Banking & Finance Law Report

Tag Archives: Mortgages

Federal Reserve Expresses Openness to Relaxation of HVCRE Regulations on Community Banks

Last year, as noted by this blog, the FDIC, OCC, and Federal Reserve imposed harsher capital requirements on certain “high volatility commercial real estate,” or HVCRE, exposures, in accordance with the Basel III international banking standards. These new requirements were opposed not only by the real estate industry but also by banking associations, particularly the Independent Community Bankers of America (ICBA). The ICBA argues that the Basel III rules were intended to apply only to large, internationally active banks, and that the rules place too great a regulatory burden on smaller institutions. A recent report by the Federal Reserve Bank of Philadelphia notes that CRE regulations disproportionately affect smaller banks, as “CRE represents approximately 50 percent of small bank loan portfolios, compared with just over 25 percent of large bank portfolios.” The report goes on to state that loans that might be classified as HVCRE under the new rules represent approximately 5% of total loans for the median commercial bank with total assets below $10 billion, “a modest, but certainly not insignificant, portion of small banks’ CRE portfolios.” …

Ohio Revised Code §1301.401 – A Powerful Tool for Lenders with a Defective Mortgage

For years, it was generally accepted that mortgage creditors and bankruptcy trustees could assert the status of a bona fide purchaser and treat a defectively notarized mortgage as if that mortgage did not exist.  On February 16, 2016, our Supreme Court provided clarity regarding the legal effects of R.C. §1301.401 and provided protection to lenders regardless of whether their mortgages were defective.

In Re Messer, 2016-Ohio-510 was a referral to the Ohio Supreme Court from the Bankruptcy Court for the Southern District of Ohio.  Mr. and Mrs. Messer (the “Messers”) owned real property in Ohio.  In order to finance the purchase of the property, the Messers executed and delivered a mortgage to Mortgage Electronic Registration Systems (“MERS”) as nominee for M/I Financial Corp.  The mortgage was later assigned to JP Morgan Chase Bank, N.A. (“Chase”).  Although the mortgage was correctly signed by the Messers, the notary failed to certify the mortgage acknowledgment, although the notary did notarize other documents at the time of the closing.  The Franklin County Recorder accepted and recorded the mortgage on December 4, 2007.

On September 19, 2013, about six years after the defective mortgage was recorded, the Messers filed a Chapter 13 bankruptcy petition. The …

Ohio Supreme Court Confirms That A Foreclosure Plaintiff May Submit Proof Of Standing Subsequent To Filing The Complaint

In what most pundits agreed would be a swift reversal, the Ohio Supreme Court did in fact unanimously reverse the Ninth District Court of Appeals in Wells Fargo Bank, N.A. v. Horn, Slip Opinion No. 2015-Ohio-1484, a 20-paragraph decision that helps to explain a sometimes-misunderstood line from Schwartzwald.

In Horn, Wells Fargo filed the foreclosure complaint on its behalf as “successor by merger to Wells Fargo Home Mortgage, Inc. fka Norwest Mortgage, Inc.”  Both the note and the mortgage identified Norwest Mortgage as the lender and the Horns as the borrowers.  The Horns, first acting pro se and later with the assistance of counsel, defended against the complaint and Wells Fargo’s ensuing motion for summary judgment by asserting that Wells Fargo was not the real party in interest and lacked standing.  Wells Fargo then submitted the affidavit of a “Default Litigation Specialist” employed there, who averred that in 2000, Norwest Mortgage, Inc. had changed its name to Wells Fargo Home Mortgage, Inc., that Wells Fargo Home Mortgage, Inc. had later merged into Wells Fargo, and that Wells Fargo was the holder of the note and mortgage at the time it filed the complaint.  The trial court granted …

Does your construction mortgage really protect you from mechanic’s liens?

If you are a lender/mortgagee and your borrower/mortgagor is adding more real property collateral to the mortgage (in Ohio), how do you retain your first priority position in all mortgaged property while adding that property to the mortgage? This question is especially relevant when the borrower is assembling property as part of a development. The answer may not be as simple as you think.

You could do an amended and restated mortgage, but that could be construed as replacing the original mortgage, which would cause the priority of the mortgage to be changed from the recording date of the original mortgage to the recording date the amended and restated mortgage. So, instead you could record an amendment or modification which adds property to the mortgage. Naturally you would include a provision that states that all of the original mortgage provisions continue in full force and effect. That should do it, right? Well, recently one Ohio Court said “no.”

In 2003, Bridgeview Crossing LLC (“BC”) began assembling properties for a commercial development. In 2006 BC signed a $24,000,000 Cognovit Note and granted an open-end construction mortgage (the “Original Mortgage”) in favor of its lender (the “Mortgagee”). There was evidence that Panzica …

Ohio Supreme Court Foreclosure Decision

On Halloween, the Supreme Court of Ohio issued a ruling that should scare lenders who do not do their own due diligence before filing a foreclosure action, particularly with respect to loans pooled into mortgage-backed securities, or that have otherwise been assigned one or more times from the originator of the loan.

The Court, in Federal Home Loan Mortgage Corporate v. Schwartzwald, 2012-Ohio-5017, found that Freddie Mac had no standing to commence a foreclosure action against the debtors’ property because Freddie Mac did not hold the note at the time its complaint was filed, despite the fact that it became the holder of the note by the time the Court considered the case.  Basing its decision on U.S. Supreme Court precedent, as well as similar decisions in other jurisdictions, the Supreme Court of Ohio ruled that standing is determined as of the time the complaint is filed, without regard to subsequent events. Consequently, Freddie Mac’s complaint was dismissed, with leave to refile the complaint at a later time.

What the Schwartzwald case means for lenders is potentially significant delays in obtaining judgment against debtors because although a lender may refile a complaint once it holds the note, the original suit …

Ohio Supreme Court Frowns On Constructive Notice Via Website Of Sheriff’s Sale

On May 17, 2012, this blog reported on the oral arguments in PHH Mortgage v. Prater, a case from Clermont County, Ohio regarding the extent to which an internet website may (or may not) be constitutionally adequate notice of a sheriff’s sale.

Yesterday, the Ohio Supreme Court issued a unanimous opinion in favor of the mortgage company, reversing the court of appeals and holding that “constructive notice by publication to a party with a property interest in a foreclosure proceeding via a sheriff’s office website is insufficient to constitute due process when that party’s address is known or easily ascertainable.”

The Court’s opinion, authored by Justice Evelyn Lundberg-Stratton (who will retire at the end of this year), discusses precedent from the U.S. Supreme Court (Mullane and Mennonite Bd. of Missions) and the Ohio Supreme Court (Central Trust Co.), as well as more recent authority from the United States District Court for the Eastern District of Michigan (McCluskey v. Belford High School, E.D. Mich. No. 2:09-14345, 2010 WL 2696599 [June 24, 2009]) to conclude that the sheriff’s internet notice procedure impermissibly “shifts the burden of notification from the sheriff’s office to the persons …

Ohio Supreme Court to Hear Oral Arguments Regarding Adequacy of “Website Notice” of Sheriff Sales

On May 23, the Ohio Supreme Court will hear oral arguments in an appeal by PHH Mortgage Corporation that concerns whether a sheriff’s website can provide constitutionally sufficient notice of the date, time, and location of a sheriff’s sale of foreclosed property. Real estate lenders of all sorts will be interested in the outcome which has important implications for foreclosure proceedings.

Nearly two decades ago, in Central Trust Co. v. Jensen, 67 Ohio St.3d 140 (1993), the Supreme Court held that notice by mail or other “equally reliable” means is a constitutional prerequisite to a proceeding that adversely affects a party’s property interests, when the interest holder’s address is known or easily ascertainable. The PHH Mortgage Corp. case tests that principle in the Internet age.

In PHH Mortgage, the mortgage company (“PHH”) filed a foreclosure action in April 2008, and the trial court’s final judgment in favor of the company was entered the following September. The property was then to be sold through the Clermont County Sheriff’s Office. On three occasions in 2009, the order of sale was withdrawn. On each of these occasions, PHH was notified by mail of the date and time for the sale. The trial court scheduled a fourth sale for …

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