Wells Fargo Bank, N.A. v. YoungWells Fargo Bank, N.A. v. Young
Rendered on the 14th day of January, 2011.
RICK D. DеBLASIS, Atty. Reg. No. 0012992 and ADAM FOGELMAN, Atty. Reg. No. 0073970, 120 East Fourth Street, Suite 800, Cincinnati, Ohio 45202
Attorneys for Plaintiff-Appellant
MARGARET B. HAYES, Atty. Reg. No. 0042031, Assistant Prosecuting Attorney, Darke County Courthouse, 3rd Floor, Greenville, Ohio 45331
Attorney for Amicus Curiae, Clerk of Courts, Sheriff and Treasurer for Darke County
LEROY E. and MARTA YOUNG, 514 Washington Avenue, Greenville, Ohio 45331
Defendant-Appellee
FROELICH, J.
{¶ 1} Wells Fargo appeals from a judgment of the Darke County Court of Common Pleas, which entered a default judgment in favor of Wells Fargo on a mortgage note
I
{¶ 2} In December 2004, Leroy E. Young obtained a 30-year loan of $77,000 from Wells Fargo Bank, N.A., to finance the purchase of real property located at 514 Washington Avenue in Greenville, Ohio. Young signed an adjustable rate note, agreeing to repay the loan with an initial annual interest rate of 5.75 percent. The loan was secured by a mortgage executed by Young and his wife, Marta L. Young.
{¶ 3} In November 2008, Young and Wells Fargo executed a loan modification agreement. Under this agreement, Young agreed to repay a principal balance of $76,042.46 over forty years at an annual interest rate of 3.75 percent. Young‘s monthly principal and interest payment was $306.09.
{¶ 4} On June 8, 2009, Wells Fargo filed a Complaint in Foreclosure against the Youngs, claiming that Leroy Young had defaulted on the note and loan modification agreement and that the note was secured by a mortgage on the 514 Washington Avenue property. Wells Fargo sought judgment against Leroy Young in the amount of $75,740.44, with interest at a rate of 3.75 percent per year from February 1, 2009, and other expenses. Wells Fargo also requested that the mortgage be foreclosed, that the property be ordered sold, and that the bank be paid from the proceeds of the sale. Copies of the original note, the loan modification agreement, and the mortgage were attached to Wells Fargo‘s complaint.
{¶ 5} The following day, the trial court, sua sponte, filed an “Entry – Briefing Schedule and Notice of Intent to Order Mediation, Short Sale or Deed in Lieu of Foreclosure.” The entry stated that the court “has determined that reducing [foreclosure] litigation costs and delays is in the interest of all рarties” and presented three options for the parties: (1) if the owners desire to keep the property, the owners “shall assemble income verification and financial statement information to negotiate a means to re-affirm the debt;” (2) if the owners anticipate a sale of the real property to third parties, the owners should forward “information to the Court and Plaintiff‘s counsel regarding the ‘short sale’ such as the purchase contract and appraisal;” and (3) if the owners are unable to keep the real property and have no anticipated third party buyer, “then a ‘deed in lieu of foreclosure’ should be considered to accomplish transfer of the realty.” The trial court indicated that the homeowners should promptly notify the court and plaintiff‘s counsel of their intentions. The court concluded:
{¶ 6} “IT IS THEREFORE ORDERED AND DECREED that the parties hereto shall comply with the following schedule: (1) within 28 days after service of this Entry, Defendant owner may file a request for the court to commence loan re-affirmation mediation, or to Order a deed in lieu of foreclosure or for approval of a short sale to a third party, both in satisfaction of mortgage indebtedness; (2) within 45 days after service of this Entry, Plaintiff and other parties may file any response to Defendant owner‘s request, or objection to the Court‘s Orders herein, or otherwise brief why the Court should not order transfer of the real estate herein by short sale or deed in lieu of foreclosure. Thereаfter, unless additional time for responses or replies is granted, this matter shall be submitted for
{¶ 7} “The Clerk of Courts shall provide this Entry to all parties and counsel of record with the initial pleadings filed herein.”
{¶ 8} The Youngs were each served with the complaint and summons on June 13, 2009. They did not file an answer or otherwise respond to the complaint or the court‘s entry.
{¶ 9} On July 22, 2009, the trial court issued a Notice to Show Cause, stating that the Youngs had been properly served, that they had not “indicated any opposition to the transfer of the realty to the Plaintiff without judicial sale,” and that Wells Fargo had orally moved for a default judgment. (The following day, Wells Fargo moved, in writing, for a default judgment.) The court‘s show cause order noted that proceeding without a judicial sale had “numerous advantages to the parties and involved government entitles” and gave notice of the court‘s intent to “cause the transfer of the realty by Court-appointed Commissioner, under direction of the Court, in full satisfaction of the mortgage indebtedness of Plaintiff, with partial release of any junior lien-holders, and with forfeiture of the owner‘s right of redemption” (although this was not one of the options presented in its June 9, order). The court ordered any party opposing such transfer to file objections by August 7, 2009; parties in agreement with the proposed transfer were permitted to file a statement indicating such agreement by the same date.
{¶ 10} On August 13, the Clerk of Courts for Darke County submitted an affidavit attesting to the significant amount of time and effort expended by the Clerk, the Sheriff, and the Court to process foreclosure cases, the cost of transferring the property by public sale,
{¶ 11} On the same day, the trial court ordered the conveyance of the Youngs’ property to Wells Fargo by Commissioner‘s deed. In its decision and entry, the court found that foreclosure proceedings were equitable proceedings and that the authority to convey by Commissioner‘s deed was within the court‘s equitable powers, based on common law and
{¶ 12} Following the court‘s decision, Wells Fargo moved for additional time to object. Wells Fargo‘s motion was denied. Nevertheless, the court vacated its decision, on its own motion, based on Wells Fargo‘s opposition to conveyance by Commissioner‘s deed, and the court scheduled an evidentiary hearing on the issue, at which time the court would hear testimony for this and approximately twenty other similar cases.
{¶ 13} The evidentiary hearing was held on September 15, 2009. Counsel for Wells
{¶ 14} Ten days later, the trial court entered a default judgment to Wells Fargo on the note in the amount of $75,740.44 plus accrued interest from February 1, 2009, at 3.75 percent per annum, plus any advancements for taxes and insurance. The court further found that Wells Fargo was entitled to have the equity of redemption foreclosed and that Wells Fargo‘s mortgage was the first and best lien on the property, except for the interest of the Darke Cоunty Treasurer for any unpaid taxes and assessments. The court overruled Wells Fargo‘s objections to the use of a Commissioner‘s deed and ordered the property conveyed to Wells Fargo by Commissioner‘s deed. The court appointed Margaret B. Hayes, Esq., as Commissioner to prepare all documents and to convey title; the court also ordered that she receive fees from Wells Fargo “in the sum of $450.00, payable within 15 days hereafter.” The judgment entry set forth the procedures for the conveyance of the property by the court-appointed Commissioner. The Youngs were granted three days to exercise the equity of redemption.
{¶ 15} In its judgment, the court gave its reasons for overruling Wells Fargo‘s objections. The court found that: (1) foreclosure proceedings were equitable proceedings, and the authority to convey by Commissioner‘s deed was within the court‘s equitable
{¶ 16} Wells Fargo appeals from the trial court‘s judgment, challenging the court‘s order to convey the mortgaged property to Wells Fargo by Commissioner‘s deed. With Wells Fargo‘s consent and this Court‘s permission, the Darke County Sheriff, the Darke County Treasurer, and the Darke County Clerk of Courts (collectively, “the County officers“) have filed a joint amicus brief in support of the trial court‘s judgment.
II
{¶ 17} Wells Fargo‘s assignment of error states:
{¶ 18} “THE TRIAL COURT ERRED IN ORDERING THE SUBJECT PROPERTY BE CONVEYED TO APPELLANT VIA MASTER COMMISSIONER‘S DEED RATHER THAN ORDERING JUDICIAL SALE AS REQUESTED BY APPELLANT.”
{¶ 19} In its assignment of error, Wells Fargo argues that the court‘s order for conveyance by Commissioner‘s deed in lieu of a judicial sale is unlawful for seven reasons, to wit: (1) the order violates Ohio statutes; (2) the order violates the constitutional separation
{¶ 20} In addressing the specific issues before us, it is beneficial to understand the nature of mortgages and foreclosure proceedings in Ohio, both historically and under current law.
A. Historical background
{¶ 21} It is now well-established that a mortgage of real property is merely security for a debt. Hausman v. Dayton, 73 Ohio St.3d 671, 679, 1995-Ohio-277. However, historically, mortgages were conditional conveyances of property. If a person borrowed money, the mortgagor (borrower) would give the mortgagee (lender) a deеd to the real estate conveying fee simple subject to conditions named in the mortgage. Levin v. Carney (1954), 161 Ohio St. 513, 516. If the money were repaid in full, title to the property would revert back to the borrower. However, if the money were not repaid in full as required, the deed would become absolute. The lender‘s remedy was to take possession of the land and, if necessary, to file an action in ejectment. Id.; Kerr v. Lydecker (1894), 51 Ohio St. 240, 248.
{¶ 22} “As time went on, chancery courts became more liberal in their pronouncements regarding the rights of a mortgagor, by adopting the theory that a mortgage was a mere security for a debt.” Levin, 161 Ohio St. at 516-517. Chancery courts created an “equity of redemption,” allowing the borrower to pay the balance due and redeem the property. Id.; Baldwin‘s Ohio Practice Ohio Real Estate Law §36:2.
{¶ 23} A mortgagor‘s right to redeem the property is “absolute.” Women‘s Federal Savings Bank v. Pappadakes (1988), 38 Ohio St.3d 143, 146, citing Insurance Co. v. Sampson (1883), 38 Ohio St. 672; Sun Fire Office of London v. Clark (1895), 53 Ohio St. 414; and Union Bank Co. v. Brumbaugh (1982), 69 Ohio St.2d 202. “It is the right which the mortgagor has, upon payment of the mortgage debt, to regain the legal interest which has passed to the mortgagee as a forfeiture for failure to comply with the terms under which the mortgage was granted.” Id. “The mortgagor‘s ‘equity of redemption’ is typically cut off once a mortgagee seeks and is granted a decree of foreclosure. Generally, a common pleas court grants the mortgagor a three-day grace period to exercise the ‘equity of redemption,’ which consists of paying the debt, interest and court costs, to prevent the sale of the property.” Hausman, 73 Ohio St.3d at 676.
{¶ 24} “‘Strict foreclosure’ is the name of the [historic] procedure by which the borrower‘s equity of redemption is cut off and the conveyance of the mortgage becomes absolute. The decree did not order a sale but gave the mortgagor a specified period to make redemption and provided that if he failed to redeem within such period, the mortgagor and all persons claiming under him were barred and foreclosed from exercising their rights and equities of redemption.” Baldwin‘s at §36:2; see Kerr, 51 Ohio St. at 249. With strict foreclosure, the interests of junior lienholders were defeated, and the mortgagor (borrower) was unable to share in any excess proceeds from the subsequent sale of the property by the mortgagee. Id.
{¶ 25} Due to the harsh results caused by strict foreclosure, foreclosure by sale of the mоrtgaged property developed, which protected the interests of junior lienholders and
{¶ 26} Both strict foreclosure and foreclosure with judicial sale existed in Ohio until 1853, when Ohio adopted Section 374 of the Code of Civil Procedure. Id.; Kerr, 51 Ohio St. at 250. The provision provided that, “when a mortgage is foreclosed, a sale of the premises shall be ordered.” Id. This provision, which eliminated strict foreclosure, was also included in the General Code and currently exists, in a modified form, as
B. Foreclosure under the Revised Code
{¶ 27} “Under present statutes a mortgagee, who appeals to the courts to enforce his mortgage after condition broken, must elect between two remedies. He may sue for the foreclosure of his mortgage, followed by a sale of the mortgaged premises, or he may sue to recover possession of the premises in ejectment proceedings.”1 Levin, 161 Ohio St. at 517-18.
{¶ 28} A suit for foreclosure of the mortgage “constitutes a proceeding for the legal determination of the existence of a mortgage lien, the ascertainment of its extent, and the subjection to sale of the property pledged for its satisfaction, and no more.” Carr v. Home Owners Loan Corp. (1947), 148 Ohio St. 533, 540. An action to foreclose a mortgage is not a claim for possession of the property, nor is it an action for personal judgment on the note secured by such mortgage, although claims on the note and to foreclose on the mortgage are often brought in the same action. See id.; Levin, supra.
{¶ 29} Foreclosure proceedings are governed by equity and statute. Upon entering a judgment of foreclosure, a court typically identifies the amount due, forecloses (i.e., cuts-off or excludes) the equity of redemption (usually providing the mortgagor with a three day grace period to redeem the property), and orders the property to be sold by sheriff‘s sale, pursuant to the procedures set forth in
{¶ 30} The primary purpose and goal of a foreclosure sale is to protect the interests of the mortgagor-debtor2 while, at the same time, ensuring that the secured creditors receive payment for unpaid debts. Ohio Sav. Bank v. Ambrose (1990), 56 Ohio St.3d 53, 56; Huntington Natl. Bank v. Burch, 157 Ohio App.3d 71, 2004-Ohio-2046, ¶36. Consistent with these interests,
{¶ 31} Under
{¶ 32} After the property has been sold,
{¶ 33} Although the mortgagor‘s equity of redemption was foreclosed at the time judgment was entered in favor of the mortgagee, the General Assembly created a statutory right of redemption, which exists independently of the equitable right.
C. 2008 House Bill 138
{¶ 34} In the face of the recent foreclosure crisis, the Ohio General Assembly passed Sub. House Bill 138, effective September 11, 2008. H.B. 138 aimed to encourage mediation, expedite post-judgment transfer of property, and facilitate locating parties who purchase properties at sheriff‘s sales.
{¶ 35} With the passage of Sub. House Bill 138,
{¶ 36} Although many of these changes are not relevant to this appeal, it is notable that H.B. 138 allows for the transfer of property by the court or the county board of revision,
{¶ 37} Significantly, H.B. 138 did not authorize the court to transfer foreclosed property under the circumstances presented in this case or otherwise impact the then – and still – existing general mandate of
III
{¶ 38} We turn now to the issues raised by Wells Fargo on appeal.
{¶ 39} First, Wells Fargo claims that the trial court‘s conveyance of the Youngs’ property by Commissioner‘s deed is contrary to the Revised Code. In response, the County officers assert that the existence of
{¶ 40} It is well-recognized that actions in foreclosure arise in equity. See Kerr, supra; Lessovitz, supra (concluding that the right of subrogation and priority of liens were chancery issues for purposes of Section 6, Article IV, of the Ohio Constitution of 1912). Moreover, civil actions that were recognized as equitable actions before the adoption of the Code of Civil Procedure remained equitable in nature after the General Assembly enacted statutes providing an equitable remedy. See Wagner v. Armstrong (1916), 93 Ohio St. 443 (holding that statutory claim for partition was appealable as chancery case).
{¶ 41} Of critical importance is whether the Ohio legislature, in enacting statutes governing foreclosure, intended the statutes to provide an exclusive procedure for foreclosure or, instead, meant the statutes to be merely cumulative of common law equitable remedies.
{¶ 42} “‘Whether a particular statutory remedy is exclusive or merely cumulative, is a question of construction and interpretation, depending upon the intent of the Legislature as manifested in the terms and provisions of the statute.
{¶ 43} “‘In some cases, a remedy prescribed by statue is regarded as exclusive. Indeed, in particular cases, it may appear, either expressly or by
{¶ 44} We agree with the County officers that the enactment of
{¶ 45} Nevertheless, the enactment of Section 374 of the Code of Civil Procedure in 1853 and the subsequent enactment of
{¶ 46} As stated above, foreclosure procedures are now based on statute and equity. For example, the equitable right of redemption exists concurrently with and indеpendent of the statutory right of redemption. However, we find no authority – in Supreme Court precedent or statute – that would permit a trial court to employ a foreclosure procedure that excludes a judicial sale from its order.
{¶ 47} The County officers cite to Chemical Bank and Feinstein in support of their assertion that conveyance by sheriff‘s sale is not the exclusive remedy upon foreclosure of the mortgage and termination of the equitable right of redemption. With respect to Chemical Bank, the County officers rely on the following statement by Supreme Court of Ohio:
{¶ 48} “Neman‘s argument also requires us to assume that Chemical Bank [as majority shareholder of the corporation in default] could only have disposed of the property through a forced sale. This is not necessarily true. Once the liens on the property were discharged, Chemical Bank might have arranged for an orderly, non-distress sale of Eastgate Shopping Center. Alternatively, the bank might have decided to keep the shopping center.” Id. (emphasis added.)
{¶ 49} The County officers misconstrue Chemical Bank. In that case, the Supreme Court noted that, at any time before the final decree in the foreclosure actions against the defaulting corporation, the corporation or Chemical Bank (as the corporation‘s new majority shareholder) could have redeemed the property by
{¶ 50} Feinstein is also inapposite. Feinstein discusses whether a judgment creditor may foreclose on the debtor‘s real property without first executing upon the debtor‘s personal property. The case does not address whether a party bringing a foreclosure action may seek a remedy other than an order of sale or whether the trial court in a foreclosure action may order a remedy without judicial sale.
{¶ 51} As an alternative argument, the County officers claim that conveyance by Commissioner‘s deed is permitted under
{¶ 53} “(B) When specific real property is sold by a master under an order or judgment of the court appointing him. No court shall make or issue an order to a master for the sale of real estate, unless there exists some special reason why the sale should not be made by the sheriff of the county where the decree or order was made, which reason, if the court finds any to exist, shall be embodied in and made part of the judgment, order, or decree for such sale.”
{¶ 54} Neither situation exists in this case, nor do we see it arising in a typical foreclosure action. The Youngs were not required to convey the property to Wells Fargo by court order and, contrary to the order, failed to do so. In contrast, such a circumstance might arise in a divorce action when a party has been ordered to convey his or her interest in real property as part of the court‘s division of marital property, yet the party subject to the order refuses to do so.
{¶ 55}
{¶ 56} Wells Fargo further argues that conveyance by Commissioner‘s deed
{¶ 57} Although the trial court ordered that the Youngs’ equitable right of redemption be foreclosed and granted them three days to exercise their equitable right of redemption, the trial court‘s order of conveyance did not foreclose upon the Youngs’ statutory right of redemption, which continues to exist until the sale of the foreclosed property is confirmed.
{¶ 58} In addition, although the court expressed that it would order conveyance by Commissioner‘s deed only in limited cirсumstances, such as where the homeowners were not attempting to keep the property and the property was subject to only one lienholder (see Hearing Tr., p.48), other than the taxing authority, conveyance by Commissioner‘s deed does not account for the interests of junior lienholders, any excess proceeds upon the sale of the property, or deficiency judgments if subsequent sale proceeds are insufficient to satisfy the debt. In this sense, again, conveyance by Commissioner‘s deed is akin to strict foreclosure, in which the mortgagee obtained the property and there was no
{¶ 59} For all of these reasons, we cоnclude that the trial court‘s order of conveyance by Commissioner‘s deed in lieu of a judicial sale of the foreclosed property is contrary to Ohio law. Wells Fargo presented additional arguments to support this conclusion, but we see no reason to address Wells Fargo‘s other rationale for reversing the trial court‘s judgment.
{¶ 60} Wells Fargo‘s assignment of error is sustained.
III
{¶ 61} Although we sustain the assignment of error, we are not unsympathetic to the concerns that the trial court was trying to address in an attempt to provide a quicker and less costly approach to the foreclosure issues faced in Darke County and throughout the country. The trial court sought input, encouraged debate on the issue, and showed imagination and concern for the burdens imposed on thе county by a large number of foreclosure actions.
{¶ 62} However, the only issue before us is whether the remedy attempted by the court was authorized by existing law. It is this rule of law “that creates, protects, and guarantees the continued existence of a civilized society.” Kindig v. Kindig, Allen App. No. 1-10-13, 2010-Ohio-4805, ¶27. When established law is “contorted to fix individual situations, rather than being applied firmly and consistently, *** [w]hat then remains is the will of an autocrat which changes from day to day and place to place ***.” Id. (emphasis in original).
{¶ 63} “In equitable matters, the court has considerable discretion in attempting to fashion a fair and just remedy.” Winchell v. Burch (1996), 116 Ohio App.3d 555, 561. But this discretion cannot flout or override specific statutory mandates. The wisdom and efficacy of existing constitutional laws is a matter for the legislature.
{¶ 64} The trial сourt‘s judgment will be reversed and the matter will be remanded for further proceedings.
DONOVAN, J. and GRADY, J., concur.
Copies mailed to:
Rick D. DeBlasis
Adam Fogelman
Margaret B. Hayes
Leroy E. and Marta Young
Hon. Jonathan P. Hein