Ohio Supreme Court Holds Standing to Foreclose Cannot Be Established by Assignment of Note After Filing

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On October 31, the Ohio Supreme Court held unanimously that a party’s standing to foreclose on a delinquent borrower is determined as of the filing of the complaint, and the party’s receipt of an assignment of a promissory note and mortgage after such filing does not cure initial lack of standing to bring the action. Fed. Home Loan Mortg. Corp. v. Schwartzwald, No. 2012-Ohio-5017, slip op. (Ohio Oct. 31, 2012). The borrowers in the case appealed a trial court holding that allowed Federal Home Loan Mortgage Corporation (Freddie Mac) to foreclose, notwithstanding the fact that Freddie Mac commenced the action prior to obtaining an assignment of the promissory note and mortgage securing the borrowers’ loan. According to the borrowers, because Freddie Mac did not hold the assignment and mortgage at the time of filing, it had no standing to sue. The Ohio Second District Court of Appeals held that Freddie Mac had cured the lack of standing by obtaining an assignment from the real party in interest after it filed for foreclosure. The Ohio Supreme Court reversed the Second District and agreed with the borrowers. Freddie Mac did not hold both the assignment and mortgage as required under Ohio law as a predicate to foreclosure and admitted that it had not suffered any injury at the time it commenced the foreclosure action. The state supreme court held that because standing to sue is required to invoke the jurisdiction of the trial court, standing must be determined at the beginning of the suit. Further, the court found that Freddie Mac could not avail itself of civil procedures that allow for substitution of the real party in interest because such rules were not intended to cure a lack of standing. The court agreed with the borrowers that Freddie Mac lacked standing and dismissed the foreclosure without prejudice and without adjudicating the underlying indebtedness.

 

Published In: Civil Procedure Updates, General Business Updates, Constitutional Law Updates, Finance & Banking Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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