Cuyahoga Cty. Treasurer v. Unknown Heirs of Russell

[Cite as Cuyahoga Cty. Treasurer v. Unknown Heirs of Russell, 2023-Ohio-1976.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
TREASURER OF
CUYAHOGA COUNTY, OHIO, :
Plaintiff-Appellee, :
No. 112099
v. :
UNKNOWN HEIRS OF
WILLIAM W. RUSSELL, JR., ET AL., :
Defendants-Appellants. :
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED
RELEASED AND JOURNALIZED: June 15, 2023
Civil Appeal from the Cuyahoga County Court of Common Pleas
Case No. CV-19-921584
Appearances:
Michael C. O’Malley, Cuyahoga County Prosecuting
Attorney, and Edmund G. Tallos, Assistant Prosecuting
Attorney — Tax Foreclosure, for appellee.
Carlisle, McNellie, Rini, Kramer & Ulrich, Co., LPA, and
Eric T. Deighton, for appellants.
EILEEN T. GALLAGHER, J.:
Defendants-appellants, Deutsche Bank National Trust Company
(“Deutsche Bank”), appeals from the trial court’s judgment denying its motion for
distribution of excess sale proceeds of a tax-foreclosure sale. Deutsche Bank raises
the following assignment of error for review:
The trial court abused its discretion in denying appellant’s motion for
distribution of excess sale proceeds on deposit, where no other party
has made application for those proceeds in the two years they have
been on deposit.
After careful review of the record and relevant case law, we affirm the
trial court’s judgment.
I. Procedural and Factual History
On September 17, 2019, plaintiff-appellee, the Treasurer of Cuyahoga
County, Ohio (“Treasurer”), filed a real estate tax foreclosure complaint against
William W. Russell, Jr.1 seeking to foreclose a property located at 3105 W. 100th
Street, Cleveland (“the property”) due to a failure to pay the real-estate taxes for
several years. The complaint also named as defendants Susan L. Bon, Morgan W.
Russell, Chase W. Russell, unknown heirs of William W. Russell, Jr., as well as the
mortgage holder of the property, Deutsche Bank, as Trustee for Argent Securities
Inc., Asset-Backed Pass-Through Certificates, Series 2005-W3. The complaint
requested that the defendants “be required to set up their liens or claims or be
forever barred” from asserting any claims against the property.
Service was made on all named defendants. None of the defendants,
including Deutsche Bank, answered or otherwise appeared in the foreclosure action.
Following a hearing held on February 20, 2020, the magistrate issued a decision
1 A certificate of death for William W. Russell, Jr. attached to the complaint
identifies a date of death of March 31, 2014, for William W. Russell, Jr.
awarding the Treasurer with a decree of foreclosure. The magistrate reiterated in its
decision that all necessary parties had been duly served with the summons and
complaint.
On March 17, 2020, the trial court adopted the magistrate’s decision,
issuing a decree of foreclosure and ordering that, upon the filing of the entry of
confirmation of sale, the title to the parcel shall be free and clear of all liens and
encumbrances.
On December 4, 2020, the trial court issued an order for the property
to be sold at a sheriff’s sale. On January 6, 2021, the property was sold for $47,100.
On January 29, 2021, the trial court confirmed the sale. After a
deduction of taxes ($15,711.40) and costs involved in the sale, there was $28,876.99
remaining in the sale proceeds, held by the clerk of courts pending further order of
the trial court. In relevant part, the confirmation of sale contained the following
language:
It is further ORDERED, ADJUDGED AND DECREED that the equity
of redemption is extinguished and that any parties defendant owning
or claiming any right, title, or interest in, or lien upon said parcel,
together with such who may have right of dower, shall be and they are
hereby forever barred from asserting any right, title or interest in, or
lien upon the said parcel.
On April 22, 2021, Real Time Resolutions, Inc. (“Real Time”) became
successor in interest to Deutsche Bank by virtue of a “Corporate Assignment of
Mortgage.” On May 6, 2021, Real Time filed a “Motion to Intervene and For
Distribution of Excess Sale Proceeds on Deposit,” arguing that it was permitted to
intervene pursuant to Civ.R. 24(A)(2) and 24(B)(2) as the assignee of the mortgage.
On May 25, 2021, the trial court denied Real Time’s motion, stating:
Real Time’s motion to intervene and for distribution of excess sale
proceeds on deposit * * * is denied. Said party’s predecessor in interest,
defendant Deutsche Bank, was properly named and served and was
required to answer and set up any claim that it may have to the [subject]
property or be barred. Said party failed to do so and the court found it
to be in default and ruled against it along with all other non-answering
parties. The Ohio Supreme Court has held that a lienholder that is
named as a defendant in a foreclosure action, but fails to answer, is
barred from raising its interest thereafter as long as the plaintiff alleged
that the defendant claims some interest in the party and advises the
defendant that its claims will be barred if the defendant fails to appear
and disclose it. * * * Therefore, defendant Deutsche Bank and its
successors, Real Time, are barred from sheriff sale proceeds.
Real Time appealed the trial court’s decision, arguing the trial court
abused its discretion in denying its motion to intervene and for distribution of excess
sale proceeds on deposit without a hearing. Real Time maintained that it was
entitled to intervene in this tax-foreclosure case as a matter of right pursuant to
Civ.R. 24(A)(2).
On February 3, 2022, this court affirmed the trial court’s judgment,
finding the trial court did not abuse its discretion in denying Real Time’s motion to
intervene and for distribution of excess sale proceeds on deposit. Treasurer of
Cuyahoga Cty. v. Unknown Heirs of William W. Russell, Jr., 8th Dist. Cuyahoga
No. 110540, 2022-Ohio-309 (“Russell I”).
Following this court’s decision in Russell I, Real Time reassigned the
subject mortgage to Deutsche Bank on May 19, 2022. On October 14, 2022,
Deutsche Bank filed a motion for distribution of excess funds. Deutsche Bank
argued that as holder of the subject note and mortgage, it would suffer irreparable
harm if the trial court “denied Deutsche Bank its opportunity to have its debt paid
from the excess sheriff’s sale proceeds being held by the court.” The motion was
supported by the affidavit of David Rosas (“Rosas”), the director of loss mitigation
for Real Time. In pertinent part, Rosas incorporated copies of the subject note and
mortgage and averred that Deutsche Bank was owed a principal balance in the
amount of $95,868.24, plus interest, late charges, and all sums advanced for the
payment of real-estate taxes, assessments, insurance premiums, and property
protection.
The trial court denied the motion on November 2, 2022. Consistent
with its prior judgment, the trial court stated, in relevant part:
Defendant # 3 Deutsche Bank’s motion for distribution of excess sale
proceeds on deposit * * * is denied. Said party was properly named and
served and was required to answer and set up any claim that it may
have to the [subject] property or be barred. Said party failed to do so
and the court found it to be in default. The Ohio Supreme Court has
held that a lienholder that is named as a defendant in a foreclosure
action, but fails to answer, is barred from raising its interest thereafter
as long as the plaintiff alleged that the defendant claims some interest
in the property and advises the defendant that its claims will be barred
if the defendant fails to appear and disclose it. * * * Therefore,
defendant #3 Deutsche Bank is barred from sheriff sale proceeds.
Deutsche Bank now appeals from the trial court’s judgment.
II. Law and Analysis
In the sole assignment of error, Deutsche Bank argues the trial court
abused its discretion by denying its motion for distribution of excess sale proceeds.
Deutsche Bank contends “the trial court should have exercised its equitable powers
to see that Deutsche Bank was not denied its opportunity to have its debt paid from
the excess proceeds of the sheriff’s sale.”
As commonly used, the word “mortgage” encompasses two separate
instruments: a promissory note and a security instrument. Bank of N.Y. Mellon v.
Primes, 8th Dist. Cuyahoga No. 105678, 2018-Ohio-1833, ¶ 9. The security
instrument makes the real property the collateral securing performance on the note.
Id. A creditor seeking to enforce a mortgage agreement has several remedies
available. “Upon breach of condition of the mortgage agreement, a mortgagee has
concurrent remedies. It may, at its option, sue in equity to foreclose, or sue at law
directly on the note; or, bring an action in ejectment.” The Broadview S. &. L. Co.
v. Crow, 8th Dist. Cuyahoga Nos. 44690, 44691, and 45002, 1982 Ohio App. LEXIS
12139, 7 (Dec. 30, 1982). Relevant to this appeal, “‘[a]n action at law on a promissory
note to collect a mortgage debt is separate and distinct from an action in equity to
enforce the mortgage lien on the property.’” United States Bank Natl. Assn. v.
Franko, 2018-Ohio-687, 107 N.E.3d 142, ¶ 16 (8th Dist.), quoting Deutsche Bank
Natl. Trust Co. v. Holden, 147 Ohio St.3d 85, 2016-Ohio-4603, 60 N.E.3d 1243, ¶ 35.
In this case, there is no dispute that Deutsche Bank failed to answer or
otherwise assert an interest in the subject property during the underlying
foreclosure action. It is also undisputed that the confirmation of sale entered by the
trial court on January 29, 2021, extinguished Deutsche Bank’s interest in the subject
real property. Nevertheless, Deutsche Bank argues that because it has provided
uncontradicted evidence to establish the amount due on the note, and because there
are no other parties asserting an interest in the excess funds, the trial court abused
its discretion in denying its motion without considering the equitable aspects of its
request.
Claims for equitable relief are reviewed for an abuse of discretion.
Sandusky Properties v. Aveni, 15 Ohio St.3d 273, 473 N.E.2d 798 (1984). A trial
court abuses its discretion only if its decision is unreasonable, arbitrary, or
unconscionable. State ex rel. DiFranco v. S. Euclid, 144 Ohio St.3d 571, 2015-Ohio-
4915, 45 N.E.3d 987, ¶ 13; Blakemore v. Blakemore, 5 Ohio St.3d 217, 219, 450
N.E.2d 1140 (1983). “‘A decision is unreasonable if there is no sound reasoning
process that would support that decision.’” Ockunzzi v. Smith, 8th Dist. Cuyahoga
No. 102347, 2015-Ohio-2708, ¶ 9, quoting AAAA Ents., Inc. v. River Place
Community Urban Redevelopment Corp., 50 Ohio St.3d 157, 161, 553 N.E.2d 597(1990). An abuse of discretion may also be found where the trial court “‘applies the
wrong legal standard, misapplies the correct legal standard, or relies on clearly
erroneous findings of fact.’” Ockunzzi at ¶ 9, quoting Thomas v. Cleveland, 176 Ohio
App.3d 401, 2008-Ohio-1720, 892 N.E.2d 454, ¶ 15 (8th Dist.).
After careful consideration, we find no merit to Deutsche Bank’s
position on appeal. As stated, this court previously affirmed the trial court’s denial
of Real Time’s motion to intervene and request for excess sale proceeds because its
predecessor in interest, Deutsche Bank, had no interest in the proceeds of the
sheriff’s sale as the defaulting junior lienholder. This court explained its conclusion
as follows:
The trial court was correct that Deutsche Bank’s mortgage interest in
the property was extinguished with the confirmation of the sheriff’s
sale. See, e.g., Deutsche Bank Natl. Trust Co. v. Richardson, 2d Dist.
Darke Nos. 2010-CA-3 and 2010-CA-13, 2011-Ohio-1123, ¶ 21. Real
Time was assigned Deutsche Bank’s mortgage in the property months
after the confirmation of the sale, i.e., after Deutsche Bank’s mortgage
interest had been extinguished, and therefore, Real Time, as its
successor in interest, cannot claim any interest to be protected by Civ.R.
24(A)(2) through a motion to intervene.
Real Time acknowledged in its motion to intervene that “Real Time is
not trying to assert any interest in the real property which was the
subject of this case; the time for doing so has long passed.” Real Time
asserted instead that it was asserting an interest in the excess sheriff’s
sale funds.
In this regard, this court has recently noted that “a defaulting junior
lienholder is not entitled to share in any proceeds realized from a
foreclosure sale because, in the absence of other indications in the
complaint, its default can be construed as a disclaimer of interest in the
property.” State ex rel., US Bank Trust Natl. Assn. v. Cuyahoga Cty.,
8th Dist. Cuyahoga No. 110297, 2021-Ohio-2524, ¶ 11, citing
Zukerman, Daiker & Lear Co., L.P.A. v. Signer, 186 Ohio App.3d 686,
2009-Ohio-968, 930 N.E.2d 336, ¶ 34 (8th Dist.), and Settlers Bank v.
Burton, 4th Dist. Washington Nos. 12CA36 and 12CA38, 2014-Ohio-
335, ¶ 31. Because Deutsche Bank — the defaulting junior lienholder
whose lien was subordinate to the tax lien — has no interest in the
proceeds of the sheriff’s sale, Real Time, as its successor, cannot claim
any interest in the proceeds either. Consequently, the trial court did
not abuse its discretion in denying Real Time’s motion to intervene.
(Emphasis added.) Russell I, 8th Dist. Cuyahoga No. 110540, 2022-Ohio-309 at
¶ 26-28. See also Lexington Ridge Homeowners Assn. v. Schlueter, 9th Dist.
Medina No. 10CA0087-M, 2013-Ohio-1601, ¶ 20-21; Provident Bank v. Murray, 2d
Dist. Greene No. 84-CA-25, 1984 Ohio App. LEXIS 12010 (Dec. 11, 1984);
Winemiller v. Laughlin, 51 Ohio St. 421, 38 N.E. 111 (1894), paragraph two of the
syllabus.
Although the panel in Russell I declined to address Real Time’s
equitable arguments for the first time on appeal, we find the panel’s determination
that Deutsche Bank has no interest in the sale proceeds of the sheriff’s sale is
relevant to issues of equity raised in the present appeal.
On appeal, Deutsche Bank correctly states that “[a] foreclosure action
is a civil action in equity.” Bank of Am. v. Rogers, 8th Dist. Cuyahoga No. 107464,
2019-Ohio-1443 ¶ 14. In this case, however, the foreclosure action concluded before
Deutsche Bank ever appeared. See Treasurer of Cuyahoga Cty. v. Unknown Heirs
of Weisner, 2022-Ohio-2668, 194 N.E.3d 451, ¶ 15 (8th Dist.). It therefore follows
that Deutsche Bank’s “opportunity to receive equitable relief was extinguished when
the foreclosure proceedings concluded.” Id. at ¶ 15. In reaching this conclusion, we
reiterate that “the equitable action in foreclosure is not synonymous with enforcing
the legal obligation to pay the note.” Id. at ¶ 19, citing U.S. Bank Natl. Assn. v.
Robinson, 8th Dist. Cuyahoga No. 105067, 2017-Ohio-5585, ¶ 7. Because Deutsche
Bank’s mortgage interest had been extinguished, and the record is devoid of any
indication that Deutsche Bank exercised its legal right to seek a timely judgment on
the subject note, we reject Deutsche Bank’s attempt to conflate the equitable
principles of foreclosure with the factual circumstances presented in this case. Id.(“Even though PNC was barred from pursuing the foreclosed property or the sale
proceeds, the trial court properly determined that PNC could still pursue an action
at law to enforce the equity reserve agreement by obtaining a judgment and seeking
attachment of that judgment.”).
Relatedly, we note that while Deutsche Bank has repeatedly
referenced the court’s “broad equitable powers” and has characterized its requested
relief as an “equitable lien” or an attempt to receive “equitable relief,” Deutsche Bank
has not presented any legal or factual arguments to suggest it can satisfy the
necessary elements for an equitable lien. See Michael v. Miller, Slip Opinion No.
2022-Ohio-4543, ¶ 26-28 (defining the elements required to establish an equitable
lien). Its arguments are limited to the equitable principles of foreclosure. Under
these circumstances, we decline to make arguments on behalf of Deutsche Bank or
otherwise consider an issue that was not expressly raised before the trial court.
App.R. 16(A)(7).
Finally, we recognize that this court has previously allowed a creditor
who defaulted in a foreclosure proceeding to share in the proceeds of a foreclosure
sale. Treasurer of Cuyahoga Cty. v. Berger Properties of Ohio L.L.C., 8th Dist.
Cuyahoga No. 110233, 2021-Ohio-3204. However, in Berger, the defaulting
creditor introduced a valid judgment against the debtor in the amount in excess of
$7.8 million. Since the mortgagor-creditor in Berger had a valid and enforceable
judgment against the debtor, the mortgagor-creditor possessed a legal right to
enforce the judgment against the debtor. Thus, the creditor was allowed to share in
the proceeds that would have otherwise been distributed to the debtor. As
mentioned, however, Deutsche Bank has not presented any documentary evidence
to suggest that it obtained a valid judgment on the subject note. In the absence of a
valid judgment in favor of Deutsche Bank, we find Berger to be unpersuasive. See
Weisner, 2022-Ohio-2668, 194 N.E.3d 451, at ¶ 22 (8th Dist.) (holding the same).
As articulated by this court in Weisner, Deutsche Bank, through no fault of the trial
court, “simply failed to obtain a judgment in a timely fashion and is consequently
not entitled to the proceeds.” Id. at ¶ 22- 23.
Based on the foregoing, we are unable to conclude that the trial court
abused its discretion in denying Deutsche Bank’s motion for distribution of excess
funds.
The sole assignment of error is overruled.
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 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.
EILEEN T. GALLAGHER, JUDGE
LISA B. FORBES, P.J., and
MARY J. BOYLE, J., CONCUR