BAC Home Loans Servs. v. Meder Invests. L.L.C. ( 2012 )

[Cite as BAC Home Loans Servs. v. Meder Invests. L.L.C., 2012-Ohio-3466.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 97965
BAC HOME LOANS SERVICING
PLAINTIFF-APPELLANT
vs.
MEDER INVESTMENTS LLC
DEFENDANT-APPELLEE
JUDGMENT:
AFFIRMED
Civil Appeal from the
Cuyahoga County Common Pleas Court
Case No. CV-754817
BEFORE: E. Gallagher, J., Stewart, P.J., and Celebrezze, J.
RELEASED AND JOURNALIZED: August 2, 2012
ATTORNEY FOR APPELLANT
Eric T. Deighton
Carlisle, McNellie, Rini, Kramer & Ulrich Co., L.P.A.
24755 Chagrin Blvd.
Suite 200
Cleveland, Ohio 44122
ATTORNEY FOR APPELLEES
For Meder Investments LLC
Sheryl Perram, Statutory Agent
6876 Greenleaf Avenue
Cleveland, Ohio 44130
For Sheryl A. Perram
Sheryl A. Perram, pro se
6876 Greenleaf Avenue
Cleveland, Ohio 44130
EILEEN A. GALLAGHER, J.:
{¶1} Plaintiff-appellant, BAC Home Loans Servicing, L.P., appeals the
judgment of the Cuyahoga County Court of Common Pleas that adopted the magistrate’s
decision granting foreclosure. Appellant argues that the magistrate improperly applied
Ohio’s open-end mortgage statute, R.C. 5301.232, to a mortgage containing a negative
amortization provision. For the following reasons, we affirm.
{¶2} Appellant filed a foreclosure action against defendants Meder Investments,
LLC (“Meder”) and Sheryl A. Perram on May 9, 2011. The complaint alleges that
appellant is the holder of a promissory note on which Perram had defaulted in payment.
Appellant claimed there remained an unpaid balance of $96,840.15 plus interest at the
rate of 4 per cent per annum from June 1, 2010, and they sought judgment in said
amount. The complaint further alleges that appellant is the holder of a mortgage deed
securing the payment of the promissory note and that the mortgage is a valid and first
lien upon the premises described in the mortgage deed. Meder and Perram failed to
answer the complaint.
{¶3} The record reveals that the promissory note and mortgage were executed
on March 29, 2006, in favor of America’s Wholesale Lender. The note and mortgage
were eventually assigned to appellant on October 1, 2010. The property covered by the
mortgage is stated as 4215 Longwood Avenue in Parma, Ohio 44134. The preliminary
judicial report, filed May 9, 2011, reflects that the record title to the land was vested in
Meder.1 The report reveals that Perram executed a quit claim deed conveying the
property to Meder on October 16, 2008 and said deed was recorded on October 24, 2008
and re-recorded on February 3, 2009.
{¶4} On November 15, 2011, appellant filed a motion for default judgment.
The foreclosure magistrate granted default judgment in favor of appellant and ordered
appellant to file an affidavit explaining its claimed principal balance.
{¶5} Appellant, in complying with that order, provided that the principal
balance set forth in appellant’s complaint, $96,840.15, was greater than the original
principal balance, $88,200.00, because the promissory note provided for negative
amortization. Section 3(E) of the promissory note, titled “Additions to My Unpaid
Principal” states:
[M]y Minium Payment could be less than or greater than the amount of the
interest portion of the monthly payment that would be sufficient to repay the
unpaid Principal I owe at the monthly payment date in full on the Maturity
Date in substantially equal payments. For each month that my monthly
payment is less than the interest portion, the Note Holder will subtract the
amount of my monthly payment from the amount of the interest portion and
1
As of the effective date of the preliminary judicial report: September 17,
2010.
will add the difference to my unpaid Principal, and interest will accrue on
the amount of this difference at the interest rate * * *.
{¶6} Section 3(F) of the promissory note provides that the unpaid principal may
never exceed 115 percent of the principal originally borrowed. Identical language is
found in paragraphs 3(E) and 3(F) of the Adjustable Rate Rider to the mortgage.
{¶7} The magistrate issued his decision on January 11, 2012 awarding appellant
judgment against Perram in the amount of $96,840.15, plus interest, pursuant to the
promissory note. The magistrate further found that Perram executed the mortgage to
secure payment of the promissory note and that the mortgage was a valid and first lien
upon the premises securing the sum of $88,200 plus interest. In the event of a sheriff’s
sale, the magistrate’s order limited appellant’s proceeds from the sale to $88,200 plus
interest, along with any sums advanced for real estate taxes, insurance premiums, and
property protection.
{¶8} Appellant objected to the magistrate’s decision on January 18, 2012,
arguing that the magistrate failed to award appellant the full principal amount of
$96,840.15 in the order of distribution from the mortgage. The trial court overruled
appellant’s objection stating:
In essence, [appellant] argues in this objection that its mortgage should be
treated as an open end mortgage and its negatively amortized principal added
to the secured sum under the mortgage. An open end mortgage is a
mortgage providing for loan advances made after recording of the mortgage,
but only up to a stated total. R.C. SEC. 5301.232(A). An open-end
mortgage must contain the words “open-end mortgage”. Id. Advances
are secured as they are made up [to] [sic] the amount stated. R.C. SEC.
5301.232(B). [Appellant’s] mortgage does not contain the words “open-end
mortgage”. It does not provide a limit of advances. It is not an open-end
mortgage. See Id. It is limited to securing the sum stated, $88,200.00 plus
interest.
{¶9} The trial court adopted the magistrate’s decision and appellant appeals
advancing a sole assignment of error:
The trial court abused its discretion when it made the unreasonable holding
that because [appellant’s] mortgage did not meet the statutory requirements
of an Open-End Mortgage, the negative amortization clauses of the
mortgage would not be enforced.
{¶10} We review a trial court’s adoption of a magistrate’s decision for an abuse
of discretion. Wade v. Wade, 113 Ohio App.3d 414, 419, 680 N.E.2d 1305 (11th
Dist.1996). An abuse of discretion exists when a decision is not merely wrong, but
arbitrary, unreasonable, or unconscionable. Covington v. Saffold, 150 Ohio App.3d 126,
2002-Ohio-6280, 779 N.E.2d 838, ¶ 27 (10th Dist.), citing Franklin Cty. Sheriff’s Dept.
v. State Emp. Relations Bd., 63 Ohio St.3d 498, 506, 589 N.E.2d 24 (1992). However,
insofar as the trial court’s decision involves statutory interpretation, our review of issues
of law is de novo. Miller v. Painters Supply & Equip. Co., 8th Dist. No. 95614,
2011-Ohio-3976, ¶ 10, citing Searles v. Germain Ford of Columbus, L.L.C., 174 Ohio
App.3d 555, 2007-Ohio-7140, 883 N.E.2d 480, ¶ 8 (10th Dist.).
{¶11} In this appeal, we are called upon to decide whether a mortgage with a
negative amortization provision is required to comply with Ohio’s open-end mortgage
statute, R.C. 5301.232.
{¶12} An open-end mortgage is defined as: “a mortgage permitting the
mortgagor to borrow additional money under the same mortgage, with certain conditions,
usually as to the assets of the mortgage.” Lapp v. Anzells, 8th Dist. No. 74487, 1999
Ohio App. LEXIS 3849 (Aug. 19, 1999), citing Black’s Law Dictionary 912 (5th
Ed.Rev.1979).
{¶13} R.C. 5301.232(A) provides that:
A mortgage may secure unpaid balances of loan advances made after the
mortgage is delivered to the recorder for record, to the extent that the total
unpaid loan indebtedness, exclusive of interest thereon, does not exceed the
maximum amount of loan indebtedness which the mortgage states may be
outstanding at any time. With respect to such unpaid balances, division (B)
of this section is applicable if the mortgage states, in substance or effect, that
the parties thereto intend that the mortgage shall secure the same, the
maximum amount of unpaid loan indebtedness, exclusive of interest thereon,
which may be outstanding at any time, and contains at the beginning thereof
the words “OPEN-END MORTGAGE. ”
{¶14} R.C. 5301.232(B) provides that a mortgage complying with division (A) is
a lien on the premises for the full amount of the total unpaid loan indebtedness including
unpaid balances of such advances regardless of the time such advances are made. Only
advances that the holder of the mortgage is not obligated to make are subordinate to a
later lien or encumbrance upon the property. Division (F) states that this section does
not prohibit the use of other types of mortgages permitted by law.
{¶15} In contrast, Black’s Law Dictionary (6th Ed.) defines negative
amortization as occurring,
when monthly payments are not large enough to cover all of the interest cost
of an adjustable rate mortgage. The interest rate that isn’t covered is added
to the loan’s principal, which then could increase to more than the amount
borrowed.
{¶16} Based on the above definitions, we find R.C. 5301.232 inapplicable to
mortgages containing negative amortization provisions. Negative amortization occurs
in situations where the interest payments due are being deferred and collapsed into the
outstanding principal balance. In such a situation, the mortgagor is not borrowing
additional money or receiving a loan advance pursuant to the open-end mortgage under
R.C. 5301.232. As such we find that the magistrate incorrectly applied the analysis
under R.C. 5301.232 to appellant’s negative amortization mortgage.
{¶17} Appellant has failed to demonstrate that it qualifies for protection under
the Ohio Revised Code statutes from which appellant claims it derives the authority to
create a negative amortization loan. Appellant cites R.C. 1161.37 and 1151.295, which
allow a savings bank and a building and loan association to create certain loans that
provide for “periods of negative amortization.”
{¶18} R.C. 1161.01(A)(1) defines a “savings bank” as
a corporation that has its home office located in this state, that is organized
for the purposes of receiving deposits and raising money to be loaned to its
members or to others, and that maintains at least sixty percent of its total
assets in the housing-related and other investments set forth in section
7701(a)(19)(C) of the “Internal Revenue Code of 1986,” 100 Stat. 2085, 26
U.S.C.A. 1, as amended. “Savings bank” does not include banks, savings
and loan associations, or credit unions.
{¶19} Loans under R.C. 1151.295 are to be made by a building and loan
association for the purposes of “property alteration, repair, or improvement, or for the
equipping or furnishing of any residential real property.”
{¶20} Appellant offers no argument and cites no evidence in the record that
indicates that the entity that created the subject promissory note and mortgage,
America’s Wholesale Lender, qualified as either a savings bank or a building and loan
association, or that the loan was made for “property alteration, repair, or improvement, or
for the equipping or furnishing of any residential real property.” Further, appellant
failed to offer any such arguments in its objection to the magistrate’s decision before the
trial court, which is required under Civ.R. 53(D)(3)(b); all grounds for objection must be
specific and stated with particularity. In re Estate of Mason, 184 Ohio App. 3d 544,
2009-Ohio-5494, 921 N.E.2d 705, ¶ 36 (8th Dist.). As such, we find appellant’s
argument for protection under these statutes to be without merit.2
{¶21} Appellant’s sole assignment of error is overruled.
{¶22} The judgment of the trial court is affirmed.
It is ordered that appellees recover from appellant costs herein taxed.
2
Appellant did not argue before the trial court or on appeal that its negative
amortization loan qualified for protection under R.C. 1151.29 or any other provision
of law.
The court finds there were reasonable grounds for this appeal.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
EILEEN A. GALLAGHER, JUDGE
MELODY J. STEWART, P.J., and
FRANK D. CELEBREZZE, JR., J., CONCUR