Home Work

FORECLOSURE DEFENSE
WHERE DO WE STAND ON STANDING?
By Tamara R. Parker

n 2008, when the Ohio Supreme Court put out the call for private attorneys to assist legal aids in providing pro bono representation in foreclosure cases, it sponsored a two-day foreclosure defense training in conjunction with the Ohio State Bar Association, The Ohio Legal Assistance Foundation, and the Ohio Attorney Generals office. One seemingly knock it out of the ballpark defense covered in that training was real party standing. Ohio Civil Rule 17 (A) states every action shall be prosecuted in the name of the real party in interest. In cases to enforce an obligation to pay mortgage debt, the party who owns the note would be the real party with standing to sue. With mortgage debt so frequently sold and securitized, the party foreclosing is rarely the one originally named on the note. Foreclosing plaintiffs in a rush to foreclose often file the complaint before the note has been negotiated to them in what one judge called putting the cart before the house.1 The note, as a negotiable instrument, must be properly negotiated to transfer the right to enforce. Ohios uniform commercial code at R.C. 1303.21(B) governs note transfer and provides that * * * if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its endorsement by the holder. Anyone who has heard Professor Doug Whaley speak on the Uniform Commercial Code knows only the current holder in physical possession of the original promissory note can file the lawsuit. Attorneys defending foreclosure cases, armed with statutory support and Ohio Civil Rule 17, were admonished to review the note and mortgage attached to the complaint to determine if those documents demonstrated that the Plaintiff had standing to sue either by being the original named lender on the note, or by endorsement on the note or allonge prior to the filing of the complaint. When this defense was raised, the foreclosing plaintiffs would scurry in to file notes and allonges executed post filing and argue this was a mere technical defense. Who cares so

long as the documents eventually catch up with the litigation? Federal courts in Ohio cared. They routinely dismiss foreclosure actions where the note transfer is post complaint filing, but Ohio Courts of Appeal are split on whether this technical defense is viable. In 2007 the Ninth District reasoned real party status could be acquired by assignment while a foreclosure case is pending so long as the after filing assignment does not prejudice the defendant. Bank of New York v. Stuart, 9th Dist. No. 06CA008953, 2007-Ohio-1483 13 (March 30, 2007). The First District Court of Appeals in Wells Fargo Bank, N.A. v. Byrd, 178 Ohio App.3d 285 (Sept. 12, 2008) disagreed with the Ninth Districts reasoning and instead declared: There is little case-law guidance on the issue whether Wells Fargo, which was clearly not a real party in interest when the suit was filed, could later have cured the defect by producing an after-acquired interest in the litigation. We hold that the defect could not have been cured in that way. (emphasis added) Since the Byrd and Stuart decisions initially created the split, other Ohio Courts of Appeal have weighed in. The Eighth District followed Byrds reasoning in Wells Fargo Bank v. Jordan, Cuyahoga App. No. 91675, 2009-Ohio1092 (March 12, 2009), holding that unless a plaintiff holds the note at the time the complaint is filed it cannot invoke the jurisdiction of the court, and cannot cure its lack of standing by subsequently obtaining an interest in the mortgage. The Fifth District however took the opposite view, reasoning that Rule 17 only requires that the real party of interest prosecute the claim, even if it was initially filed by a party without real party status. U.S. Bank Natl. Assn. v. Bayless, 5th Dist. No. 09 CAE 01 004 (Nov. 13, 2009). This summers Tenth District decision in Wells Fargo Bank, N.A. v. Sessley, 935 N.E.2d 70, Franklin App. No. 09AP-178, 2010-Ohio-2902 (June 24, 2010) acknowledged Byrd reasoning that a party had to have real party standing to even invoke the jurisdiction of a court and even reasoned that the plaintiff, lacking real

party standing when it filed the foreclosure suit because it obtained the assignment after filing, could not cure by ratification since it filed the action on its own behalf. Nonetheless the Court allowed standing to be cured by the subsequent joining of the real party via a third party complaint. Had the real party not been joined by the third party complaint, seemingly, the Tenth District would have followed Byrd and dismissed the case. The Ohio Attorney General took a stand when the issue came before the Second District Court of Appeal, and along with several legal aid organizations filed amicus briefs supporting the homeowners standing defense. The Second District sided with the Byrd line of cases, detailing how the obviously flawed affidavits, note and allonges failed to comply with note transfer requirements under Ohios uniform commercial code, and therefore affirmed dismissal of the foreclosure action for lack of standing. HSBC Bank USA v. Thompson, 2010 WL 3451130, *7, 2010Ohio-4158, 4158 (Ohio App. 2 Dist. Sep 03, 2010). Until the Ohio Supreme Court decides where we stand on real party standing, the ability to defeat foreclosure due to after filing note transfers will depend on where the case is filed. With media attention and the Ohio Attorney Generals amicus brief in Thompson urging the Courts that these are not mere technical defenses but rather that documentation of standing goes to the heart and integrity of the legal system2 perhaps Ohio court will look more critically at the practice of putting the cart before the house.

1.

Wells Fargo Bank, N.A. v. Byrd, 178 Ohio App.3d 285, 287 (1st Dist. Sept. 12, 2008). 2. Merit Brief of Amicus Curiae Ohio Attorney General Richard Cordray in Support of Defendant Jamie Thompson in HSBC Bank USA v. Thompson, CA 023761 (Ohio App. 2 Dist.) p. 1.

By Tamara R. Parker, Litigation Director, Legal Aid Society of Columbus

Winter 2011 Columbus Bar Lawyers Quarterly

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