Fed. Home Loan Mtge. Corp. v. Koch

[Cite as Fed. Home Loan Mtge. Corp. v. Koch, 2013-Ohio-4423.]
IN THE COURT OF APPEALS
ELEVENTH APPELLATE DISTRICT
GEAUGA COUNTY, OHIO
FEDERAL HOME LOAN : OPINION
MORTGAGE CORPORATION,
Plaintiff-Appellee, :
CASE NO. 2012-G-3084
- vs - :
PAUL E. KOCH, et al., :
Defendants-Appellants. :
Civil Appeal from the Geauga County Court of Common Pleas, Case No. 11F000182.
Judgment: Affirmed.
Kriss D. Felty, Antonio J. Scarlato, and David M. Gaunter, Felty & Lembright Co.,
L.P.A., 1500 West Third Street, Suite 400, Cleveland, OH 44113 (For Plaintiff-
Appellee).
David N. Patterson, 33579 Euclid Avenue, Willoughby, OH 44094-3199 (For
Defendants-Appellants).
THOMAS R. WRIGHT, J.
{¶1} This appeal is from a final order in a foreclosure action before the Geauga
County Court of Common Pleas. Appellants, Paul E. Koch and Andrew E. Koch,
contest the trial court’s decision denying their Civ.R. 60(B) motion for relief from a prior
default judgment. Specifically, they submit that the default judgment should have been
set aside because they were not afforded a full opportunity to be heard on the
substance of the underlying complaint.
{¶2} The foreclosure case pertained to real property located at 10080 Bell
Road in Newbury, Ohio. In February 2011, appellee, Federal Home Loan Mortgage
Corporation, initiated a foreclosure action regarding the property, naming appellants and
other members of the Koch family as defendants. In its complaint, appellee alleged that
it was the present holder of the original promissory note and mortgage executed by
appellants. The complaint further alleged that appellants were in default on the note,
and that the sum of $107,384.95 was owed pursuant to the note’s acceleration clause.
{¶3} A copy of the promissory note between appellants and the original lender,
Park View Federal Savings Bank, was not attached to the complaint. However,
appellee did attach a copy of the mortgage that appellants executed in conjunction with
the promissory note in December 2001. Also accompanying the complaint as Exhibit C
was a document entitled “Assignment of Mortgage,” in which Park View Federal sold,
assigned, and transferred, for valuable consideration, the “Koch” mortgage to appellee.
The assignment document was executed by an executive vice president of Park View
Federal, and was dated October 8, 2010. In addition, attached to the document was the
affidavit of a notary public, stating that the executive vice president appeared before the
notary and acknowledged that he signed the assignment of the mortgage on behalf of
Park View Federal.
{¶4} Copies of appellee’s complaint were sent by certified mail to appellants at
three different addresses. Within approximately 40 days, service of the complaint was
perfected. However, instead of submitting an answer, appellants filed a written request
that the case be referred to arbitration. The trial court granted the request, and the first
mediation session was scheduled for late May 2011. As part of its mediation order, the
court stayed all further proceedings in the case.
{¶5} After the first mediation session, a second session was scheduled for late
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July 2011. In his written status report issued after the second session, the mediator
indicated that, even though the parties engaged in mediation during the first session, no
settlement was reached. In light of the status report, the trial court issued a new order
lifting the stay and the case was returned to the court’s active docket. The new order
also stated that any party who had not filed a required response to a pleading or motion
would be given 30 days in which to comply.
{¶6} Notwithstanding the specific reference in the trial court’s order concerning
the need for a responsive pleading, appellants never filed an answer to the foreclosure
complaint. In September 2011, appellee moved for default judgment against appellants
on the entire complaint. Attached to appellee’s motion was a proof of service stating
that a copy of the motion had been mailed to each appellant.
{¶7} Fifteen days after the filing the default motion, the trial court issued an
order scheduling the motion for an oral hearing on November 30, 2011. At the bottom
of the one-page entry was language requiring the clerk of courts to mail copies of the
scheduling order to each appellant.
{¶8} Neither appellant attended the “default” hearing. Three days following the
hearing, the trial court issued a final judgment against appellants for the entire amount
sought under the complaint. At the end of this judgment, the court ordered that, unless
appellants paid the total amount owed within three days, their equity of redemption and
dower would be foreclosed, and the underlying real estate would be sold by the county
sheriff.
{¶9} Within days after the entry of the default judgment, appellee began to take
the requisite steps to ensure that the sheriff’s sale would proceed. Ultimately, the sheriff
scheduled the sale of the property for March 22, 2012.
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{¶10} On February 3, 2012, approximately 60 days after the default judgment
was issued, appellants moved the trial court for relief from the judgment under Civ.R.
60(B). As the primary basis for the motion, they asserted that default should not have
been entered because they had previously made an appearance in the action and had
been engaged in negotiations with appellee throughout the pendency of the matter. In
addition, appellants argued that the judgment could not be allowed to stand because
appellee lacked standing to maintain a foreclosure proceeding.
{¶11} An oral hearing on the motion for relief from judgment was set for March
27, 2012. Since the hearing date was five days after the scheduled date for the sheriff’s
sale, appellants moved the trial court to postpone the sale until the merits of their 60(B)
motion could be decided. On March 19, 2012, the trial court granted a stay of the sale,
but conditioned it upon appellants’ posting of a bond for $100,000. When appellants did
not timely post the required bond, the sheriff’s sale went forward, and the sale was
subsequently confirmed by the trial court.
{¶12} Upon appellants’ own request, the oral hearing on the Civ.R. 60(B) motion
was continued until April 30, 2012. Approximately 20 days after that hearing was held,
the trial court overruled appellants’ motion for relief. In appealing the 60(B)
determination to this court, appellants raise two assignments of error:
{¶13} “[1.] The record is clear and convincing that the trial court erred to the
prejudice of appellants and abused its discretion by denying appellants’ Civil Rule 60(B)
motion to set aside default judgment, particularly without benefit of an evidentiary
hearing.
{¶14} “[2.] The record is clear and convincing that the trial court erred to the
prejudice of appellants and abused its discretion by granting appellee’s motion for a
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default judgment and denying appellants’ motion to set aside in favor of appellee on the
foreclosure complaint.”
{¶15} Under their first assignment, appellants maintain they were entitled to
relief from the foreclosure judgment because granting of default judgment was not
warranted. They argue that, despite the fact that they never filed an answer to
appellee’s complaint, they still should have been allowed to proceed on the merits
because they previously made an appearance in the case. In support of their argument,
appellants emphasize that they had participated in the litigation by filing a request for
mediation.
{¶16} However, the mere fact that appellants made an appearance in the case is
not dispositive of whether a default judgment was justified. In relation to the procedure
governing default judgment, Civ.R. 55(A) provides:
{¶17} “When a party against whom a judgment for affirmative relief is sought has
failed to plead or otherwise defend as provided by these rules, the party entitled to a
judgment by default shall apply in writing or orally to the court therefore; * * *. If the
party against whom judgment by default is sought has appeared in the action, he * * *
shall be served with written notice of the application for judgment at least seven days
prior to the hearing on such application.”
{¶18} Given that Civ.R. 55(A) states a specific procedure for obtaining a default
judgment even after the defending party has made an appearance, appellant’s general
argument under this assignment is not a legally sound reason for vacating or setting
aside a default judgment. That is, a party who has appeared in a civil action can still be
subject to a default judgment if he has otherwise failed to defend the case and received
proper notice of the default judgment motion. See Rotatori, Bender, Gragel. Stoper, &
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Alexander, L.P.A. v. Signer, 8th Dist. Cuyahoga No. 86454, 2006-Ohio-1354, ¶12-15.
{¶19} On appeal, appellants assert that they were denied a full opportunity to be
heard before appellee’s “default” motion was granted. However, in making this
assertion, they have not contested the following: (1) at the outset of the action, they
were served with a copy of appellee’s foreclosure complaint; (2) neither appellant filed
an answer to the complaint throughout the entire pendency of the action; (3) in filing its
motion for a default judgment, appellee attached a proof of service stating that copies of
the motion were mailed to appellants; (4) copies of the trial court’s judgment scheduling
the “default” motion for a hearing were also mailed to appellants; (5) the judgment
stated that a responsive pleading was necessary if one had not previously been filed;
and (6) notices of both the motion and judgment were given more than seven days
before the date of the hearing.
{¶20} In light of the foregoing, appellants’ failure to appear at the “default”
hearing warranted the default judgment. Not only did appellants fail to properly defend
the case by filing an answer, they were also given notice of the “default” motion and
hearing.
{¶21} As a separate argument under their first assignment, appellants contend
that they were prejudiced when no oral hearing was held on their motion to vacate prior
to the issuance of the trial court’s denial. As to this point, the record readily shows that
an oral hearing on their motion was scheduled almost immediately after it was filed; in
addition, a new date for the hearing was set when appellants’ trial counsel requested a
continuance due to a conflict in scheduling. Although the record does not contain a
transcript of that hearing, there is nothing before this court to indicate that the hearing
was cancelled or otherwise did not go forward. As a result, the record simply does not
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support a finding of prejudice.
{¶22} The record demonstrates that appellants failed to properly defend the
case and notice was given to them before the default hearing was held. Therefore, the
default judgment was warranted. Appellants’ first assignment lacks merit.
{¶23} Under their second assignment, appellants contest the merits of the trial
court’s determination to grant the default judgment and order foreclosure of their interest
in the subject property. According to them, appellee was not entitled to prevail on its
foreclosure claim because its complaint was legally insufficient to establish that it had
standing as the real party in interest to sue them on the promissory note and mortgage.
Specifically, appellants maintain that appellee could not proceed because there was no
showing that appellee was the present holder of the underlying promissory note and
mortgage.
{¶24} In a recent decision expressly addressing the relevancy of standing in a
foreclosure action, the Supreme Court of Ohio stated that standing is a jurisdictional
requirement which must be met before a common pleas court can proceed. Federal
Home Loan Mort. Corp. v. Schwartzwald, 134 Ohio St.3d 13, 2012-Ohio-5017, ¶22. In
order to have standing to bring a foreclosure case, the plaintiff must demonstrate that it
has an interest in either the promissory note or mortgage. Federal Home Loan Mort.
Corp. v. Rufo, 11th Dist. Ashtabula No. 2012-A-0011, 2012-Ohio-5930, ¶18. The
requirement of an “interest” can be met by showing an assignment of either the note or
mortgage. Id. at ¶44. In addition, this interest must have existed at the time the
foreclosure complaint was filed; there can be no standing to proceed if the interest is
acquired when the action is already pending. Schwartzwald, at ¶25-27.
{¶25} As noted above, appellee did not attach a copy of the promissory note
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between appellants and the original lender, Park View Federal. However, after the
underlying case remained pending for seven months, appellee moved to incorporate
into its complaint a copy of the promissory note. The final page of this copy contains a
stamped statement that had the effect of changing the promissory note to bearer paper.
Furthermore, the stamped statement is signed by two executive vice presidents of Park
View Federal. However, because the stamped statement is not dated, it cannot be
determined when the note became bearer paper or when appellee took possession of
the document.
{¶26} Unlike the promissory note, a copy of the mortgage on the subject
property was attached to appellee’s complaint, along with a copy of a document
captioned “Assignment of Mortgage.” The “assignment” document was also signed by
an executive vice president of Park View Federal, and purported to transfer appellants’
mortgage to appellee for valuable consideration. In addition, the document is dated for
October 8, 2010, approximately four months before appellee instituted the foreclosure
proceeding.
{¶27} R.C. 5301.32 expressly states that a mortgage can be assigned by a
separate instrument of assignment, so long as two requirements are satisfied: (1) the
instrument must be “acknowledged” in accordance with R.C. 5301.01; and (2) it must be
recorded in the appropriate book of the county recorder. As to the first requirement,
R.C. 5301.01(A) states that, in executing a deed or mortgage, the grantor or mortgagor
must acknowledge the execution before, inter alia, a notary public, who must certify that
acknowledgement.
{¶28} Attached to the copy of the assignment document was a copy of a written
certification by a notary public. As part of the certification, the notary public indicated
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that the executive vice president executed the assignment instrument before her, and
that he acknowledged to her that he was signing it in the name of Park View Federal.
Thus, since the certification was sufficient to satisfy R.C. 5301.01(A), the first
requirement for a valid assignment of a mortgage was met.
{¶29} Regarding the “recording” requirement, the assignment document does
not contain any markings establishing that the instrument had been filed with the
Geauga County Recorder. However, the record further shows that, on the same date
appellee filed its foreclosure complaint, it also submitted a preliminary judicial report on
the subject property. The submission of this report is mandated under R.C. 2329.191
and Loc.R. 12 of the Geauga County Court of Common Pleas. As part of its description
of the record title for the property, the report indicated that, on November 2, 2010, the
county recorder received and recorded the October 8, 2010 assignment of the mortgage
from Park View Federal to appellee. Therefore, in instituting the underlying proceeding,
appellee presented some documentation showing that the two statutory requirements
for a valid assignment of appellants’ mortgage had been met, and that the assignment
was finalized prior to the filing of the foreclosure action.
{¶30} Before this court, appellants assert that appellee failed to “prove” a proper
assignment of the mortgage. Yet, in making this general assertion, appellants have not
contested the authenticity of the “assignment” document attached to appellee’s
complaint. Rather, they only contend that appellee failed to show that the assignment
of the mortgage was properly recorded.
{¶31} Pursuant to R.C. 2329.191(B), the purpose of a final judicial report in a
foreclosure action is to update “the state of the record title to that real estate from the
effective date of the preliminary judicial report through the date of lis pendens * * *.” In
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light of this statutory language, it follows that the purpose of the preliminary judicial
report is to establish the state of the record title to the underlying property as of the date
of the initiation of the action. Consequently, the preliminary judicial report in this case
constituted some evidence that the assignment of appellant’s mortgage to appellee was
recorded in accordance with the governing statutes before this action was instituted.
{¶32} In conjunction with the foregoing analysis, this court would reiterate that
appellants did not assert their challenge to appellee’s standing until after the trial court
issued the default/foreclosure judgment. If the challenge had been raised prior to the
“foreclosure” determination, appellants would have had no burden of proof in regard to
the existence of a proper assignment of the mortgage to appellee. However, once the
foreclosure ruling was rendered and appellants were forced to challenge standing in a
post-judgment motion to vacate, the burden of proof switched to them as the moving
party. Given this, the defendant in a foreclosure case is not entitled to prevail on a
motion to vacate a default judgment when he failed to support his motion with evidence
that the plaintiff lacked standing to bring the action. U.S. Bank, N.A. v. Kapitula, 12th
Dist. Clermont No. CA2012-08-058, 2013-Ohio-2638, ¶6.
{¶33} Even though appellants attached two affidavits to their motion for relief
from the foreclosure judgment, none of the averments in the documents addressed the
issue of whether a proper assignment of the mortgage had occurred. To this extent,
appellants failed to refute in any way the materials accompanying appellee’s complaint,
including the copy of the assignment instrument and the preliminary judicial report. As a
result, the trial court justifiably held that there was no factual dispute that appellee had
obtained ownership of appellants’ mortgage through an assignment from Park View
Federal prior to bringing the foreclosure action.
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{¶34} In light of our conclusion as to the status of the mortgage, the issue then
becomes whether the lack of any evidence concerning the status of the promissory note
deprived appellee of standing to proceed against appellants. As to this point, appellee
expressly alleged in its complaint that it was the present holder of the promissory note
between appellants and Park View Federal. Given that appellants never filed an
answer to the complaint, they admitted appellee’s allegation as to the note for purposes
of this action. See Favors v. Burke, 8th Dist. Cuyahoga No. 98617, 2013-Ohio-832,
¶16. Furthermore, in moving for relief from the foreclosure judgment, appellants again
failed to present any evidence that appellee was not the holder of the promissory note
prior to filing the foreclosure complaint.
{¶35} Alternatively, the governing case law supports the proposition that, under
many circumstances, the submission of evidence establishing the valid assignment of
the mortgage will also be sufficient to show simultaneous transfer of the promissory
note. Without providing a substantial explanation, the Supreme Court in Schwartzwald
stated that the plaintiff-mortgage company did not have standing to invoke the
jurisdiction of the common pleas court because “it failed to establish an interest in the
note or mortgage at the time it filed suit, * * *.” (Emphasis added.) Schwartzwald, 2012-
Ohio-5017, at ¶28. In applying Schwartzwald, this court has indicated that the opposite
is also correct; i.e., standing to proceed in a foreclosure case exists if it is demonstrated
that the plaintiff had a pre-existing interest in either the note or the mortgage. Rufo,
2012-Ohio-5930, at ¶18.
{¶36} Historically, Ohio courts have recognized that “the negotiation of a note
operates as an equitable assignment of the mortgage, even though the mortgage is not
assigned or delivered.” U.S. Bank Nat. Assn. v. Marcino, 181 Ohio App.3d 328, 2009-
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Ohio-1178, ¶52 (7th Dist.), citing Kuck v. Sommers, 100 N.E.2d 68, 75, 59 Ohio Abs.
400 (1950). In recent years, Ohio courts have extended the application of this rule to
situations in which the mortgage is assigned without an express transfer of the note. In
Bank of New York v. Dobbs, 5th Dist. Knox No. 2009-CA-000002, 2009-Ohio-4742, the
Fifth Appellate District cited Section 5.4 of the Restatement III, Property in support of its
analysis on the issue:
{¶37} “The Restatement asserts as its essential premise * * * that it is nearly
always sensible to keep the mortgage and the right of enforcement of the obligation it
secures in the hands of the same party. This is because in a practical sense separating
the mortgage from the underlying obligation destroys the efficacy of the mortgage, and
the note becomes unsecured. The Restatement concedes on rare occasions a
mortgagee will disassociate the obligation from the mortgage, but courts should reach
this result only upon evidence that the parties to the transfer agreed. Far more
commonly, the intent is to keep the rights combined * * *. Thus, the Restatement
proposes that transfer of the obligation also transfers the mortgage and vice versa.
Section 5.4(b) suggests[:] ‘Except as otherwise required by the Uniform Commercial
Code, a transfer of a mortgage also transfers the obligation the mortgage secures
unless the parties to the transfer agree otherwise.’ Thus, the obligation [i.e., the note]
follows the mortgage if the record indicates the parties so intended.” (Emphasis added.)
Id. at ¶28.
{¶38} In Rufo, 2012-Ohio-5930, at ¶44, this court found the analysis of the Fifth
Appellate District in Dobbs to be persuasive. We further held that the parties’ intent to
transfer both the mortgage and the note can be inferred from language in both
documents which cross-reference each other. Id. at ¶42-43.
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{¶39} In our case, the mortgage has a specific provision stating that, as a
security instrument, the mortgage “secures to Lender: (i) the repayment of the Loan,
and all renewals, extensions and modifications of the Note; and (ii) the performance of
the Borrower’s covenants and agreements under the Security Instrument and the Note.”
Moreover, the “definitions” section of the mortgage states that the term “note” is meant
to refer to the promissory note that appellants signed on December 15, 2001. Similarly,
the promissory note has a separate provision indicating that the debt is secured under a
“Security Instrument,” i.e., mortgage, signed the same date as the note, and that the
mortgage is intended to give additional protection to the “Note Holder” for any losses
stemming from a breach of the note.
{¶40} Pursuant to Rufo and Dobbs, the foregoing cross-references in the
mortgage and the promissory note are sufficient to support an inference that the original
parties to the instruments intended for the note to implicitly “follow” the mortgage if the
latter instrument was assigned without an express transfer of the note. Therefore, once
the assignment of the mortgage was completed when it was recorded on November 2,
2010, appellants’ promissory note was implicitly transferred from Park View Federal to
appellee. In turn, this means that appellee had an interest in both the promissory note
and mortgage before the foreclosure action was instituted in February 2011.
{¶41} Taken as a whole, the record before the trial court supported the
conclusion that appellee had standing to bring the underlying action against appellants.
Hence, appellants were not entitled to relief from the default/foreclosure judgment on
that basis .
{¶42} In addition to their “standing” argument, appellants raised two other points
in support of their request to set aside the default judgment: (1) the promissory note was
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not enforceable because one of the appellants, Paul E. Koch, never signed it; and (2)
appellee failed to present sufficient evidence at the “default” hearing to demonstrate that
they owed the sum of $107,384.95. Unlike their “standing” argument, these two points
do not assert challenges to the trial court’s authority to resolve the underlying dispute.
Rather, they only pertain to the final merits of the trial court’s analysis in ordering
foreclosure as part of the default judgment.
{¶43} To succeed on a Civ.R. 60(B) motion, the moving party must show, inter
alia, that he is entitled to relief under one of the five grounds expressly listed in the rule.
Melinich v. Melinich, 195 Ohio App.3d 451, 2011-Ohio-5068, ¶18 (2nd Dist.), quoting
GTE Automatic Elec., Inc. v. ARC Industries, Inc., 47 Ohio St.2d 146, paragraph two of
the syllabus (1976). Although Civ.R. 60(B)(1) refers to a “mistake” as a possible basis
for relief, the courts of this state have held that the term does not encompass a trial
court’s error in rendering its final judgment; instead, relief can only be granted for a
“mistake” of a party or his legal representative. Id. at ¶22; Foy v. Trumbull Correctional
Inst., 10th Dist. Franklin No. 11AP-464, 2011-Ohio-6298, ¶11. To this extent, the merits
of a final judgment cannot be contested in a Civ.R. 60(B) motion for relief from
judgment, but only through a direct appeal of the judgment. Id. Therefore, since
appellants never pursued a direct appeal from the final foreclosure order in the default
judgment, they have waived their ability to challenge the basic enforceability of the
promissory note.
{¶44} As to the calculation of the total amount owed on the loan, there is
authority for the proposition that 60(B) relief should be granted from a default judgment
when the trial court abuses its discretion in failing to hold an oral hearing on damages.
See, e.g., Heckman v. Porter, 5th Dist. Stark Nos. 2002CA00380 and 2002CA00381,
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2003-Ohio-3135. However, this proposition has only been followed in cases involving
claims for unliquidated damages. Id. at ¶13; Qualchoice, Inc. v. Brennan, 11th Dist.
Lake No. 2008-L-143, 2009-Ohio-2533, ¶23. When the plaintiff is seeking only
liquidated damages, a default judgment can be granted without proof of damages.
Qualchoice, at ¶21, quoting Buckeye Supply Co. v. Northeast Drilling Co., 24 Ohio
App.3d 134, paragraph one of the syllabus (9th Dist.1985).
{¶45} Damages are considered “liquidated” in nature when they can be precisely
calculated from, inter alia, the terms of an agreement. Id. at ¶23. Based upon this,
proof of damages is not necessary in a “default” proceeding when the underlying claim
is predicated upon an alleged breach of a promissory note. Farmers & Merchants State
& Savings Bank v. Raymond G. Barr Enterprises, Inc., 6 Ohio App.3d 43, 44 (4th
Dist.1982). In this case, appellants have failed to cite any unusual circumstances that
would have warranted a separate hearing on damages. Therefore, as there has been
no showing that the trial court abused its discretion during the “default” proceeding,
appellants were not entitled to any Civ.R. 60(B) relief.
{¶46} As appellants failed to establish any viable basis for vacating or granting
relief from the default/foreclosure judgment, the denial of their post-judgment motion
was justified. Thus, their second assignment is not well-taken.
{¶47} Pursuant to the foregoing, both of appellants’ assignments of error do not
have merit. Accordingly, it is the judgment and order of this court that the judgment of
the Geauga County Court of Common Pleas is affirmed.
TIMOTHY P. CANNON, P.J., concurs,
DIANE V. GRENDELL, J., concurs in judgment only.
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