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Banking & Finance Law Report

Tag Archives: Mortgages

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

Posted in Bank Lending, Lien Perfection, Other Articles, Real Estate

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 Construction Company (“Panzica”) had done some work before the mortgage was recorded (and before the Notice of Commencement was recorded).

Normally, a subsequently filed mechanics lien for work done before the Original Mortgage was filed would have priority over the mortgage. (See Ohio Revised Code § 1311.13.) However, the Original …


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Ohio Supreme Court Foreclosure Decision

Posted in Real Estate

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 must first be dismissed and the entire process must begin anew. Furthermore, refiling is expensive because it means paying court fees and legal counsel twice.  Luckily, a lender can avoid these pitfalls by making sure it actually holds the note and mortgage prior to filing a complaint seeking judgment on that …


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

Posted in Real Estate

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 to whom the notice is directed. *** While we understand the interest in using technology to conserve resources, we find that notice by Internet posting is more akin to publication in a newspaper, and due process demands more in this instance.” PHH Mortgage, 2012-Ohio-3931, ¶ 16.…


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

Posted in Real Estate

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 April 2010. But PHH did not receive notice by mail of this sale, because at some point before then the sheriff’s office (due to budget constraints) had stopped sending notice by mail of upcoming sales, and began publishing the sale dates on its website. So, even though PHH intended to bid on …


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