U.S. Bank Natl. Assn. v. Clarke
2016 Ohio 8435
Ohio Ct. App.2016Background
- In 2006 Clarke and Llamas executed a $712,500 promissory note and mortgage; MERS was named mortgagee as nominee for MortgageIT.
- The mortgage and note changed hands through recorded assignments (GMAC 2007; Residential Funding 2009) and multiple later assignment documents (2011–2013), some recorded and some unrecorded or defective.
- Selene Finance became servicer in October 2011 and obtained possession of the original note in October 2011; loan payments stopped in January 2011.
- U.S. Bank (as indenture trustee for Castle Peak 2011-1) filed foreclosure in November 2013; the borrowers had a prior bankruptcy discharge, so no personal deficiency judgment was sought.
- At bench trial the court found U.S. Bank was the holder of the note and that recorded assignments culminating in mid-2013 vested the mortgage in U.S. Bank; several interim, unrecorded, or defective assignments were held to have no legal effect.
- The trial court entered an in rem foreclosure judgment; on appeal the borrowers challenged (1) the legal effect of an April 12, 2012 unrecorded "corrective" assignment and (2) U.S. Bank's standing/entitlement to foreclose.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity/effect of April 12, 2012 unrecorded "corrective" assignment to CPCA Trust I | U.S. Bank relied on recorded assignments and possession of the original note; the unrecorded document was not part of the operative chain | Clarke/Llamas: the unrecorded assignment in the servicer file was valid between parties and created an assignment that cannot be ignored | Held: The April 12, 2012 document lacked evidence of delivery and thus was a nullity; its unrecorded status and lack of delivery prevented it from conveying the mortgage. |
| Validity/effect of May 18, 2011 assignment referencing "CPCA Trust 14" | U.S. Bank: that reference was a typographical error; later recorded corrective assignments established the chain to CPCA Trust I and ultimately to U.S. Bank | Clarke/Llamas: the "CPCA Trust 14" reference created a gap and indicated the chain was defective | Held: An assignment to a trustee for a non-existent trust is void; no evidence showed existence of "CPCA Trust 14," so the May 18, 2011 instrument had no legal effect. |
| Standing to foreclose / chain of title to mortgage | U.S. Bank: presented the original note and a later validated chain of recorded assignments ending with U.S. Bank; equitable assignment principles also support enforcement | Clarke/Llamas: alleged gaps and defective assignments mean U.S. Bank was not the holder/mortgagee and thus lacked standing | Held: The recorded assignments culminating in 2013 vested the mortgage in U.S. Bank; trial court did not abuse discretion in finding U.S. Bank had standing to foreclose. |
| Effect of bankruptcy discharge on personal liability and foreclosure remedy | U.S. Bank sought only in rem relief (no personal deficiency) and argued mortgage enforcement remained available | Clarke/Llamas: bankruptcy discharge eliminated personal liability and potentially affects who may enforce the note/mortgage | Held: Trial court sustained parties’ stipulation that no personal judgment would be sought; foreclosure in rem remained available to the mortgagee. |
Key Cases Cited
- Chemical Bank of New York v. Neman, 52 Ohio St.3d 204 (Ohio 1990) (foreclosure is an equitable action)
- Deutsche Bank Natl. Trust Co. v. Holden, 147 Ohio St.3d 85 (Ohio 2016) (holder of mortgage may foreclose even where borrower’s personal liability on note was discharged in bankruptcy)
- Thomas v. Columbus, 39 Ohio App.3d 53 (10th Dist. 1987) (grantee must be in existence to receive a valid grant)
- Stewart v. Hopkins, 30 Ohio St. 502 (Ohio 1876) (unrecorded mortgage or assignment is valid between parties but takes effect against others upon recording)
- AAAA Enterprises, Inc. v. River Place Community Urban Redevelopment Corp., 50 Ohio St.3d 157 (Ohio 1990) (abuse of discretion standard for equitable decisions)