Deut Sche Bank Trust Co. of Ams. v. Jones , 107 N.E.3d 117 ( 2018 )

[Cite as Deutsche Bank Trust Co. of Ams. v. Jones, 2018-Ohio-587.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 105778
DEUTSCHE BANK TRUST CO. OF AMERICAS
PLAINTIFF-APPELLEE
vs.
DAVID W. JONES, ET AL.
DEFENDANTS-APPELLANTS
JUDGMENT:
AFFIRMED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-16-866003
BEFORE: Blackmon, J., S. Gallagher, P.J., and Celebrezze, J.
RELEASED AND JOURNALIZED: February 15, 2018
-i-
ATTORNEY FOR APPELLANTS
Sam Thomas, III, Esq.
Sam Thomas, III Esq. & Associates
17325 Euclid Avenue, Suite 4083
Euclid, Ohio 44112
ATTORNEYS FOR APPELLEE DEUTSCHE BANK COMPANY AMERICAS, AS
TRUSTEE FOR RESIDENTIAL ACCREDIT LOANS, INC., MORTGAGE
ASSET-BACKED PASS-THROUGH CERTIFICATES, SERIES 2006-QS9
Ted A. Humbert
Charles V. Gasior
Ashley E. Mueller
Jason A. Whitacre
Clunk, Paisley, Hoose Co., L.P.A.
4500 Courthouse Blvd., Suite 400
Stow, Ohio 44224
PATRICIA ANN BLACKMON, J.:
{¶1} Appellants David Jones (“Jones”) and Caroline Jones (collectively referred
to as “the Joneses”) appeal the trial court’s judgment granting foreclosure in favor of
appellee Deutsche Bank Trust Co. of Americas (“Deutsche Bank”). The Joneses assign
the following three errors for our review:
I. The trial court erred to the prejudice of [the Joneses] by granting
[Deutsche Bank’s] motion for summary judgment even though [Deutsche
Bank] failed to prove that it satisfied all conditions precedent mandated by
the National Housing Act of 1934 (912 U.S.C.1701 et seq.) and 42 U.S.C.
II. Reviewing [Deutsche Bank’s] motion for summary judgment de novo,
the record is clear and convincing that the trial court erred to the prejudice
of [the Joneses] by granting [Deutsche Bank’s] motion for summary
judgment.
III. The trial court erred to the prejudice of [the Joneses] by granting
[Deutsche Bank’s] motion for summary judgment based upon the
existence of genuine issues of material fact regarding [Deutsche Bank’s]
failure to provide sufficient evidence of entitlement to foreclosure and/or
damages.
{¶2} Having reviewed the record and relevant law, we affirm the trial court’s
decision. The apposite facts follow.
{¶3} On May 23, 2006, the Joneses purchased a multifamily property located on
Glenmont Road in Cleveland. Jones signed a note payable to First Magnus Financial
Corporation (“First Magnus”) for $150,000. The record indicates that an allonge payable
to the order of Deutsche Bank as Trustee (“Deutsche Bank Trustee”) for Residential
Accredit Loans, Inc. (“RALI”) was attached to the note. The Joneses also executed a
mortgage in favor of Mortgage Electronic Registration Systems, Inc. (“MERS”) acting
solely as nominee for First Magnus. On August 29, 2012, the mortgage was assigned
from First Magnus to Deutsche Bank Trust Co. (“Deutsche Bank Trust”) as trustee for
Residential Accredit Loans, Inc. (“RALI”), and duly recorded. Later, in April 2016, the
mortgage was assigned from Deutsche Bank Trust to Deutsche Bank, and duly recorded.
{¶4} On July 11, 2016, Deutsche Bank filed a complaint for foreclosure and
other equitable relief, alleging that due to nonpayment, the loan balance of $142,475 had
accelerated. Deutsche Bank also alleged that all conditions precedent to seeking
foreclosure were satisfied.
{¶5} On January 30, 2017, Deutsche Bank filed a motion for summary judgment,
supported by the copies of the mortgage, note endorsements and assignments, and an
affidavit from Deutsche Bank Trust’s loan service officer, Jesse Rosenthal (“Rosenthal”).
Rosenthal averred that the last payment on the loan was received in 2012, and the
balance of $142,475 was now due. In opposition, the Joneses argued that Deutsche Bank
failed to comply with conditions precedent to seeking foreclosure under regulations
promulgated by the United States Department of Housing and Urban Development
(“HUD”). The Joneses also alleged that Deutsche Bank lacked standing to enforce the
note and mortgage, and that there was insufficient evidence demonstrating nonpayment.
{¶6} On March 23, 2017, the magistrate issued a decision granting Deutsche
Bank summary judgment. No objections were filed, and on April 14, 2017, the trial
court adopted the magistrate’s decision.
Conditions Precedent
{¶7} In the first assigned error, the Joneses argue that Deutsche Bank did not
satisfy conditions precedent to filing its foreclosure action because it failed to conduct a
face-to-face meeting with them as required under HUD regulations, set forth in 24 C.F.R.
203.604(b).
{¶8} Loans governed by or incorporating HUD regulations must comply with 24
C.F.R. 203.604(b). Fed. Natl. Mtge. Assn. v. Herren, 8th Dist. Cuyahoga No. 105088,
2017-Ohio-8401, ¶ 39; Bank of Am. v. Allen, 8th Dist. Cuyahoga No. 105473,
2017-Ohio-7726, ¶ 19. In relevant part, these regulations state:
The mortgagee must have a face-to-face interview with the mortgagor, or
make a reasonable effort to arrange such a meeting, before three full
monthly installments due on the mortgage are unpaid. If default occurs in
a repayment plan arranged other than during a personal interview, the
mortgagee must have a face-to-face meeting with the mortgagor, or make a
reasonable attempt to arrange such a meeting within 30 days after such
default and at least 30 days before foreclosure is commenced[.]
{¶9} The Joneses argue that because their mortgage document states, “Fannie
Mae/Freddie Mac UNIFORM INSTRUMENT WITH MERS,” the HUD regulations
were incorporated into the terms of the mortgage. However, the documents do not
specifically incorporate the HUD regulations or otherwise reference any regulations
promulgated by the Secretary of Housing and Urban Development. Moreover, the
mortgage also contains designated “NON-UNIFORM COVENANTS” that advise the
Borrower that in the event of a default, he shall have 30 days to cure the default, and the
failure to cure within that time period may result in acceleration of all sums due and
foreclosure. These non-uniform covenants do not require a face-to-face meeting or
otherwise incorporate the requirements of the HUD regulations. Therefore, the record
does not demonstrate that the loan was governed by HUD. As this court explained in
Herren:
The Herrens’ loan was not a loan governed by federal regulations
promulgated by the Department of Housing and Urban Development for
Federal Housing Authority insured loans that the Herrens cite to in support.
Further, an in-person interview is not required under the terms of the note.
Therefore, any impact of the loan servicer or Fannie Mae’s failure to live up
to its own internal rules does not impact its right to foreclose. The
relationship of the parties is governed by the note in this case, which does
not require satisfaction of any of the provisions on which the Herrens rely.
{¶10} In short, the Joneses have not demonstrated that the HUD regulations have
been incorporated into their note or mortgage. BAC Home Loans Serv., LP v. Taylor, 9th
Dist. Summit No. 26423, 2013-Ohio-355 (note incorporated regulations of the Secretary
of Housing and Urban Development). Accordingly, this assigned error is without merit.
Entitlement to Foreclosure
{¶11} In the second and third assigned errors, the Joneses argued that the
affidavit of Deutsche Bank’s loan servicing officer was insufficient to demonstrate that
Deutsche Bank was entitled to foreclosure and damages as set forth in its motion for
summary judgment. The Joneses complained that the officer was without personal
knowledge and relied upon hearsay.
{¶12} Appellate review of granting summary judgment is de novo. Pursuant to
Civ.R. 56(C), the party seeking summary judgment must prove that (1) there is no
genuine issue of material fact; (2) they are entitled to judgment as a matter of law; and (3)
reasonable minds can come to but one conclusion and that conclusion is adverse to the
nonmoving party.
{¶13} To support summary judgment motions, “sworn or certified” documents
may be submitted, accompanied by an affidavit, which “shall be made on personal
knowledge, shall set forth facts as would be admissible in evidence, and shall show
affirmatively that the affiant is competent to testify to the matters stated in the affidavit.”
Civ.R. 56(E).
{¶14} Once the movant satisfies this burden, the opposing party “may not rest
upon the mere allegations or denials of the party’s pleadings, but the party’s response, by
affidavit or as otherwise provided in this rule, must set forth specific facts showing that
there is a genuine issue for trial.” Id.{¶15} In order to prevail on a motion for summary judgment in a foreclosure
action, the plaintiff must prove:
(1) that the plaintiff is the holder of the note and mortgage, or is a party
entitled to enforce the instrument; (2) if the plaintiff is not the original
mortgagee, the chain of assignments and transfers; (3) that the mortgagor is
in default; (4) that all conditions precedent have been met; and (5) the
amount of principal and interest due.
Deutsche Bank Natl. Trust Co. v. Najar, 8th Dist. Cuyahoga No. 98502, 2013-Ohio-1657,
¶ 17.
{¶16} In Najar, this court explained:
Unless controverted by other evidence, a specific averment that an affidavit
pertaining to business is made upon personal knowledge of the affiant
satisfies the Civ.R. 56(E) requirement that affidavits both in support or in
opposition to motions for summary judgment show that the affiant is
competent to testify to the matters stated.
Id. at ¶ 20, quoting Bank One, N.A. v. Swartz, 9th Dist. Lorain No. 03CA008308,
2004-Ohio-1986, ¶ 14.
{¶17} An affiant testifying as to mortgage payment records must have personal
knowledge of the record-keeping system in which the documents were maintained. See
Bank of New York Mellon v. Roulston, 8th Dist. Cuyahoga No. 104908, 2017-Ohio-8400,
¶ 16. The witness must show that he or she is sufficiently familiar with the operation of
the business and with the circumstances of the preparation, maintenance, and retrieval of
the record in order to reasonably testify on the basis of this knowledge that the record is
what it purports to be, and was made in the ordinary course of business. Id. at ¶ 17.
Personal knowledge can be shown where the affiant’s job responsibilities provide
personal knowledge of the record-keeping practices of the bank and the loan and payment
history of the borrower. Bank of Am., N.A. v. Calloway, 2016-Ohio-7959, 74 N.E.3d
843, ¶ 20 (8th Dist.); Wilmington Trust N.A. v. Boydston, 8th Dist. Cuyahoga No. 105009,
2017-Ohio-5816, ¶ 14 (personal knowledge can be reasonably inferred based on the
affiant’s position and other facts contained in the affidavit).
{¶18} This court has held that business records are admissible even though the
bank’s affiant reviewed but did not create the records showing default. RBS Citizens,
N.A. v. Zigdon, 8th Dist. Cuyahoga No. 93945, 2010-Ohio-3511. Accord Najar
(servicer of borrower’s loan competent to testify regarding the content of documents in
borrower’s loan file with which he was personally familiar).
{¶19} In rejecting the claim that the affiant was simply testifying based upon her
review of hearsay business records, this court in Boyston concluded that the documents
the affiant had reviewed and attached to his affidavit (the note, mortgage, mortgage
assignments, the payment history for the loan, and the bank’s letter advising the defendant
of the loan default), were either not hearsay or were excepted from the hearsay rule of
inadmissibility. This court explained:
[T]he Mortgage, the Mortgage Assignments, and the statements contained
therein are excepted from the hearsay rule under Evid.R. 803(14) and (15)
as records of documents affecting an interest in property and statements in
documents affecting an interest in property.
***
Vieau testified that as part of her job duties, she was familiar with the
records relating to Boydston’s loan, the records were made at or near the
time of the event described in the record by a person with knowledge, the
records were made and kept in the ordinary course of Nationstar’s regularly
conducted business activity, and she had personally reviewed them. She
also authenticated the documents.
Id. at ¶ 16, 20, quoting Wells Fargo Bank Natl. Assn. v. Maxfield, 12th Dist. Butler No.
CA2016-05-089, 2016-Ohio-8102. See also Nationstar Mtge., L.L.C. v. Wagener, 8th
Dist. Cuyahoga No. 101280, 2015-Ohio-1289, ¶ 26.
{¶20} In this matter, loan servicing officer Rosenthal averred that he has personal
knowledge of the facts and matters set forth in the affidavit offered in support of
Deutsche Bank’s motion for summary judgment. He averred that in the regular
performance of his job functions, he reviews business records related to the servicing of
the mortgage loan at issue, and that these records are maintained in the regular course of
business. Rosenthal authenticated the note, mortgage, and assignments, attesting that
they are true and accurate. He also authenticated attached payment records detailing all
payments and demonstrating that the Joneses’ last payment was applied to the May 2012
installment of the mortgage. Rosenthal averred that the Joneses were advised in August
2012 that the loan was in default, accelerating the unpaid balance of $142,475. This
sufficiently demonstrated his personal knowledge of the relevant business records,
including the note, mortgage, mortgage assignments, and the payment history for the
loan. Rosenthal was competent to testify to the occurrence of default, acceleration of
the note, and damages. Moreover, in their brief in opposition, the Joneses did not present
any evidence demonstrating payment, miscalculation, or other lack of default or right to
accelerate.
{¶21} In accordance with the foregoing, the Joneses’ assigned errors challenging
Deutsche Bank’s evidence in support of its motion for summary judgment are without
merit.
Standing
{¶22} The Joneses also argue that Deutsche Bank lacks standing to file for
foreclosure. They complain that the allonge to the note is undated and was not properly
affixed.
{¶23} A party commencing litigation must have standing to sue in order to
invoke the jurisdiction of the common pleas court. Fed. Home Loan Mtge. Corp. v.
Schwartzwald, 134 Ohio St.3d 13, 2012-Ohio-5017, 979 N.E.2d 1214, ¶ 38. At
the time of commencement of the suit, a plaintiff must have “a personal stake in the
outcome of the controversy and have suffered some concrete injury that is capable of
resolution by the court.” U.S. Bank, N.A. v. Matthews, 8th Dist. Cuyahoga No. 105011,
2017-Ohio-4075, ¶ 28, quoting Bank of Am., N.A. v. Adams, 8th Dist. Cuyahoga No.
101056, 2015-Ohio-675, ¶ 7.
{¶24} As explained in Herren,
Under Ohio’s version of the Uniform Commercial Code (“UCC”), one
entitled to enforce an instrument is any of the following:
(1) The holder of the instrument;
(2) A nonholder in possession of the instrument who has the
rights of a holder;
(3) A person not in possession of the instrument who is entitled to enforce
the instrument pursuant to Section 1303.38 [dealing with lost or destroyed
instruments] or division (D) of section 1303.58 of the Revised Code
[dealing with mistaken payments].
R.C. 1303.31(A). A party can become the holder of a negotiable
instrument by specific endorsement to an identified payee or by holding the
negotiable instrument while it is indorsed in blank. R.C. 1303.25(A)-(B).
{¶25} Deutsche Bank asserted that it was a holder of the note signed by the
Joneses through negotiation. “Negotiation” means “a voluntary or involuntary transfer of
possession of an instrument by a person other than the issuer to a person who by the
transfer becomes the holder of the instrument.” Herren, citing R.C. 1303.21(A). If “an
instrument is payable to an identified person, negotiation requires transfer of possession
of the instrument and its indorsement of the note by the holder.” Id. When an
instrument is negotiated, the transferee becomes a holder with the right to enforce the
instrument. R.C. l303.31(A)(1).
{¶26} “An allonge is defined as ‘[a] slip of paper sometimes attached to a
negotiable instrument for the purpose of receiving further indorsements when the original
paper is filled with indorsements.’” HSBC Bank USA v. Thompson, 2d Dist.
Montgomery No. 23761, 2010-Ohio-4158, ¶ 56, citing Chase Home Fin., L.L.C. v.
Fequiere, 119 Conn.App. 570, 577, 989 A.2d 606 (2010), fn. 7; Wells Fargo Bank, N.A.
v. Byers, 10th Dist. Franklin No. 13AP-767, 2014-Ohio-3303. The Thompson court
discussed the meaning of attachment of an allonge to a note and discussed various
caselaw finding the stapling of the allonge to the note to be sufficient.
{¶27} Moreover, there is no requirement that indorsements on a negotiable
instrument be dated. Byers at ¶ 21, citing Wells Fargo Bank, N.A. v. Roehrenbeck, 5th
Dist. Licking No. 13 CA 29, 2013-Ohio-5498, ¶ 15.
{¶28} In this matter, the complaint demonstrated that the Joneses signed a note
payable to First Magnus and an allonge payable to the order of Deutsche Bank as
Trustee for RALI was also attached to the note. The Joneses also executed a mortgage in
favor of MERS as nominee for First Magnus. The mortgage was assigned from First
Magnus to Deutsche Bank Trust as trustee for RALI, and duly recorded. The mortgage
was later assigned from Deutsche Bank Trust to Deutsche Bank. Deutsche Bank is also
in possession of the mortgage and note. From the foregoing, the trial court could
properly conclude that Deutsche Bank had standing in this matter. See Deutsche Bank
Natl. Trust Co. v. Ingle, 8th Dist. Cuyahoga No. 92487, 2009-Ohio-3886, ¶ 18 (affidavit
of the bank’s loan servicing agent, along with other supporting documents, including
allonge of note, sufficient to show the bank was the real party in interest). Deutsche Bank
Natl. Trust Co. v. Sexton, 12th Dist. Butler No. CA2009-11-288, 2010-Ohio-4802, ¶ 13
(Deutsche Bank had standing where its assignments and allonge indicating that the note
was payable to the order of Deutsche Bank). See also U.S. Bank Assn. v. Stallman, 8th
Dist. Cuyahoga No. 102732, 2016-Ohio-22, ¶ 20-22.
{¶29} The Joneses also argued below that Deutsche Bank lacked standing due to
various claimed defects in the endorsements involving MERS, First Magnus, and
Deutsche Bank Trust.
{¶30} In Bank of New York Mellon Trust Co. v. Unger, 8th Dist. Cuyahoga No.
97315, 2012-Ohio-1950, we held that a borrower does not have standing to challenge the
validity of an assignment of the mortgage because the borrower is not a party to the
assignment. Id. at ¶ 35. The reason for this conclusion is that the assignment does not
alter the borrower’s obligations under the note or mortgage. Id. See also Nationstar
Mtge. L.L.C. v. Dimasi, 8th Dist. Cuyahoga No. 102985, 2016-Ohio-3057, ¶ 16;
Macintosh Farms Community Assn. v. Baker, 8th Dist. Cuyahoga No. 102820,
2015-Ohio-5263.
{¶31} Like in Unger, the Joneses were not a party to the assignment of the
mortgage; therefore, they lack standing to challenge its validity. The assignment does
not alter their responsibilities and obligations under the note or mortgage. The default
exposed them to the foreclosure action regardless of the identity of the plaintiff who may
prosecute such action. Moreover, because Deutsche Bank has possession of the note, it
has standing to bring the foreclosure action. Citimortgage Corp. v. Patterson, 8th Dist.
Cuyahoga No. 98360, 2012-Ohio-5894, ¶ 21. Moreover, other courts have rejected
challenges to MERS, as well as to the pooling and servicing and placements in trust as
raised herein. See Bank of New York Mellon v. Antes, 11th Dist. Trumbull No.
2014-T-0028, 2014-Ohio-5474; Deutsche Bank v. Traxler, 9th Dist. Lorain No.
09CA0009739, 2010-Ohio-3940; U.S. Bank Natl. Assn. v. Perdeau, 6th Dist. Lucas No.
L-13-1226, 2014-Ohio-5818. Accordingly, this assigned error lacks merit.
{¶32} Judgment affirmed.
It is ordered that appellee recover from appellants costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to the Cuyahoga County Common Pleas
Court to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of
the Rules of Appellate Procedure.
PATRICIA ANN BLACKMON, JUDGE
SEAN C. GALLAGHER, P.J., and
FRANK D. CELEBREZZE, JR., J., CONCUR