Ohio Appeals Court Nixes "Strict" Foreclosure; Says Lower Court's Failure To Order Judicial Sale An Improper Procedure Lacking Legal Authority

Lexology reports:

• In the case of Wells Fargo Bank v. Young (Drake Cty.), 2011-Ohio-122, 2011 Ohio App. LEXIS 102 (Froelich, J.), the Second District Court of Appeals held that the trial court erred by ordering a conveyance of the property via a Commissioner’s Deed, rather than ordering a judicial sale as requested by the bank.

• In Young, the plaintiff-bank and the defendant-debtor entered into a loan modification agreement of the prior home loan. The defendant-debtor defaulted on the loan modification less than a year later and the plaintiff-bank filed a complaint asserting that the note was secured by the mortgage. The plaintiff-bank sought foreclosure and money damages. Specifically, the plaintiff-bank requested that the mortgage be foreclosed, that the property be sold, and that the bank be paid from the proceeds of the sale. Copies of the original note, loan modification agreement and mortgage were filed, which were all attached as exhibits to the complaint. The defendant-debtor was served with the summons, but he did not file an answer.

• About 45 days after the filing of the foreclosure complaint, the trial court issued a Notice to Show Cause stating that the defendant-debtor had been properly served, that it had not “indicated any opposition to the transfer of the realty to the Plaintiff without judicial sale,” and that the plaintiff-bank had orally moved for a default judgment.

• Less than a month later, the trial court ordered the conveyance of the defendant-debtor’s property to the plaintiff-bank by way of a Commissioner’s Deed. The trial court found that foreclosure proceedings were equitable proceedings and that the authority to convey by Commissioner’s Deed was within the court’s equitable powers, based on common law and R.C. 2239.34. The plaintiff-bank objected to this type of transfer, but its objections were overruled by the trial court. The plaintiff-bank appealed.

• In reversing the trial court, the court of appeals concluded that the order conveying the real property by Commissioner’s Deed, in lieu of a judicial sale of the foreclosed property, is contrary to Ohio law. This is true even though the conveyance was not objected to and would have saved costs and time.

• The appeals court stated that “strict foreclosure” was eliminated in Ohio, and there was no authority that permitted the trial court to employ a foreclosure procedure that excluded a judicial sale from its order.

Source: A trial court cannot use R.C. Section 2329.34(b), conveyance by commissioner's deed, to circumvent sale of the foreclosed property (requires subscription; if no subscription, GO HERE, then click appropriate link for the story).