In order to invoke a court’s jurisdiction (i.e. authority to hear a case), a plaintiff must demonstrate a personal stake in the outcome of a lawsuit. This principle is also referred to as “standing”. In cases to enforce an obligation to pay mortgage debt, such as a foreclosure action, the party who owns the note (i.e. the original lender, or an assignee of the original lender) at the initiation of the action would be the party with standing to sue. With mortgages being assigned “left and right” these days, it is not always easy finding the original note, and savvy defense lawyers have been successful in getting some of these foreclosure actions dismissed.
Knowing when to file foreclosure actions is just as important as identifying who should file. Suppose “Original Lender A” assigns a note/mortgage to “New Lender B” who assigns to “New Lender C” (and New Lender C holds the note and mortgage at the time of judgment), but New Lender C filed the foreclosure action prior to the assignment from New Lender B. Before the recent Supreme Court of Ohio case Fed. Home Loan Mtge. Corp. v. Schwartzwald, Slip Opinion No. 2012-Ohio-5017, the answer depended on which appellate district in Ohio the action was filed in.
The facts of the Schwartzwald case are simple enough. In November 2006, Mr. and Mrs. Schwartzwald purchased a home in Xenia, Ohio and received a mortgage loan from Legacy Mortgage. Legacy then assigned the note and mortgage to Wells Fargo Bank, N.A. (as servicing agent for Federal Home Loan Mortgage Corporation (“Freddie Mac”)). In November 2008, Mr. Schwartzwald lost his job and defaulted on the mortgage loan in January of 2009. While Wells Fargo preliminarily indicated its consent to a “short sale” of the property, Freddie Mac commenced a foreclosure action on April 15, 2009.
On May 15, 2009, Wells Fargo formally assigned the note and mortgage to Freddie Mac, and filed a copy of the same with the trial court who, upon motion for summary judgment, ordered the property foreclosed, and to be sold at sheriff sale. Freddie Mac then bought the property at the sheriff’s sale.
Upon appeal, the Second District Court of Appeals affirmed, concluding that although Freddie Mac lacked standing at the time it commenced the foreclosure action, it cured that defect by the assignment of the mortgage and transfer of the note prior to entry of the judgment of foreclosure. The court of appeals acknowledged and certified that its decision conflicted with the First District Court of Appeals (Wells Fargo Bank, N.A. v. Byrd, 2008-Ohio-4603) and the Eighth District Court of Appeals (Wells Fargo Bank, N.A. v. Jordan, 2009-Ohio-1092). Thus, the “table was set” for Fed. Home Loan Mtge. Corp. v. Schwartzwald to be decided by the Ohio Supreme Court.
The Ohio Supreme Court simply rejected the Second District’s finding that Freddie Mac’s initial lack of standing to sue had been remedied by the assignment of the Schwartzwald’s mortgage and promissory note from Wells Fargo to Fannie Mae after the foreclosure had been filed, and held: “Here, it is undisputed that Freddie Mac did not have standing at the time it commenced this foreclosure action, and therefore it failed to invoke the jurisdiction of the court of common pleas. Accordingly, the judgment of the court of common pleas is reversed and the case is dismissed.”
Good news for the Schwartzwalds? Yes and no. Yes, because the case is dismissed and they get the property back. No, because nothing prevents Freddie Mac, who now is a real party in interest with standing, from filing a new foreclosure action.
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