QWR when the servicer has responded with a good faith investigation and explanation.”  The Court expressly stated: “RESPA exists to prevent abuse of borrowers by servicers – not to enable abuse of servicers by borrowers.”

 

Accordingly, the Court granted the servicer’s motion for summary judgment, and the owner’s motion to dismiss.

 

 

 

 

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

 

 

            McGinnis Wutscher Beiramee LLP

CALIFORNIA   |   FLORIDA   |   ILLINOIS   |   INDIANA   |   OHIO   |   WASHINGTON, D. C.

                                  www.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.

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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 http://www.supremecourt.ohio.gov/ROD/docs/pdf/0/2014/2014-Ohio-4275.pdf.

 

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
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Email: RWutscher@mwbllp.com

 

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