Bank of Am., N.A. v. Farris , 2015 Ohio 4980 ( 2015 )

[Cite as Bank of Am., N.A. v. Farris, 2015-Ohio-4980.]
Court of Appeals of Ohio
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION
No. 102256
BANK OF AMERICA, NA
PLAINTIFF-APPELLEE
vs.
LOUIS N. FARRIS, SR., ET AL.
DEFENDANTS-APPELLANTS
JUDGMENT:
AFFIRMED
Civil Appeal from the
Cuyahoga County Court of Common Pleas
Case No. CV-12-783480
BEFORE: Blackmon, J., E.T. Gallagher, P.J., and S. Gallagher, J.
RELEASED AND JOURNALIZED: December 3, 2015
ATTORNEYS FOR APPELLANTS
Marc E. Dann
Paul B. Bellamy
Grace Mary Doberdruk
James R. Douglass
Daniel M. Solar
The Dann Law Firm Co., L.P.A.
P.O. Box 6031040
Cleveland, Ohio 44103
ATTORNEYS FOR APPELLEE
For Bank of America
Kathleen A. Nitschke
Sikora Law L.L.C.
8532 Mentor Avenue
Mentor, Ohio 44060
Christopher G. Phillips
Wiles, Boyle, Burkholder & Bringardner Co.
300 Spruce Street, Floor One
Columbus, Ohio 43215
Edward A. Proctor
Lauren C. Tompkins
Giffen & Kaminski, L.L.C.
1300 East Ninth Street, Suite 1600
Cleveland, Ohio 44114
For National City Bank
National City Bank
One PNC Plaza
249 E. 5th Avenue
Pittsburgh, Ohio 15222
-ii-
For the Ohio Department of Taxation
Mike DeWine
Ohio Attorney General
By: Nicole R. Randall
Assistant Attorney General
150 East Gay Street, 21st Floor
Columbus, Ohio 43215
PATRICIA ANN BLACKMON, J.:
{¶1} Appellants Louis N. Farris, Sr., Corrine R. Farris, Louis N. Farris, Jr.,
Surinda V. Farris, and James Anter (hereinafter referred to collectively as “the Farrises”)
appeal the trial court’s order granting summary judgment in favor of appellee Bank of
America (“BOA”) regarding the foreclosure of their property and assign the following
errors for our review:
I. It was reversible error for the trial court to grant Bank of America
summary judgment when there were multiple substantial and contradictory
questions of fact created by Bank of America’s own evidence, concerning
its ownership of the Farris loan and its standing to bring this action against
the defendants.
II. It was reversible error for the trial court to grant Bank of America
summary judgment when the bank’s own evidence demonstrated that Bank
of America did not own the defendants’ loan because the indorsed-in-blank
note supporting the mortgage was never possessed by Bank of America, and
therefore never transferred to Bank of America and therefore never owned
by Bank of America. Negotiating a bearer instrument by possession is a
function that R.C. 1303.22 explicitly prohibits from being delegated to or
accomplished by agents.
III. It was reversible error for the trial court to grant Bank of America
summary judgment when Bank of America was not the original mortgagee,
and failed to prove the chain of assignments and transfers that would assure
defendant-appellants they would not be held liable by another party seeking
to enforce the same note and mortgage.
{¶2} After reviewing the record and relevant law, we affirm the trial court’s
decision. The apposite facts follow.
{¶3} On October 15, 1985, the Farrises purchased the property located at 6644
Kingscote Park, Independence, Ohio, which includes the following parcels of land:
563-25-25, 563-25-26, 563-25-27. On December 14, 2005, Louis Farris, Sr. and Corrine
Farris borrowed $1,495,000 from Washington Mutual Bank (“WaMu”) evidenced by a
promissory note and secured by a mortgage on the Kingcote property. The note was
indorsed in blank. On December 19, 2005, the mortgage was recorded in favor of WaMu
with the Cuyahoga County Recorder’s Office. JP Morgan Chase Bank, N.A. (“Chase”)
was, and currently continues to be, the servicer for the Farris loan.
{¶4} In September 2008, WaMu ceased operations, and its assets were seized
and placed into a receivership of the Federal Deposit Insurance Corporation (“FDIC”).
The FDIC subsequently sold WaMu’s accounts to Chase. On March 1, 2011, the
Farrises defaulted on the terms of the note and mortgage.
{¶5} On March 29, 2012, Chase assigned the mortgage to BOA, and on April 9,
2012, an assignment to BOA was recorded with the Cuyahoga County Recorder’s Office
by Chase. Chase, however, remains the servicer of the loan on behalf of BOA.
{¶6} On May 25, 2012, BOA filed a complaint for foreclosure against the
Farrises. BOA maintained that it was the holder of the note and was entitled to enforce
the note in accordance with R.C. 1303.22, 1303.25, and 1303.01. BOA also asserted that
it was the first and best lien against the property. Attached to the complaint was a copy
of the note indorsed in blank and the mortgage.
{¶7} The Farrises filed a motion to dismiss arguing that BOA had failed to prove
it had standing to file the foreclosure action. The trial court denied the motion to
dismiss; subsequently, the Farrises filed an answer along with counterclaims for violation
of the Fair Debt Collection Practices Act, invasion of privacy, violation of the Ohio
Consumer Sales Practices Act, and fraud.1 On October 15, 2013, BOA filed a motion to
dismiss the counterclaims, which was granted as to the Farrises’ claim for invasion of
privacy.
{¶8} On February 14, 2014, BOA filed a motion for summary judgment on its
foreclosure claim and the remaining cross-claims. In support of its motion, BOA
submitted, along with the relevant documents, the affidavit of Samuel B. Muller, a vice
president of JPMorgan Chase. Muller averred that Chase was a servicer and agent for
BOA regarding a note executed by Louis N. Farris, Sr. and Corrine R. Farris, and secured
by a mortgage on the Kingscote Park property. Muller alleged that the note and mortgage
were in default. Within the affidavit, Muller averred that he made the affidavit based on
his review of Chase’s business records.
{¶9} BOA also attached the affidavit of Jennifer Sanclemente, an assistant
secretary of Chase. Sanclemente averred that she reviewed copies of the original note
and mortgage and that Chase, as servicer for BOA, has been in the possession of the
original note and mortgage since July 18, 2009. She averred that the mortgage was
assigned to BOA on March 29, 2012. She also averred that the original note, mortgage,
and assignment were in the possession of counsel for BOA.
{¶10} On March 20, 2014, the Farrises filed a motion in opposition and a
cross-motion for summary judgment and argued that BOA lacked standing to file the
1
The Farrises do not appeal the trial court’s grant of summary judgment in
BOA’s favor regarding the counterclaims.
complaint. In response, BOA attached a supplemental affidavit by Clemente to its
motion in opposition to the Farrises’ motion. Clemente added that prior to the filing of
the complaint, BOA was, and currently is, the owner of the note and mortgage and that
the acceleration of payment warning letters sent on March 31, 2011 and March 29, 2012,
were sent by Chase on behalf of BOA.
{¶11} In a seven-page opinion, the trial court granted summary judgment in favor
of BOA on the foreclosure action and the Farrises’ remaining counterclaims. As to the
foreclosure action, the trial court specifically held:
The Sanclemente Affidavits and the Mueller Affidavit conclusively
establish that BOA: 1) had standing to bring this action; 2) that it was and is
currently the holder of the Note and Mortgage at the time of the filing of the
complaint; 3) that the conditions precedents have been met and; 4) that
Farris is in default and has failed to cure that default. Conversely, Farris
failed to submit any competent evidence to refute BOA’s evidence.
***
The court finds that said Mortgage was assigned from JPMorgan Chase
Bank National Association Successor in Interest by Purchase from the
FDIC as Receiver of Washington Mutual Bank F/K/A Washington Mutual
Bank FA to BOA by Assignment of Mortgage and that BOA is the party
entitled to enforce the Note and Mortgage. That said conditions in the
Note and Mortgage have been broken, and the same has become absolute,
and BOA is entitled to have the equity of redemption in and to the said
premises foreclosed. Therefore, the court finds that BOA is entitled to
judgment and decree in foreclosure.
Journal Entry, Nov. 4, 2014, at 3.
Standard of Review
{¶12} We review an appeal from summary judgment under a de novo standard of
review. Baiko v. Mays, 140 Ohio App.3d 1, 746 N.E.2d 618 (8th Dist.2000), citing
Smiddy v. The Wedding Party, Inc., 30 Ohio St.3d 35, 506 N.E.2d 212 (1987); N.E. Ohio
Apt. Assn. v. Cuyahoga Cty. Bd. of Commrs., 121 Ohio App.3d 188, 699 N.E.2d 534 (8th
Dist.1997). Accordingly, we afford no deference to the trial court’s decision and
independently review the record to determine whether summary judgment is appropriate.
{¶13} Under Civ.R. 56, summary judgment is appropriate when: (1) no genuine
issue as to any material fact exists, (2) the party moving for summary judgment is entitled
to judgment as a matter of law, and (3) viewing the evidence most strongly in favor of the
nonmoving party, reasonable minds can reach only one conclusion that is adverse to the
nonmoving party.
{¶14} To properly support a motion for summary judgment in a foreclosure action,
a plaintiff must present “evidentiary-quality materials” establishing: (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. HSBC Bank USA, N.A. v. Surrarrer, 8th Dist.
Cuyahoga No. 100039, 2013-Ohio-5594, ¶ 16, citing U.S. Bank, N.A. v. Adams, 6th Dist.
Erie No. E-11-070, 2012-Ohio-6253, ¶ 10.
Inconsistent Affidavits
{¶15} In their first assigned error, the Farrises argue that the trial court erred by
granting BOA’s motion for summary judgment because Clemente’s affidavits create
conflicting evidence regarding whether Chase ever owned the Farrises’s loan in spite of
being in possession of the note and mortgage.
{¶16} The Farrises contend that in her first affidavit, Sanclemente averred that
Chase acquired certain assets and liabilities of WaMu from the FDIC, including the
Farrises’ “note and mortgage.” The Farrises contend that in Sanclemente’s supplemental
affidavit, she stated that Chase purchased the mortgage “servicing rights” from the FDIC
and does not mention the note and mortgage as she did in the first affidavit.2 Thus, the
Farrises’ contend that because Chase did not actually own the note and mortgage it could
not assign its interest to BOA.
{¶17} Our review of the affidavits shows that the affidavits did not create
conflicting evidence whether BOA was the “holder” of the note at the time the
foreclosure complaint was filed. Because the note was indorsed in blank, “ownership”
We note that BOA, pursuant to Civ.R. 56(E), was permitted to file a
2
supplemental affidavit because it was filed in response to the Farrises’ cross-motion
for summary judgment. This was not a case where the movant filed an additional
supplemental affidavit in response to a reply brief by the nonmovant.
becomes irrelevant. When an instrument is indorsed in blank, the instrument becomes
payable to the bearer and may be negotiated by transfer of possession alone until
specifically indorsed. R.C. 1303.25(B). The law in Ohio is that the physical transfer of
a note indorsed 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.” Deutsche Bank Natl. Trust Co. v. Najar, 8th Dist. Cuyahoga No.
98502, 2013-Ohio-1657, ¶ 65. Both of Clemente’s affidavits established that the original
note was never out of BOA’s constructive or legal possession. Accordingly, the
Farrises’ first assigned error is overruled.
Standing
{¶18} In the second assigned error, the Farrises argue that the trial court should
have dismissed the action because since there is was no evidence that BOA had actual
possession of the note, BOA did not have standing.
{¶19} In order to commence an action, a party must have standing, which requires
“some real interest in the subject matter of the action.” Surrarrer, 8th Dist. Cuyahoga
No. 100039, 2013-Ohio-5594 at ¶ 8, citing State ex rel. Dallman v. Franklin Cty. Court of
Common Pleas, 35 Ohio St.2d 176, 179, 298 N.E.2d 515 (1973). Civ.R. 17(A) provides
that a complaint be brought in the name of the real party in interest. Whether standing
has affirmatively been established is a question of law subject to our de novo review.
Surrarrer at ¶ 8, citing Deutsche Bank Natl. Trust Co. v. Rudolph, 8th Dist. Cuyahoga
No. 98383, 2012-Ohio-6141, ¶ 16.
{¶20} A party may establish its interest in the suit, and thus have standing, when,
at the time it files its complaint of foreclosure, it either (1) has had a mortgage assigned or
(2) is the holder of the note. CitiMortgage, Inc. v. Patterson, 8th Dist. Cuyahoga No.
98360, 2012-Ohio-5894, ¶ 21, citing Fed. Home Loan Mtge. Corp. v. Schwartzwald, 134
Ohio St.3d 13, 2012-Ohio-5017, 979 N.E.2d 1214.
{¶21} There are two ways that a party can become the holder of a negotiable
instrument. R.C. 1303.25. One way is by specific endorsement to an identified payee.
R.C. 1303.25(A). The other way is by holding the negotiable instrument while it is
indorsed in blank. R.C. 1303.25(B). Thus, pursuant to R.C. 1303.25(B), when the note
is indorsed in blank, like the instant case, the instrument becomes payable to the bearer
and may be negotiated by transfer and possession alone. Third Fed. S & L Assn. of
Cleveland v. Reids, 8th Dist. Cuyahoga No. 99650, 2013-Ohio-4602.
{¶22} It is undisputed that Chase, who services the loan on behalf of BOA, had
physical possession of the note and mortgage, which it later gave to BOA’s counsel for
purposes of the foreclosure action. Ohio courts have held that a bank has standing to
bring an action in foreclosure when the servicer, on behalf of the bank, is in physical
possession of the note and mortgage. See Wells Fargo Bank, N.A. v. Odita, 10th Dist.
Franklin No. 13AP-663, 2014-Ohio-2540; Freedom Mtge. Corp. v. Vitale, 5th Dist.
Tuscarawas No. 2013 AP 08 0037, 2014-Ohio-1549; U.S. Bank, N.A. v. Gray, 10th Dist.
Franklin No. 12AP953, 2013-Ohio-3340, ¶ 25-30; U.S. Bank, N.A. v. Zokle, 6th Dist. Erie
No. E-13-033, 2014-Ohio-636. In such situations, the bank has constructive possession
of the note and mortgage.
{¶23} We further find that even if BOA was not in possession of the note at the
time the complaint was filed, the assignment of the mortgage is sufficient to transfer both
the note and the mortgage. As we stated above, attached to the complaint and BOA’s
motion for summary judgment is a copy of the assignment of the mortgage from Chase to
BOA; therefore, there is no question that BOA has been assigned the mortgage. In
Bank of Am. v. Adams, 8th Dist. Cuyahoga No. 101056, 2015-Ohio-675, we held:
[I]n most cases the mortgage follows the note. Section 5.4(b) of
Restatement of Law 3d, Property and Mortgages (1997) 380, states that the
assignment of a mortgage, in conjunction with interlocking references in the
mortgage and the note, transfers the note as well as well as the mortgage.
See also Bank of N.Y. v. Dobbs, 5th Dist. Knox No. 2009-CA-002,
2009-Ohio-4742, ¶ 17-41, appeal not allowed, 124 Ohio St.3d 1444,
2010-Ohio-188, 920 N.E.2d 374 (holding that the assignment of the
mortgage, without the express transfer of the note, is sufficient to transfer
both the note and mortgage if the record indicates that the parties intended
to transfer both the note and mortgage).
Id. at ¶ 11.
{¶24} In the instant case, the note is secured by the mortgage. The note dated
December 14, 2005 provides, “in return for a loan that I have received, I promise to pay
U.S. $1,495,000 plus interest, to the order of Lender.” Further, the note on page four
states, “In addition to the protection given to the Note Holder under this Note, a
Mortgage, Deed of Trust, or Security Deed (the ‘Security Instrument’) dated the same
date as this Note, protects the Note Holder from possible losses that might result if I do
not keep the promises that I make in this Note.” The Security Instrument contained a
mortgage, signed on December 14, 2005, and provides on page two, “This Security
Instrument secures to Lender: (i) the repayment of the Loan, and all renewals, extensions,
and modifications of the Note; and (ii) the performance of Borrower’s covenants and
agreements under this Security Instrument and the Note.”
{¶25} Thus, the note refers to the mortgage and the mortgage refers to the note.
We find a clear intent by the parties to keep the note and mortgage together rather than
transferring the mortgage alone. Since the mortgage assignment was recorded on March
29, 2012, prior to the filing of the complaint on May 25, 2012, the note was effectively
transferred on that date. Thus, the fact that BOA was assigned the mortgage gives it
standing to enforce the note. Accordingly, there are no genuine issues of material fact as
to whether BOA is the real party in interest with standing to pursue this foreclosure
action. The Farrises’ second assigned error is overruled.
Chain of Title
{¶26} In the third assigned error, the Farrises argues that because BOA was not the
original mortgagee, it had to establish chain of title regarding how it became owner of the
note and mortgage, and, that it failed to do so.
{¶27} As we stated above, BOA is the holder of the note, which was indorsed in
blank. Therefore, because the note was indorsed in blank, defenses relating to chain of
title are null and inapplicable, because it is immaterial how the person became the holder
of the note. Bank of N.Y. Mellon v. Froimson, 8th Dist. Cuyahoga No. 99443,
2013-Ohio-5574.
{¶28} As we also held above, BOA has provided evidence that it received the
mortgage through an assignment by Chase several months prior to the filing to the
foreclosure complaint. The Farrises contend there are problems with the validity of the
assignment because there is no evidence how Chase received the Farrises’ mortgage from
WaMu because a schedule of the assets that Chase received from the FDIC was not
presented. However, the Farrises have no standing to contest the assignment of the
mortgage between Chase and BOA. Everbank v. Katz, 8th Dist. Cuyahoga No. 100603,
2014-Ohio-4080, ¶ 8, citing Froimson and Bank of N.Y. Mellon Trust Co. v. Unger, 8th
Dist. Cuyahoga No. 97315, 2012-Ohio-1950, ¶ 35. Accordingly, the Farrises’ third
assigned error is overruled.
{¶29} Judgment affirmed.
It is ordered that appellee recover from appellants its 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 Court of
Common Pleas 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
EILEEN T. GALLAGHER, P.J., and
SEAN C. GALLAGHER, J., CONCUR