Subprime Mortgage Foreclosure Crisis Update - Enter Ohio Attorney General Marc Dann
Today, Ohio Attorney General Marc Dann -- along with the Attorney Generals of ten other states as part of a group calling itself the State Foreclosure Prevention Working Group -- issued a report on the "foreclosure crisis" and the perceived shortcomings in the response of "subprime mortage loan servicers". The report is titled Analysis of Subprime Mortgage Servicing Performance -Data Report No. 1, thus implying that additional "reports" will be forthcoming. Click here to read the press release issued by the Office of Ohio Attorney General Marc Dann about the report. (Click here to learn about the other foreclosure prevention assistance resources the Office of Attorney General Marc Dann has assembled.) As things have been going on this topic, this is one of the more sedate and traditional governmental responses to arise.
I've previously posted on the initial set of foreclosure dismissals by federal judges in Cleveland and Dayton which, at least in the Cleveland cases, might have had as much to do with federal judges wanting to send a message to lenders to stop bothering federal courts with ordinary foreclosure cases that belonged in regular state court. And in another previous post, I rounded up pertinent pleadings from those cases. Then, as things began to take a truly novel turn with the Cleveland "public nuisance" lawsuit against the Wall Street securitization lenders and the Baltimore "predatory lending" case, I posted again to the effect that while I wasn't convinced any of attacks on pending foreclosures had much basis in legal rationality, I recognized that things were about to get a whole lot more interesting.
I had thought this would be the end of it for a while and had every intention of quietly returning to my usual array of topics more immediately related to the legal concerns and issues facing businesses. I had no idea. As events in what the swirling maelstorm generally becoming known as the subprime problem/foreclosure mess continue to unfold every day and every week, I find myself inextricably drawn to discovering each new revelation. And I'm rapidly coming to the conclusion that this is only the beginning of a very long, very tortuous, odyssey in the annuals of foreclosure law. Because part of the purpose behind this blog is to help business people make sense of legal concepts intruding into their lives, I've chosen to revisit this topic once again.
Ohio AG Efforts to Halt Foreclosures. Thanks to the Wall Street Journal Law Blog for reporting on another intriguing chapter in the whole bizarre Ohio foreclosure scene. Earlier this week, Magistrate Michael L. Bachman of the Hamilton County Common Pleas Court issued a Magistrate's Decision in Deustche Bank Nat. Trust Co. v. Barnes, Case No. Ao705631, Judge Ruehlman presiding, arguably interjecting something of a voice of reason to the debate, but also igniting its own controversy.
The 11-page decision rebuked Attorney General Marc Dann for filing a Motion to Dismiss piggybacking on prior federal decisions dismissing foreclosures in Cleveland and Dayton and even went so far as to question the Attorney General's legal ethics. (Interestingly, in contrast to other actions being undertaken by the Office of Ohio Attorney General Marc Dann, this and similar legal actions are being pursued without publicity or press release by the AG's Office.) However, to me, the more important part of the decision points out that the whole "where's the assignment piece of paper" ignores well settled law that as between the debtor and the holder of the note and mortgage, recording is not a necessary element for recovery. As Magistrate Bachman explains:
under the Uniform Commercial Code as codified in Ohio, parties to a Note, subsequent holders of the note, nonholders in possession of the note who have the rights of holders and persons not in possession of the note who are entitled to enforce the Note pursuant to other statutory requirements, may enforce the terms of the Note as to each other. parties falling within these legal categories may enforce the terms of the note even if the note is lost, stoledn, or destroyed.
Ohio law does not require parties to the note to record the note with the county. Rather, controlling case law states that the current holder of a note, despite having no part in the original transaction, is the real party in interest....
Ohio case law and statutory authority do not require the recording of a mortgage as a condition precedent to enforcement as between the parties.
Magistrate Bachman makes the additional point that requiring "plaintiffs to attach all relevant assignments at the pleading stage seems overly burdensome, given the notice pleading requirements contemplated in Civil Rule 8."
The Disconnect. Don't get me wrong - I recognize that this country is facing a crisis of substantial proportions as a result of many people having become unable to pay their home mortgages in accordance with the terms of the loans they signed for. And I'm even willing to accept that in at least some cases, unsophisticated borrowers may have been taken advantage of by unscrupulous mortgage brokers more interested in their bonus commission than explaining exactly how the "too good to be true" mortgage was really likely to unfold. Nor do I care to dispute that some governmental intervention may well be appropriate at some point.
It's just that I'm having more and more difficulty understanding how the governmental response reflected by various recent convoluted actions and events makes much sense even by itself or is really going to be very productive in the long run. For example, the Barnes case presents a rather unusual procedural situation in which the State of Ohio's Motion to Dismiss was apparently not filed until after the State of Ohio had already filed an untimely Answer, a Judgment Entry had already been entered, AND the property in question had ALREADY BEEN SOLD AT SHERIFF'S SALE and only the Entry Confirming the Sale remained to be entered. Now call me picky, but this does seem to be the proverbial situation where the horse has already left the barn.
Apparently Barnes was only one of seven foreclosure cases in which the Attorney General sought to have the case dismissed on the grounds that the lender had failed to demonstrate it was the proper owner of the note and mortgage in default. I don't know what the procedural status of the others were, but I would hope that at least some of them were not quite so far down the track. Otherwise, it's difficult for me to even seriously consider the argument being made.
The bottom line for me is yes, lenders should have to demonstrate they are the proper holder of a promissory note and mortgage involved in a foreclosure. However, once a lender has asserted that, regardless of whether an actual assignment is produced, it ought to be up to the borrower/homeowner to demonstrate that's not the case. Unless there's really any serious doubt that the foreclosing lender is the proper "holder in due course" entitled to enforce the mortgage -- and up to now I've not heard of any cases in which multiple lenders are claiming they are BOTH entitled to foreclose a particular mortgage -- borrowers should not be allowed to escape the consequences of having freely borrowed money and not paying it back.
No one disputes that real money was lent to real people who used it to buy actual homes. Whether these borrowers fully understood what they were getting into -- and regardless where one comes out on whether these people need to take some responsibility for their actions in accepting these loans -- is a separate issue. The point is that no one disputes that these borrowers do in fact have some obligation to repay these amounts, or at least a substantial portion of the funds received. Addressing the unfortunate consequences of this legal conclusion IS a valid concern, but it is one that ought to be addressed somewhere other than in the standard foreclosure case.
Others will undoubtedly note that the Barnes Magistrate's Decision has no force until it is adopted by Judge Ruehlman and that objections to it will almost certainly be filed, all of which is true. However, I find myself in agreement with Magistrate Bachman's conclusion:
The Attorney General acknowledges he directed his staff to file the seven motions to dismiss in Hamilton County in order to "raise a public policy issue". The court acknowledges courts in Ohio and throughout the nation have sometimes created new public policy based upon tenuous linkages to existing law or procedure. Certainly, the Attorney General is free to use his office to "lobby" for changes in the law and civil procedure he feels are in the public interest.
The Constitutions of both the United States of America and the State of Ohio guarantee the people the right to petition their respective governments for a redress of their grievances. However, the proper venue for such petitions lies in the branches of government vested with the authority to change the law or procedure at issue. In Ohio, the people and the State Assembly have the express authority to enact legislation in the State of Ohio. Similarly, the Supreme Court of Ohio is vested with the authority to "prescribe rules governing practice and procedure in all courts of the state." Comity suggests the judiciary defer its exercise of jurisdiction over these questions to those governmental institutions constitutionally vested with such authroity. If, as the Attorney General asserts, he directed his subordiantes to file these motions seeking to change the way courts adjudicate foreclosure actions in the State of Ohio, then the Attorney General should address his efforts to the General Assembly or Supreme Court of Ohio.
I haven't yet read the AG's foreclosure crisis report, but I for one would like to see more of this sort of governmental response and political proposals based on this sort of analysis and less mettling with legitimate judicial proceedings.
