The Standing Rule is Raised in Federal Court
In early 2007, in a group of foreclosure cases that had been filed in Federal Court, Judge Timothy Boyko issued an opinion in which he stated that if a lender cannot prove that it owned the note and mortgage on the date the complaint was filed, the lender’s case must be dismissed. The Judge reasoned that under such circumstances, the lender lacks standing to invoke the jurisdiction of the Federal Courts. While the Standing Rule announced by Judge Boyko appeared to be limited to foreclosure cases that had been initiated in Federal District Court, judging by the mood of the economy, we predicted that his reasoning would soon find its way into state court proceedings.
State Courts Begin Adopting the Standing Rule
The first significant indication that the state courts would adopt the Standing Rule appeared in mid 2007. In Wells Fargo Bank v. Byrd, a foreclosure case pending in Hamilton County, the trial judge overruled the Magistrate’s Decision granting summary judgment in favor of the lender, and concluded that because the lender’s assignment was dated after the complaint was filed, the lender lacked standing, and the case was dismissed. Wells Fargo appealed this decision, but on September 12, 2008, the Hamilton County Court of Appeals sided with the trial court, and held that a lender who acquires a mortgage after the commencement of a foreclosure action cannot cure the jurisdictional defect, and its case must be dismissed.
Standing Rule Recognized in Cuyahoga County
At last, on March 12, 2009, the Cuyahoga County Court of Appeals decided Wells Fargo Bank, N.A. v. Jordan and joined the growing list of courts that have adopted the Standing Rule. The court in Jordan cited Judge Boyko and Byrd, and similarly decided that an assignee whose written assignment is dated after the filing of its Complaint lacks standing, and its case must be dismissed. While not every Appellate District has expressly adopted the reasoning of these decisions, for all practical purposes, it is now established law in Ohio that a lender who acquires an interest in a mortgage after the filing of its foreclosure complaint lacks standing to invoke the jurisdiction of the trial court, and its case must be dismissed. Furthermore, as a procedural matter, since the Standing Rule is related to the jurisdiction of the court, this defect cannot be waived and it does not need to be raised by a borrower, but can be invoked by the trial court on its own initiative. Regrettably, while these decision have established new rules that further complicate Ohio foreclosure filings, there has been little or no discussion or guidance related to the issue of when a lender actually acquires an interest in a mortgage, especially when dealing with pooled mortgages placed in a trust.
Cuyahoga County Judges and Magistrates Weigh In
Following the Jordan decision, the Judges and Magistrates in Cuyahoga County weighed in witha series of letters and orders that sought to clarify the all important question of when a lender actually acquires a mortgage, regardless of when an assignment is signed.At first blush, these efforts appeared to be helpful; however, upon closer inspection, this may not be the case. As recently as a few weeks ago, in a case pending before the Cuyahoga County Court of Common Pleas, the assigned Magistrate entered an order that stated the following:
ALTHOUGH PLAINTIFF FILED AN AFFIDAVIT ON 03/26/09 THAT STATES PLAINTIFF WAS THE HOLDER OF THE NOTE IN ISSUE BEFORE THE COMPLAINT WAS FILED, THE COURT REQUIRES THAT PLAINTIFF PROVIDE A COPY OF THE TRANSFER CONTRACT AND AN AFFIDAVIT TO AUTHENTICATE THAT DOCUMENT.
The Magistrate’s Order appears to suggest that the lender is being given the opportunity to prove the date of the actual transfer, irrespective of the date the assignment was signed, and thus prevent dismissal of its case. While this is good news, the method of proof that appears will be required by the Court may raise additional problems in the future. In the majority of the cases involving pooled loans, the document that evidences the transfer to the Trustee or investor is the Pooling and Servicing or other similar agreements. Unfortunately, most of these agreements reveal that, by the time the mortgage trust is established, the mortgage is no longer held by the originator, but instead by a depositor or other similar intermediary. This fact calls into question the validity of certain mortgages where a loan originator retroactively executes an assignment of the Note and Mortgage to the Trustee after the loan has already been bought and otherwise transferred to one or more purchasers or depositors. Undoubtedly, these transfers are valid and otherwise proper, but having to explain and prove them may cause a simple foreclosure action to be treated more like a securities litigation case. If nothing else, having to document and prove all the transactions involved in the establishment of a pooled mortgage trust will most certainly complicate and delay a lender’s case. Moreover, in contested cases, the process of documenting a pooled mortgage trust will create additional elements of proof for a lender which can be challenged by borrower’s counsel and increase the likelihood that summary judgment will be denied.
Discretion is the Better Part of Valor
For the foreseeable future, in light of the economic climate and the mood of Ohio courts in general, the prudent thing to do is not file any new case unless and until a proper assignment is signed and recorded. This has been the prevailing opinion of our firm for some time now regarding new foreclosure filings and represents the shared consensus of most, if not all, mortgage lenders and servicers we represent. While this addresses concerns related to new case filings, it does not provide much guidance for existing cases that are in jeopardy of being dismissed. The choice to dismiss a pending case or try to prove the actual date of transfer is a business decision that has to be made by servicers, lenders, and investors, after careful consideration of multiple factors and concerns, including those outlined above. The critical thing to consider, however, is that while dismissing and refilling may add several months delay to a foreclosure case, the effect of having courts and borrowers’ counsel scrutinize the inner workings of the transactions that lead to the pooling of loans is unknown and potentially problematic. Currently, we believe that in Cuyahoga County certain types of loans will be significantly impacted by these new changes. This type of loan involves facts where Mortgage Electronic Registration Systems, Inc. as nominee is the original mortgagee. In these cases, the court will question issues regarding ownership of the note and require documents showing when the note transferred to the plaintiff in the foreclosure. This proof would be required even if an assignment of the mortgage was executed prior to the foreclosure. This new step requires that certain pooling mortgage trust documents be submitted to the court for review. To the extent our office is able to obtain these documents without client assistance we will continue to do so. All requests for client assistance in obtaining necessary documents as required by the court will be kept to minimum whenever possible. As this issue of standing is vetted through the courts, it should become more apparent what proof is required to establish standing and what additional pitfalls may emerge as lenders attempt to substantiate this proof. We will advise of any changes and continue to monitor the situation for any new developments as they happen. Accordingly, adjustments will be made as become necessary to ensure our continued success in prosecuting foreclosures in a timely manner and avoiding unnecessary court imposed dismissals that could arise by virtue of these recent changes.