U.S. Bank Natl. Assn. v. GrayU.S. Bank Natl. Assn. v. Gray
Rendered on July 30, 2013
Cartpenter Lipps & LeLand LLP, David A. Wallace and Karen M. Cadieux, for appellee.
Doucet & Associates, Inc., Gregory A. Wetzel and Troy J. Doucet, for appellants.
APPEAL from the Franklin County Court of Common Pleas
KLATT, P.J.
{¶ 1} Defendants-appellants, Paul G. and Connie M. Gray,1 appeal a judgment of the Franklin County Court of Common Pleas in favor of plaintiff-appellee, U.S. Bank National Association, as Trustee For the Holders of the First Franklin Mortgage Loan
{¶ 2} In 2005, the Grays purchased a house from M/I Homes, Inc. At the January 20, 2005 closing, Paul Gray executed an adjustable-rate note in the amount of $246,750 in favor of First Franklin, a Division of National City Bank of Indiana (“First Franklin Division“). Both Paul and Connie Gray executed a mortgage to secure the note. First Franklin Division recorded the mortgage with the Franklin County Recorder‘s Office.
{¶ 3} Paul Gray‘s loan was pooled with other loans and transferred to a trust, which sold the consolidated debt as securities. The trust was structured so that US Bank would serve as trustee and hold the mortgage loans conveyed to the trust. To accomplish the transfer of Paul Gray‘s note to US Bank, First Franklin Division indorsed the note to First Franklin Financial Corporation (“First Franklin Corporation“) in or around March 2005. Soon thereafter, First Franklin Corporation indorsed the note in blank. The note then was then physically transferred to a custodian selected by US Bank.
{¶ 4} Unfortunately, First Franklin Division botched the transfer of the Grays’ mortgage to the trust. On January 25, 2005, First Franklin Corporation assigned the mortgage to US Bank. At the time it made the assignment, First Franklin Division—not First Franklin Corporation—was the holder of the mortgage. The purported assignment, therefore, did not accomplish anything. On March 22, 2005, First Franklin Division assigned the mortgage to First Franklin Corporation. The mortgage then joined the note in the custodian‘s care, even though no assignment to US Bank had occurred.
{¶ 5} Beginning early 2009, Paul Gray fell behind on his loan payments and the Grays stopped remitting their property taxes. The servicing agent for Paul Gray‘s loan, Select Portfolio Servicing, Inc. (“SPS“), paid the Grays’ property taxes and added the amounts advanced to the total amount that Paul Gray owed. Paul Gray last made a loan payment on April 27, 2010. In a letter dated July 13, 2010, SPS notified Paul Gray that he had defaulted on his payment obligations, and that he could cure the default by paying $9,474.34 within 30 days. Paul Gray did not make the $9,474.34 payment.
{¶ 6} On October 12, 2010, US Bank filed this foreclosure action against the Grays. The complaint alleged that US Bank was the holder of the Grays’ note and mortgage. However, the copy of the note attached to the complaint did not include any
{¶ 7} US Bank moved for summary judgment. In response, the Grays argued that genuine questions of material fact remained regarding whether US Bank was the holder of the Grays’ note and mortgage. The trial court agreed with the Grays, and it denied US Bank summary judgment.
{¶ 8} At a bench trial, US Bank produced a copy of the note that included First Franklin Division‘s indorsement to First Franklin Corporation and First Franklin Corporation‘s indorsement in blank. US Bank contended that it was the holder of the note because it possessed the note. With regard to the mortgage, US Bank acknowledged that no valid written assignment to US Bank existed. Nevertheless, US Bank contended that it was the holder of the Grays’ mortgage through equitable assignment.
{¶ 9} In its findings of fact and conclusions of law, the trial court found that US Bank was the holder of the Grays’ note and mortgage. The trial court also found that Paul Gray had defaulted on the note, and that no defenses asserted by the Grays prevented foreclosure or reduced the amount owed. On October 16, 2012, the trial court issued a judgment decree in foreclosure.
{¶ 10} The Grays appeal from the October 16, 2012 judgment, and they assign the following errors:
- The trial court erred when it found SPS had authority to testify on U.S. Bank‘s behalf.
- The trial court erred when it held Plaintiff had an interest in the subject property upon which it could foreclose.
- The trial court erred when it held Plaintiff was a holder of the note.
- The trial court erred when it failed to find Plaintiff had perpetrated a fraud on the court.
- The trial court erred when it failed to find in the Grays’ favor on their FDCPA claim.
{¶ 11} By the Grays’ first assignment of error, they argue that Diane Weinberger, the director of SPS’ customer assurance review department, was not competent to answer
{¶ 12}
{¶ 13} After qualifying under
{¶ 14} Here, Weinberger testified to a wide variety of matters, including SPS’ relationship with US Bank, SPS’ responsibility to manage the Grays’ mortgage loan, the transfers of the Grays’ note and mortgage, the payment history of the Grays’ mortgage loan, amounts disbursed to pay the Grays’ property taxes, and the total amount owed to US Bank. Weinberger explained that she had personal knowledge about these matters because she reviewed SPS’ records regarding the Grays’ mortgage loan. She also explained that SPS is the servicing agent for that loan and, in that role, SPS:
[C]ollect[s] the payments, * * * distribute[s] those payments back to the investor, * * * communicate[s] with the customer, * * * disburse[s] escrow[ed] [money], * * * manage[s] litigation or take[s] foreclosure action if that‘s necessary, provide[s] notices, [and] compl[ies] with state requirements[.] [A]nything having to do with the maintenance on a day-to-day basis of a loan after it‘s been originated and needs to be serviced and payments collected, that is what [SPS] do[es].
{¶ 15} The Grays do not challenge Weinberger‘s personal knowledge regarding the matters she testified about. Rather, the Grays argue that the trial court should have excluded Weinberger‘s testimony because she lacked US Bank‘s permission to testify on its behalf. Nothing in the Rules of Evidence requires a witness or the party that calls the witness to prove the witness’ authority to testify. Personal knowledge, not authority to testify, is the measure by which a court determines what a witness may testify about. The trial court determined that Weinberger had sufficient personal knowledge to testify, and the Grays present no argument to the contrary. Consequently, we overrule the Grays’ first assignment of error.
{¶ 16} By the Grays’ second assignment of error, they argue that US Bank did not have standing to file this action or, alternatively, that US Bank did not prove all the elements necessary to foreclose on the Grays’ mortgage. To decide the question of standing, we must determine whether US Bank was the holder of the note Paul Gray executed. Therefore, we will combine our analyses of the second assignment of error and the third assignment of error, whereby the Grays argue that the trial court erred in finding that US Bank was the holder of the note. We reject the arguments underlying both assignments of error.
{¶ 17} Standing is ” ‘[a] party‘s right to make a legal claim or seek judicial enforcement of a duty or right.’ ” Ohio Pyro, Inc. v. Ohio Dept. of Commerce, 115 Ohio St.3d 375, 2007-Ohio-5024, ¶ 27, quoting Black‘s Law Dictionary 1442 (8th Ed.2004). A court lacks jurisdiction to consider the merits of a legal claim unless a plaintiff establishes standing to sue. Fed. Home Loan Mtge. Corp. v. Schwartzwald, 134 Ohio St.3d 13, 2012-Ohio-5017, ¶ 22. As standing is jurisdictional in nature, it may be raised at any time in the proceedings. Id.
{¶ 18} A party has standing to sue if it has a personal stake in the outcome of a controversy. Id. at ¶ 21; Ohio Pyro, Inc. at ¶ 27. A personal stake requires injury caused by the defendant that has some remedy in law or equity. State ex rel. Walgate v. Kasich, 10th Dist. No. 12AP-548, 2013-Ohio-946, ¶ 11; Fed. Home Loan Mtge. Corp. v. Rufo, 11th Dist. No. 2012-A-0011, 2012-Ohio-5930, ¶ 17.
{¶ 20} Although a court must determine whether standing exists by examining the state of affairs at the time the action commenced, its examination is not limited to the complaint‘s allegations or documents attached to the complaint. Deutsche Bank Natl. Trust Co. v. Najar, 8th Dist. No. 98502, 2013-Ohio-1657, ¶ 57; Bank of New York Mellon v. Watkins, 10th Dist. No. 11AP-539, 2012-Ohio-4410, ¶ 18. Standing is an indispensable part of the plaintiff‘s case, and thus, the plaintiff must prove standing in the same manner the plaintiff bears the burden of proof, i.e., with the manner and degree of evidence required at the successive stages of litigation. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992). A court, therefore, evaluates standing by examining the allegations and/or evidence offered at each stage of litigation.
{¶ 21} As the litigation in the instant case extended to trial, we must examine whether the evidence offered at trial proved US Bank‘s standing. If US Bank established with trial evidence that it had “an interest in the note or mortgage at the time it filed suit,” then it suffered the necessary injury to pursue its foreclosure action against the Grays. Schwartzwald at ¶ 28. Thus, we must determine whether US Bank had an interest in the Grays’ note or mortgage.
{¶ 22} At trial, US Bank produced the original note that Paul Gray executed in favor of First Franklin Division. The note displays an indorsement by First Franklin Division to First Franklin Corporation and an indorsement by First Franklin Corporation in blank. Weinberger testified that both indorsements were placed on the note in or around March 2005. After it was indorsed, the note was sent to the custodian selected by US Bank, where it remained until SPS requested it while preparing to instigate the instant litigation. During the trial, SPS possessed the note on behalf of US Bank.
{¶ 23}
{¶ 24} Here, the final indorsement on Paul Gray‘s note is a blank indorsement. Therefore, the holder of the note is the person in possession of the note. The Grays assert that SPS is in possession of the note and, therefore, SPS, not US Bank, is the holder of the note. If SPS is the holder, as the Grays contend, then US Bank has neither an interest in the note nor standing to sue on the note.
{¶ 25} Possession is a key element of being a holder. However, nothing in
{¶ 26} Here, Weinberger testified that SPS acts as the servicing agent for US Bank, managing all the day-to-day aspects of Paul Gray‘s loan pursuant to a power of attorney that US Bank granted it. As US Bank‘s agent, SPS held the note on US Bank‘s behalf. US Bank, therefore, maintained constructive possession of the note and, as holder of the note, could enforce it.
{¶ 27} Pursuant to Schwartzwald, because US Bank had an interest in the note, it had standing to sue. The Grays, however, argue that US Bank lacked standing because it failed to prove that it had an interest in the note and the mortgage. This argument is inconsistent with the plain language of Schwartzwald, which only requires a plaintiff to “establish an interest in the note or mortgage at the time it filed suit.” (Emphasis added.) Id. at ¶ 28. Thus, an interest in the note alone establishes standing. CitiMortgage, Inc. v. Patterson, 8th Dist. No. 98360, 2012-Ohio-5894, ¶ 21-22.
{¶ 28} In arguing to the contrary, the Grays point to the decision of the Supreme Court of Ohio to accept the appeal in CitiMortgage, Inc. v. Schippel, 134 Ohio St.3d 1435, 2013-Ohio-161, and remand for application of Schwartzwald. In CitiMortgage, Inc. v. Schippel, 6th Dist. No. E-11-041, 2012-Ohio-3511, the Sixth District affirmed a grant of summary judgment in a foreclosure case after finding that the evidence established that that the plaintiff was the holder of the mortgage note and no genuine issues of material fact on that question existed. The Sixth District‘s opinion did not specify how or when the plaintiff became the holder of the note. The defendant sought Supreme Court review on the legal proposition that a note should be in the name of the plaintiff or indorsed to the plaintiff at the time of the filing of the complaint. Although the Supreme Court accepted the appeal, it did not decide the appeal on its merits or reverse the Sixth District‘s opinion. Rather, the Supreme Court merely remanded the case to the Sixth District for application of Schwartzwald.
{¶ 29} The Grays point out that the Sixth District restricted its analysis to the note, and did not address whether the plaintiff was the holder of the mortgage. Thus, they contend that the remand proves that the Supreme Court intended standing to hinge upon an interest in the note and mortgage at the commencement of suit. This contention
{¶ 30} Regardless, we must address whether US Bank was the holder of the Grays’ mortgage. A party seeking to foreclosure on a mortgage must establish that it is the current holder of both the note and mortgage. Home S. & L. Co. v. Eichenberger, 10th Dist. No. 12AP-1, 2012-Ohio-5662, ¶ 17. Thus, we now turn to the question of whether US Bank was the holder of the Grays’ mortgage.
{¶ 31} US Bank acknowledges that, prior to the filing of its complaint, no written assignment transferred the mortgage to it. Nevertheless, US Bank contends that it held the mortgage pursuant to equitable assignment.
{¶ 32} Under Ohio common law, where a promissory note is secured by a mortgage, the note is evidence of the debt and the mortgage is a mere incident of the debt. Edgar v. Haines, 109 Ohio St. 159, 164 (1923); Kernohan v. Manss, 53 Ohio St. 118, 133 (1895). Therefore, ” ‘the negotiation of a note operates as an equitable assignment of the mortgage, even though the mortgage is not assigned or delivered.’ ” Deutsche Bank Natl. Trust Co. v. Cassens, 10th Dist. No. 09AP-865, 2010-Ohio-2851, ¶ 17, quoting U.S. Bank Natl. Assn. v. Marcino, 181 Ohio App.3d 328, 2009-Ohio-1178, ¶ 52 (7th Dist.); U.S. Bank, N.A. v. Armstrong, 6th Dist. No. WD-12-031, 2013-Ohio-2130, ¶ 16. In other words, “[t]he physical transfer of the note endorsed in blank, which the mortgage secures, constitutes an equitable assignment of the mortgage, regardless of whether the mortgage is actually (or validly) assigned or delivered.” Najar, 2013-Ohio-1657, at ¶ 65.
{¶ 33} Ohio‘s version of the UCC incorporates the common-law doctrine of equitable assignment. Pursuant to
U.C.C. § 9-203(g) explicitly provides that, in such cases, the assignment of the interest of the seller or other grantor of a security interest in the note automatically transfers a corresponding interest in the mortgage to the assignee * * *. (* * * [A] “security interest” in a note includes the right of a buyer of the note.) * * * [T]he UCC is unambiguous: the sale of a mortgage note * * * not accompanied by a separate conveyance of the mortgage securing the note does not result in the mortgage being severed from the note.
Id.
{¶ 34} Here, Weinberger testified that First Franklin Corporation indorsed Paul Gray‘s note in blank in or around March 2005 and, soon thereafter, transferred the note to US Bank. By operation of Ohio law, when First Franklin Corporation negotiated the note, US Bank became (1) the holder of the note by virtue of its possession of the note and (2) holder of the mortgage by virtue of conveyance of the note. Thus, US Bank has proven that it is the holder of the mortgage (as well as the note), so it is entitled to foreclose. Moreover, as negotiation of the note and the concomitant transfer of the mortgage took place well before US Bank filed its complaint against the Grays, US Bank had standing to pursue the instant litigation. See Bank of New York Mellon Trust Co., N.A. v. Loudermilk, 5th Dist. No. 2012-CA-30, 2013-Ohio-2296, ¶ 41-42 (plaintiff bank established standing by proving that the transfer of the note, which acted as an equitable assignment of the mortgage, occurred before the complaint was filed); McGinn, 2013-Ohio-8, ¶ 21 (same).
{¶ 36} In sum, we conclude that US Bank had standing to foreclose on the Grays’ mortgage and recover on Paul Gray‘s note. Additionally, US Bank proved the elements necessary to foreclose. Accordingly, we overrule the Grays’ second and third assignments of error.
{¶ 37} By their fourth assignment of error, the Grays argue that we should reverse the judgment against them because US Bank perpetuated a fraud on the trial court. The Grays contend that US Bank strategically chose which versions of the note and mortgage to attach to their complaint in order to mislead the trial court. The record contains no evidence that US Bank intended to defraud the court. Moreover, at trial, US Bank submitted evidence of the full history of the transfers of the Grays’ note and mortgage. Thus, the trial court was not misled, and we overrule the Grays’ fourth assignment of error.
{¶ 38} By their fifth assignment of error, the Grays argue that the trial court erred when it ruled against them on their claim for violation of the Fair Debt Collection Practices Act,
{¶ 39} The Grays contend that US Bank violated
{¶ 40} For purposes of the FDCPA, “debt collector” means “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”
{¶ 41} For the foregoing reasons, we overrule the Grays’ five assignments of error, and we affirm the judgment of the Franklin County Court of Common Pleas.
Judgment affirmed.
TYACK and CONNOR, JJ., concur.