Ohio Practical Business Law : Columbus Ohio Business Lawyer & Attorney : Teri Rasmussen : Plunkett Cooney Law Firm : Commercial Law, Creditors, Business Formation : Columbus, Central Ohio

Property law is full of echoes and language of a bygone era.  A recent case involving the renovated historic Lincoln Theater in Columbus illuetrates one such concept  - what's a covenant "running with the land" and how do you tell that's what it is. 

In City of Columbus v. Capital City Urban Redevelopment Corp., 2008-Ohio- 6835 (10th App. Dist.), the Lincoln Theater is now the subject of a legal dispute revolving around Saturday kids' movies for a buck and placement of a plaque.  In December, the Couri of Appeals affirmed the trial ourt's determination that these retritive covenants "run with the land" and are binding on the Lincoln Theater's current owner - as well as all subsequent purchasers. The case is currently being appealed to the Ohio Supreme Court as Case No. 10-184.

Capital City Community Urban Redevelopment Corporation (Capital City") bought the Linoln Theater in 1991 to save it from demolition.  In 2002, the theater was sold to another nonprofit corporation called Columbus Urban Growth Corporation ("CUG").  The General Warranty Deed transferring ownership contained the following language:

Subject to easements and restrictions of reord, real estate taxes due at the June 2003 collection and thereafter, and provisions of prargraph 9 of the Real Estate Purhase Agreement between the parties whih is incorporated by this reference.

 The referenced Real Estate Purchase Agreement paragraph had two restrictions concerning the use of the theater:

(a) The Buyer agrees to provide Saturday movies for children once the theater is operational, and for so long as feasible.  The cost is to be $1.00 or less for a double feature.

(b) A bronze plaque is to be permanently installed and maintained on the front of the property.  The size, text, and location of plaque on the building may be selected by Charles L. Adrian [affilated with Capital City] and will be architectually onsistent with the Long Street facade of the property. 

After CUG sold the theater to the City of Columbus in 2004, problems arose concerning whether the cheap Saturday kids movies and maintenance of a bronze plaque applied to the City of Columbus as the new owner and to any subsequent purchaser.   In a way, the whole case seems silly to me.  What's the big deal about having a plaque on the front of the building about its histori nature?  And Saturday kiddie movies for a buck are required only so long as it is "feasable"  - which would certainly be open for interpretation. 

The case does, however, do a good job both of stating the rule  and showing the difficulty in applying the rule to particular facts.  As the Court of Appeals explains:

The determination of whether a ovenant euns with the land depends on whether the covenant is real or personal.  A real covenant runs with the land; a personal covenant usually does not run with the land,  A real ovenant is related to the realty, having for its object something annexed to, inherent in, or connected with the land.  A covenant is determined to run with the land when the liability to perform it or the right to take advantage of it passes to the assignee of the land   The common law test of a ovenant running with the land requires that its performance or non-performance must affect the nature, quality, value, or mode of enjoyment of the estate demised yo which it must relate.  Conversely, a personal covenant does not run with the land, and is for the personal use and enjoyment of the land solely by the original parties to the ovenant.  (itations omitted).

The Court of Appeals further referenced three factors to help in making the determination whether a covenant is one running with the land and thus binding on all subsequent owners of the property:

• intent of the parties
• whether the covenant "touches and concerns the land" which means "the property was made more useful or valuable by the covenant"
• whether privity of contract exists

Prvity and intent were not at issue according to the majority.  The rationale of the Court as to why Saturday kid movies "touch and concern" the land and is a covenanr "running with the land" is interesting:

the showing of Saturday movies for children directly relates to the ongoing operation of the theater.  The Saturday children's movies are deeply intertwined with how the theater may be used on Saturdays and affects many areas of the business, including maintenance, scheduling, income, purchasing, advertising, and marketing.  The property os also made more useful by tremendously increasing the theater's usage by children, as well as their parents, the theater will also increase the goodwill between it abd the nearby neighborhoods, citizens, and rhe surrounding area.   

For my money, while the Court got the test right, the case sorta feels like a result in need of a rationale.

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This morning I went down to the weekly Franklin County Sheriff's Sale to bid on a property for a client.  I don't get down there for this sort of thing that much anymore - paralegals and clients themselves tend to take the duty - but it was interesting to see both what was the same and what had changed from when I was the designated attendee years ago.

In the "old days", i.e. more than 20 years ago, sheriff's sales in foreclosures really did happen on the courthouse steps in some places.  Here in Franklin County, Ohio, sheriff's sales in foreclosures were done in the lobby of the Common Pleas Courthouse by a burly looking guy standing behind an enormous wooden podium (which is actually still there) and wielding a gavel.  It was noisy and necessarily a tad uncomfortable because it was strictly a standing only event with no seats.  And there really was a bit of a sense of drama as folks milled around waiting for the sale to begin.  And the actual fall of the gavel was a nice touch too.

Today, Franklin County sheriff's sales in foreclosure cases take place in a large nice quiet carpeted auditorium/room on the first floor of the courthouse with plenty of seats for everyone.  Three women - substantially less intimidating than I remember the guy doing it years ago - run the sales from a podium on a stage raised about 6 feet at the front of the room.  Then there are about a dozen table desks, well spaced in 3 rows, for the "regulars" who attend the event every week and may be bidding on multiple properties.  And for the rest of us, a couple of rows of reasonably comfortable chairs set up behind the special desks.  It is obviously a far more sensible arrangement, but at least to me, it somehow just doesn't quite seem as "official"  -- although of course it is.

Promptly at 9 AM every Friday (the time and day for sheriff's sales vary from county to county), the foreclosure sales begin.  First, all of the properties being withdrawn from sale, mostly because of bankruptcy filings but also possibly because they have been brought current or for some other reason, are read in alphabetical order by debtor.  Then each property is called in turn, again alphabetically by the principal defendant owner.  (Other counties may use a different order.)  Since my case involved a debtor defendant whose name started with "W", I was there for quite a while... and began to really appreciate the progress represented by the provision of those chairs.

So what happens, exactly?  Each sale is announced in the same way:

• Big Bank v. Jones at 123 Columbus Street,
• [Case  No.] 08-XXXX,
• Attorney Rasmussen,
• Appraised $XXX,XXX,
• Deposit $XX,XXX [in Franklin County and many other  Ohio counties, this is at least 10% of the appraised value, although the plaintiff lender can require more], 
• Parcel No. XXX-XXX-XXXX

And then, a brief description mentioning the subdivision or other identifying information is mentioned, followed by the words: 

Commonly known as 123 Columbus Street.  I need an Opening Bid of $XXX,XXX [here in Ohio this would be two-thirds of the Appraised Amount]    

At this juncture, bidding is open to everyone in attendance.    Sheriff's sales are open to the public.  It is not necessary to be an attorney, or even a paralegal, to bid.  Nor do you even have to be a resident of Ohio.  You do not have to register in advance, or even on the day of the sale,  to attend or bid.  You do, however, have to be there in person.  Eventually, sheriff's sales may carch up with technology, but for now there's no bidding by telephone or on-line and no streaming video of the sales as they happen. 

For most properties, there's not much interest.  Sometimes even the foreclosing plaintiff lender doesn't bid.  In these cases, the words "No Bid, No Sale "are intoned and the property will be reappraised at a lower value and offered for sale some subsequent Friday.   If, as often happens, the plaintiff lender makes the opening bid at the required minimum amount (and ocasionally for a bit more) and everyone else sits on their hands, the representative of the Sheriff's office simply says "Sold to the Plaintiff for $XX".

In the relatively rare situation in which there actually is some interest in the property being offered at foreclosure sale, bidding begins at the minimum bid amount, frequently kicked of by the plaintiff lender, and it goes from there.  There is no "auctioneer" in the sense of someone rattling on trying to coax higher bids as you might see in an ordinary auction.  Rather interested bidders simply speak up and the Sheriff's representative repeats the amount and pauses to see if anyone else wishes to place a higher bid.    If bidding gets bogged down, certain minimum increments may be imposed, but for the most part, bidding increases in the amounts desired by those bidding.  When it appears that no one wishes to place a higher bid, the iconic words "Going once, going twice, sold to... " are spoken, bringing the sale to an end.

At this point , the successful bidder must bring his properly completed Real Estate Judicial Sale Purchaser information Form and a Cashier's Check (no personal or company checks permitted except for lienholders) in the amount of the required deposit to the front of the room and hand it to the Sheriff's representative.  THIS MUST HAPPEN IMMEDIATELY - there is no waiting for the successful bidder to "go out to their car"  or over to the nearest bank branch to get the check - IMMEDIATE means NOW and if the deposit check isn't forthcoming or the paperwork is otherwise not in order for some reason, the property will be immediately resold right then and there!  (That actually happened once today although I don't know exactly what was wrong.) 

And then it's over.  No gavel now...  they just move on to the next property.  It's then up to the plaintiff lender's attorney to prepare a Confirmation Order within 3O days naming the successful bidder and specifying how the proceeds of sale are to be distributed in accordance with the applicable priority of the various lienholders.  The sheriff's deed conveying the real estate to the successful bidder and new owner must be prepared within 7 days after entry of the Confirmation Order and submitted to the Sheriff's office.  Sometimes it can then take quite a while after that before the deed actually gets recorded.  Once the Confirmation Order is entered by the Common Pleas Court, there is NO EQUITY OF REDEMPTION allowing the defendant to regain possession of the real property and the sale is final.

For more information about how Sheriff's sales are conducted here in Franklin County, Ohio, visit  the Franklin County Sheriff's website and click the "Civil Real Estate Sales" button on the left hand side of the page.   You can also find lists of properties to be sold at upcoming foreclosure sales, as well as the results of recently completed sales here - the results from today's sale were up by lunchtime.  Because Ohio's foreclosure law has recently changed, it may also be worthwhile to review the informational WHAT YOU NEED TO KNOW AS A POTENTIAL THIRD PARTY PURCHASER material made available there.

All in all, a fairly interesting Friday morning.

For another person's account of the experience, visit A Trip to the Franklin County Sheriff's Weekly Real Estate Auction.

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It's been a couple of months now since Ohio's new recording law (revised Ohio Rev. Code section 317.114) regarding the required format of documents and instruments  filed in county recorder's office went into effect.  Such documents  and instruments includes deeds, mortgages, easements, mechancs' liens, and similar items.  And it appears that the new formatting requirements are being VERY strictly enforced throughout the state.

For those not yet in the know, effective July 1, 2009, it became very important to pay attention to the formatting of documents and instruments to be filed in county recorder's offices.  The most important requirements now are:

• There must be a 3 inch margin on the top of the first page so that there is adequate room for county officers to affix their various filing information; 1 1/2 inch margin on the top of the remaining pages
• All other margins (side and bottom) must be at least 1 inch,
• Signatures must only be in blue or black ink. 
• At least 10 point font type must be used

And what if you mess up?  Well then you must pay an additional $20 recording fee.

Now while you might think these are a pain, they don't seem like they would be all that hard to do, right?  Here's some things you might not have thought of that are falling afoul of the new law:

• The required margins are sacrosanct.  Among other things which do NOT or may not comply are:
  • Document ID numbers in the footer (at least at my office, these are automatically added)
  • Signatures which bleed into the side margins or are too close to the bottom.  People with long names or who have capital G, J, Y or Z or lower case f, g, j , p, q or y in their names may be particular risks in this area
  • Page numbers
  • "Return to" or "This Instrument prepared by" notations in the margins
  • Borrower's intials often found in the lower right hand corner of  form residential mortgages
  • Notary's stamp encroaching on a margin
  • Older file-stamped legal descriptions used as exhibits

• At least 10 point type means EVERYWHERE.  Here's some things which may not have crossed your mind:
  • Document ID numbers
  • Older file-stamped legal descriptions used as exhibits
  • "Return to" or "This Instrument prepared by" notations

Subsection (B) does have certain exceptions such as any document originating with a court or taxing authority or from a state or federal agency

Bottomline, until you get used to the new requirements, take special care to make sure your documents comply.  Or I suppose you could just decide you'd rather just pay the extra $20. 

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In catching up on my CLE (continuing legal education for the nonlawyers out there) reading the other day I came across a case in which a businessperson actually HAD listened to their lawyer, but took the lesson a step too far.  One of the things I always try to impress on folks for whom I have just formed a corporation or limited liability company is the importance of respecting the event of formation and acting accordingly.  Specifically, I explain that it is important to sign all legal documents for the new company in a way that clearly shows the intent to sign in a representative capacity.  This protects the signer from unintentional personal liability.

So if the name of the company is Raztigger Enterprises, Inc., the signature line should look like this:

Raztigger Enterprises, Inc,

By__________________________

     Teri G. Rasmussen, President

If we're talking a limited liability company, then it would look like this:

Raztigger Enterprises, LLC

By__________________________

     Teri G. Rasmussen, Member

If we're dealing with a form and there's not enough space for a proper signature block, at least remember to put your title after your name:

Teri Rasmussen, Member.

In Westgate Village Shopping Center v. Parker, 2008-Ohio-2571 (6th App. Dist.), Patricia Parker got just a little bit  too smart with respect to signing a shopping center lease.  As is often the case, the landlord presented Ms. Parker with both a lease and a lease guaranty with respect to premises to be leased to her company, Horizons Computer Traning and Employability Center, LLC.  The guaranty agreement indicated that "the undersigned"  guaranteed the payment or f rent and other charges under the lease.  Ms. Parker signed the lease guaranty as "Patricia Parker" and then wrote the words "Executive Director" immediately beneath her signature. 

When the company defaulted on the lease and the landlord sued Ms. Parker, she contended that she had signed the guaranty as a representative of the company and not in her personal capacity.   Pretty smart, huh?  Well, the trial court thought so and sided with Ms. Parker.

The Court of Appeals reversed and held Ms. Parker personally liable, basically on common sense grounds that there's no point to guaranteeing your own debt.    The Court of Appeals referenced an earlier case involving a similar fact pattern and adopted its holding to the effect:

"the general rule of interpretation governing this kind of signature is that such words as "president" are merely descriptive of the character or capacity of the person signing the document" and do not allow the individual signing the guaranty to "deny the personal liability imposed by the clear and unambiguous language of that guaranty",

While certainly an interesting defense, the appeals court got it right.  While Ms. Parker may have taken the point a little far, it doesn't change the importance of remembering in most cases to indicate your representative capacity and respect the separateness of the company you have formed.  Here's a letter I often send to clients concerning importantt things to remember about acting in ways that do just that.

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With the economy seemingly in a tailspin, even comparatively healthy businesses are being affected by the bankruptcy of other companies with which they have a landlord-tenant relationship.  For commercial landlords faced with the bankruptcy of a business tenant, the questions usually revolve around will I get paid and, if not, how can I get this deadbeat out?  For tenants, the bankruptcy of a landlord raises the even more basic question:  so now, what?   Either way, section 365 and section 502 of the Bankruptcy Code have the answers.

>>> If You Are a Commercial Landlord of Nonresidential Real Property with a Tenant Who Has Filed Bankruptcy...

     1.      Remember the Automatic Stay!  Section 362 of the Bankruptcy Code imposes an injunction-like automatic stay which prevents a landlord from commencing or continuing any eviction or collection action against a delinquent tenant.  This applies in all bankruptcy cases, whether Chapter 7, 11,12, or 13.  Contempt charges, fines, and in extreme cases, even jail, can result from vi9olations of the automatic stay.

• EXCEPTION - If the lease has in fact actually been terminated BEFORE the date the bankruptcy petition, Bankruptcy Code sections 362(b)(10) and 541(b)(2) allow actions to recover possession of the premises to proceed.  Collection actions to recover money judgment would still be stayed.

     2.     Expect to Receive Post-Petition Administrative Rent If Tenant Does Not Vacate Premises.  If a business tenant remains in possession of premises after filing bankruptcy, the landlord is entitled under section 365(d)(3) of the Bankruptcy Code to rent at the contract rate payable according to the terms of the lease until such time as the debtor tenant rejects the lease, surrenders and vacates the leased property.  The debtor is expected to make immediate timely payment of these amounts as they come due.  The amount of this post-petition rent is an administrative claim entitled to priority in payment over other unsecured claims; it's up there with taxes and the debtor's attorneys fees.

• In Chapter 7 cases, the lease is automatically deemed rejected in 60 days unless the trustee has sought and obtained additional time within which to make a decision regarding how to handle the lease.  Section 365(d)(1). 

• If administrative rent is not promptly and timely paid, it may be necessary to file a motion seeking relief from stay.

     3.     Know Your Rights If the Debtor Tenant Wants to Assume or Assign the Lease.  Before an unexpired lease of nonresidential real property can be assumed or assigned, Bankruptcy Code section 365(b) requires the following:

• All monetary defaults must be cured.
• "Adequate assurance" must be provided that any nonmonetary defaults will be promptly cured.
• Adequate assurance" must be provided that lease obligations will continue to be satisfied in the future. 
• If the property involved is a shopping center, there are some additional specific requirements that must be met pursuant to section 365(b0(30 of the Bankruptcy Code

In addition, the lease must be assumed as a whole; the debtor tenant is not allowed to modify or cherry-pick the terms it wishes to have included and reject the remaining terms.  It is also important to rememeber that, in a change made in 2005 by Congress, the debtor tenant must make a decision concerning whether to assume or assign a lease within 120 days after the date the bankruptcy petition is filed; the debtor may obtain one 90 day extentsion of this deadline, but that is all.  If no decision is made, the lease is deemed rejected.  Section 365(d)(4). 

     4.     Understand What You Are Entitled to Receive If the Lease is "Rejected ".    If a nonresidential real property lease is rejected, the landlord is entitled to lease rejection damages under section 502(b)(6) in an amount equal to the greater of (i) one year of rent; or (ii) 15% of the remaining rent due, not to exceed three years worth of rent payments.  Thus, for long term leases with a substantial balance remaining, this generally results in a cap of one year's rent, including any cost of living increases.

• This claim will be treated as an unsecured claim, but is in addition to the administrative rent claim discussed above and any unsecured claim to prepetition deliquent rent discussed below.

• Generally, CAM common area maintenace charges and similar aspects of "additional rent' required under a lease are included within the calculation if they are properly designated. 

• There is some case law suggesting that  a landlord may forfeit this claim if the property is sold after the debtor tenant's rejection of a lease. 

• Some recent caselaw also suggests that tort-like damages for damage to the premises may not fall within the cap imposed on lease rejection damages. 

• The amount of any security deposit held by a landlord may be used to offset this claim or one for prepetition rent owed, but under section 362(a)(7) of the Bankruptcy Code, relief from stay is needed before doing this. 

• A landlord may be able to protect itself by insisting upon a letter of credit which would allow it to receive payment for the remaining rent from a source other than the debtor's bankruptcy estate.  However, not all courts agree.

     5.     Don't Forget to File a Proof of Claim for Prepetition Unpaid Rent.  In addition to lease rejection damages and any applicable administrative rent, a landlord of nonresidential real property is entitled to an unsecured claim pursuant to section 502(b)(6)(B) for unpaid rent due and owing to the landlord from the debtor tenant  as of the day the bankruptcy petition was filed.

 >>> If You Are a Tenant Occupying Nonresidential Real Property and Your Landlord Has Filed Bankruptcy....  

     1.     Don't Panic,,,, Yet.  Unless you are subletting - which raises a whole 'nother set of issues - you don't have to vacate the premises.  Until a decision is made by the landlord to reject the lease, the landlord remains obligated to comply with its obligations under the lease to you.  Also the automatic stay may protect you - at least temporarily -- from any disruptions that might otherwise be caused by creditors of your landlord.  And because you represent a source of revenue, it is likely that you will receive the attention of professionals engaged to assist the debtor landlord.  

     2.     If the Landlord Chooses to Assume or Assign Your Lease.  Just as a tenant debtor must cure monetary defaults and provide "adequate assurance"  of the prompt cure of nonmonetary defaults and of future performance under the lease, so too must the debtor landlord if it wishes to assume or assign the lease with a nondebtor tenant.  The Retail Law Observer has this useful post regarding how tenants can take protective action now to strengthen their position in the event of a landlord bankruptcy.

   3.     If the Landlord Decides to Reject the Lease.   Even if the debtor landlord decides to reject a teant's lease, under section 365(h), the tenant still has the option of either (i) treating the lease as terminated and vacating the premises; or (ii) remaining in possession.  If the tenant opts to remain, the landlord is not required to perform any of its obligations under the lease, but is entitled to offset any damages cause by the landlord's failure to perform its obligations against the tenant's rent obligations. 

    4.     File a Proof of Claim for Any Damages Not Offset by Rent Obligations.  If the landlord fails to perform their obligations under the lease, this may cause a tenant damages.   if so, a proof of claim shuld be filed detailing those damages.     

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Now that I'm well into YEAR TWO of this legal blogging thing, I thought it might be fun to take stock of the neighbors.  So today I am presenting what I think is a relatively comprehensive list of Ohio-based legal blogs, together with the date they started publishing and a few comments of my own.  My apologies in advance for leaving anyone out or getting start dates wrong. 

My criteria was basically legal blogs focused on Ohio law or authored by Ohio based attorneys.  I took a little stab at this several months ago in my My Favorite Ohio-Based Legal Blogs post, but this time I really looked around to be as inclusive as possible..

The oldest blog still going that I could find isn't even five years old, although there were a few blogs that I couldn't quite tell when they first began.   With the others, I relied upon whatever the earliest post in the archives seemed to be.  What's even more interesting, however, is the explosion in the number of Ohio-based legal blogs which started publishing last year. 

When it comes to law firms embracing blogs, Frost Brown Todd is the clear leader with four separate blogs.  Unfortunately, since all of the blogs are located on a subpage of Frost Brown Todd's website, casual access to the blogs and their content via search engines and otherwise is not as easy as it should be given the quality of the posts which all of the blogs boast.

BEST OHIO-BASED LEGAL BLOGS.  Some blogs just catch your fancy more than others.  For me, it's a combination of quality writing, interesting and helpful content, unique/intriguing perspectives, and generous links to other resources if I want to know more about the subject.  Some of the blogs listed below were fairly hard to find so I'm not intimately familiar with all the blogs on the list; however, I did at least try to get some sort of feel for each of these blogs once I found them. 

I don't pretend that I went through any scientific process to determine this, but  from my perspective as a semi-established Ohio law blogger, here are my picks (excluding myself, of course) for the 

BEST THREE OHIO-BASED LEGAL BLOGS 

• The Briefcase
• Cleveland Law Library Weblog
• Ohio Employer's Law Blog

Honorable Mention goes to:

• The D & O Diary
• Ohio Environmental Lawyer
• The Alternative Fee Lawyer 

AND NOW THE ROSTER >>>>

Since this is, after all, the Ohio Practical BUSINESS Law blog, let's start with blogs focused on business/corporate law:

BUSINESS/CORPORATE

• The D & O Diary - Kevin LaCroix, Oakbridge Insurance Services -May 2006 >>> Bills itself as "a periodic journal containing items of interest from the world of directors and officers liability, with occasional commentary".  Very detailed and well written posts from the perspective of someone interested in minimizing management liability.

• Corporate Governance Blog - Bricker & Eckler - NA >>> Offers "counsel for Boards and Executives" in generally short nonbylined to-the-point posts on timely issues.

• Business Law Prof Blog - Dan Oesterle, editor, The Ohio State University - May 2005 >>> "A member of the Law Professor Blogs network".  Frequent posts on business news items

• Banking L@w Blog  - Frost Brown Todd - NA >>> Provides the "latest information on banking litigation and dispute resolution",

• Cleveland Bankruptcy Lawyer Blog - Justin Smith - June 2008 >>> Covers bankruptcy  news and law from perspective of debtor.

•  Ohio.Merger.Blawg - Jim Rench, Stark & Knoll - November 2006 >>> Describes itself as "a blog on recent and topical developments in corporate transactions law."  Features commentary on news and events in business.

• Global Law - Frost Brown Todd - NA  >>> "Resource for business leaders within the international commerce industry". 

• Small Business Trends  - Anita Campbell - October 2003 >>>  This one really isn't technically a legal blog at all, but it does frequently cover business law topics and is edited by Ohio-based lawyer so I'm including it anyway.  Always informative posts on a variety of issues facing smaller privately held businesses. 

• Ohio Practical Business Law - Teri Rasmussen, Plunkett Cooney - October 2007 >>> Offers "practical guidance for making legaly informed business decisions".

LAW LIBRARY BLOGS

• Cleveland Law Library Weblog - Sue Altmeyer (?) -  March 2005 >>> "Our goal is to inform local attorneys of major legal developments important to their practice".  Very short -- but extremely informative -- posts, often concerning topics of interest and importance to the practice of law in Ohio.  Very newsy.  I frequently visit just to catch up on developments which may have otherwise slipped under my radar or to get ideas for posts.  GREAT links to other sources with more information about the topic being discussed.

• Cincinnati Law Library Blog - Chuck Kallendorf - July 2004 >>> Similar to the Cleveland Law Library Weblog, but less frequent posting.

• Moritz Legal Information Blog - Matt Steinke - January 2006 >>> Providing " "legal information and research resources brought to you by the Michael E. Moritz law Library at The Ohio State University".  Very short posts with limited frrequency

• Stark County Law Library Weblog - Nancy Stinson - November 2008 >>> "Serving the legal community of Stark County, Ohio" by presenting playful, fun posts on legal topics of interest.  This looks like a blog I ought to frequent more often.  Recently received a  Blawggie from  DennisKennedy.com for Best Legal Blog Digest.

LABOR AND EMPLOYMENT

• Ohio Employer's Law Blog - Jon Hyman, Kohrman, Jackson & Kranitz - May 2007 >>> Promises "practical employment law information for business in ohio and beyond"  and delivers.  Generally short pithy posts on practical matters employers definitely need to know.  Its WIRTW (aka What I'm Reading this Week" segment is a useful round-up of other blog posts in the area of labor and employment.

• Employer's Law Report - Porter, Wright, Morris & Arthur - December 2007 >>> Presents posts "reporting on recent legal developments and trends affecting employers."  Personally  i like the "Employment Outtakes"category which feature sometimes humorous situations which would probably have gone better had an employment lawyer been consulted. 

• HR Source Legal Source - Tod Morrow, Hans Nilges, and Susan Chae, Buckingham, Doolittle & Burroughs, LLP - NA >>> Featuring posts regarding "labor and employment law for hyman resources professionals".  

• The Ohio Labor Lawyers - Matthew Austin, Mason Law Firm - December 2008 >>> Promises that "we change the way you deal with unions" and posts from the perspective of management.   Features "What If Wednesdays" weekly posts about what to do "if certain things in the world of labor happen to you." 

• The Ohio Employment Lawyers - Aaron Tulecik, Mason Law Firm - December 2008  >>> Promises that "we solve your workplace issues"  Posts on employment  law news from perspective of management.

• Employer Notes - Frost Brown Todd -- NA  >>> Provides the "latest information regarding employers".

REAL ESTATE

•  Ohio Real Estate Blog - Kohrman, Jackson & Kranitz - April 2008 >>> Useful posts by various firm attorneys on a wide variety of real estate law topics

•  Real Estate Advisor Law Blog - Brian Kaplan, Ulmer & Berne - December 2008 >>>  Describes its purpose as "disseminat[ing] pertinent information in a timely manner relating to real estate, construction, financing, environmental and related matters... [and designed] to identify trends and opportunities that our clients and contacts deem important for their businesses." 

CONSTRUCTION

• Construction Law News - Frost Brown Todd - NA >>> Bills itself as "a resource for construction industry professionals".

• Build on This - Rana Gorzeck, Buckingham, Doolittle & Burroughs - (March 2005 - August 2008, now apparently defunct) >>> Presenting "current news, information and events affecting the real estate construction and land use industry and its professsionalism"

ESTATE PLANNING

• The Ohio Trust & Estate Blog,- Michael D. Bonesera, Dinsmore & Shohl, LLP - NA >>> Helpful, relatively short posts concerniing trusts and estate planning issues 

• Ohio Estate Planning, Trust & Probate Law - Bradley Wrightsel, Wrightsel & Wrightsel - 2008 >> Describes itself as "a law blog (BLAWG) for professionals and the general public in ohio regarding estate plannig, trust, and probate law."

  CRIMINAL LAW

• The Briefcase - Russ Bensing - May 2006 >>> Describes itself as "commentary and analysis of Ohio law".  This remains one of my favorite blogs to look in on periodically even though the subject matter isn't one with much relvance to my practice areas.  I enjoy Russ's wit and storytelling ability as he posts about various adventures as a criminal lawyer.  And his Ohio appellate case summaries are useful too.  

• Sixth Circuit Blog - Federal Defenders of the Sixth Circuit - April 2005  >>> Providing "case summaries and commentary by federal defenders of the Sixth Circuit"   

MISCELLANEOUS

• Consumer Rights Law Blog - Ron Burdge - 2005 >>> Addresses "motor vehicle lemon law, consumer protection law, auto industry news, notes, issues and updates".   Very attractive layout featuring  posts of interest to consumers.

• Ohio Family Law Blog - Robert Mues, Holzfaster, Cecil, McKnight & Mues, LPA - December 2007 >>> Offering "family law and divorce information for Ohio families seeking solutions".  Frequent guest contributors.  Helpful, very accessible, posts focusing on important issues in this area.   

• Tsibouris & Associates Law Blog - Dino Tsibouris and Mehmet Munur, Tsibouris & Associates - January 2005 >>>  interesting posts on a variety of subjects, but with special emphasis on technology law, privacy and security law and issues involving financial services.

•  The Alternative Fee Lawyer - Michael Grodhaus, Waite, Schneider, Bayless & Chesley - January 2008 >>> Featuring "an Ohio business lawyer's reflections on alternatives to the billable hour in setting legal fees for business clients".  Insightful, if somewhat sporadic, posts on an extremely timely and important  topic . This is a blog that I would really like to hear more from.

• Ohio Environmental Law Blog - Joseph Koncelik, Frantz Ward, LLP - June 2008 >>> Presenting "insight and commentary for the business and legal community" regarding environmental law. 

• Juvan's Health Law Update - Jayne Juvan, Benesch, Friedlander, Coplan & Aronoff, LLP - September 2006 >>> Presents posts "at the intersection of health care and private equity".

• Ohio Law Blog - Morrison & Nicholson, LLC - December 2007 (very sporadic posting, primarily in December and January)

• Sixth Circuit Blog - Eric Zagrams - last post in November 2008, rather sporadic before then  >>> Says that it is "devoted to appellate law and practice within the Sixth Circuit and constituent States." 

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One of the immediate effects of a bankruptcy petition (of any type, whether Chapter 7, 11, or 13) is the imposition of the "automatic stay" pursuant to section 362 of the Bankruptcy Code which stops creditors cold in their tracks.  My law school professor used to say that all the creditor could do at this point was "smile at the debtor".  So what's a creditor to do?  Seek relief from stay, that's what.

Creditors wanting to go on about their business of enforcing their remedies for a debtor's default must apply to the Bankruptcy Court for permission to continue by filing a Motion for Relief from Stay.  In my part of the world here in Central Ohio, creditors seeking relief from stay in the Southern District of Ohio Bankruptcy Court must also comply with the procedures set out in Local Bankruptcy Rule 4001-1.  Among other things, that means completion of a worksheet summarizing important information about the debt nvolved and the value of the property  

Generally, two sorts of creditors seek stay relief  - secured creditors with liens on personal or real property and parties immursed in underlying litigation in another forum better suited to determine liability of the debtor.  To be successful, a party seeking relief from stay must satisfy one of the subsections of section 362(d) of the Bankruptcy Code which provides:

 (d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay—

(1) for cause, including the lack of adequate protection of an interest in property of such party in interest;

 

(2) with respect to a stay of an act against property under subsection (a) of this section, if—

 

(A) the debtor does not have an equity in such property; and

(B) such property is not necessary to an effective reorganization;

(3) with respect to a stay of an act against single asset real estate under subsection (a), by a creditor whose claim is secured by an interest in such real estate, unless, not later than the date that is 90 days after the entry of the order for relief (or such later date as the court may determine for cause by order entered within that 90-day period) or 30 days after the court determines that the debtor is subject to this paragraph, whichever is later—

 

(A) the debtor has filed a plan of reorganization that has a reasonable possibility of being confirmed within a reasonable time; or

(B) the debtor has commenced monthly payments that—

(i) may, in the debtor’s sole discretion, notwithstanding section 363 (c)(2), be made from rents or other income generated before, on, or after the date of the commencement of the case by or from the property to each creditor whose claim is secured by such real estate (other than a claim secured by a judgment lien or by an unmatured statutory lien); and

(ii) are in an amount equal to interest at the then applicable nondefault contract rate of interest on the value of the creditor’s interest in the real estate; or

(4) with respect to a stay of an act against real property under subsection (a), by a creditor whose claim is secured by an interest in such real property, if the court finds that the filing of the petition was part of a scheme to delay, hinder, and defraud creditors that involved either—

 

(A) transfer of all or part ownership of, or other interest in, such real property without the consent of the secured creditor or court approval; or

(B) multiple bankruptcy filings affecting such real property.

If recorded in compliance with applicable State laws governing notices of interests or liens in real property, an order entered under paragraph (4) shall be binding in any other case under this title purporting to affect such real property filed not later than 2 years after the date of the entry of such order by the court, except that a debtor in a subsequent case under this title may move for relief from such order based upon changed circumstances or for good cause shown, after notice and a hearing. Any Federal, State, or local governmental unit that accepts notices of interests or liens in real property shall accept any certified copy of an order described in this subsection for indexing and recording.

Subsection (d)(2) - No Equity.   When I started practicing bankruptcy in Columbus almost 25 years ago, stay relief was fairly straightforward.  Mostly we went under subsection (d)(2) - no equity in the property and not necessary for an effective reorganization.  In Chapter 7 cases, that was pretty much a "slam dunk" from the "get-go",  In Chapter 11  or 13 cases, you might have to wait a few months just to make it easier to demonstrate that no reorganization was over the next hill, but it was still fairly cut and dried.  This tried and true option is still the the preferred route for creditors if they qualify. 

Subsection (d)(1) - Lack of Adequate Protection.  Another established option avbilable to creditors seeking relief from stay is subsection (d)(1) "for cause, including the lack of adequate protection".  Section 361 of the Bankruptcy Code defines "adequate protection" in some detail, but basically "adequate protection" is about compensating a creditor in such a way, usually with monetary payments, as to preserve the status quo existing at the time the bankruptcy petition was filed.  Generally, this grounds for relief from stay lends itself to situations in which the property pledged as collateral is deteriorating in value and/or any "equity cushion" representing the amount the value of the collateral exceeds the debt secured by it is small, nonexistent, or decreasing.  From the secured creditor's perspective, this ground is often used in tandem with subsection (d)(1) on the theory that at worst, the creditor will wind up receiving periodic (probably monthly) payments in most cases representing accrued interest.      

Subsection (d)(1) - "For Cause".  The more general "for cause" stay relief ground of subsection 362(d)(1) is a little more interesting.  It is the ground relied upon in insurance and other cases in which another court is in the process of, or is better suited, to determine what, if any, liability the debtor has with respect to a contingent or otherwise unliquidated claim asserted by a creditor.  It's also a catch-all provision allowing the Bankruptcy Court to exercise its powers of equity in appropriate cases,

"As used in §362(d)(1), the term ‘cause’ is a broad and flexible concept which permits a bankruptcy court, as a court of equity, to respond to inherently fact-sensitive situations.”   In re Indian River Estates, Inc., 293 B.R. 429, 433 (Bankr. N.D. Ohio 2003).   As the Bankruptcy Court explained:

Where relief from stay is being sought in order to continue the enforcement of a prior judgment, this Court in determining the existence of “cause”, has applied a balancing test, whereby the interests of the estate are weighed against the hardships that will be incurred by the creditor-plaintiff. For example, if lifting the stay would be unfairly detrimental to a debtor’s other creditors, relief will generally not be granted. On the other hand, if the debtor will unlikely be able to propose a plan of reorganization, “cause” for lifting the stay will usually be found.

A lack of good faith may constitute “cause” for lifting the automatic stay. In re Trident Associates Limited Partnership, 52 F.3d 127 (6^th Cir. 1994). “Cause” can certainly include improper pre-petition conduct by Debtor, In re Charfoos, 979 F.2d 390, 394 (6^th Cir. 1992).  In evaluating whether a lack of good faith such as would justify a lifting of the stay, the Sixth Circuit enumerated the following factors in In re Trident Associates Limited Partnership, namely:

• Debtor has one asset
• Pre-petition conduct of debtor has been improper
• Debtor has only a few unsecured creditors
• Debtor’s property has been posted for foreclosure and debtor has been unsuccessful in defending against foreclosure in state court
• Debtor and creditor have proceeded to a standstill in state court and debtor has lost
• Filing of the petition effectively allows the debtor to evade court order
• Debtor has no ongoing business or employees
• Lack of possibility of reorganization

In the last few years, additional subsections have been added to section 362(d) that address situations in which a secured creditor previously might have had to rely on the general "for cause" grounds of subsection (d)(1). 

Subsection (d)(3) - "Single Asset Real Estate".  Subsection (d)(3) applies to cases involving "single asset real estate" and starts a clock ticking in these cases.  Section 101(51B) of the  Bankruptcy Code defines "single asset real estate" as:

real property constituting a single property or project, other than residential real property with fewer than 4 residential units, which generates substantially all of the gross income of a debtor who is not a family farmer and on which no substantial business is being conducted by a debtor other than the business of operating the real property and activities incidental.  

Under subsection (d)93), when a bankruptcy (usually a Chapter 11) involves "single asset real estate", the debtor has 90 days to either file  a feasible plan of reorganization OR essentially start making adequate protection payments in an amount equal to the accruing interest - calculated at a nondefault rate - on the VALUE of the property securing the creditor's claim.

Subsection (d)(4) - Multiple Bankruptcy Filings Affecting Real Property Parcel.  Finally, subsection 362(d)(4) relates to the situation in which a debtor has abused the bankruptcy system with serial filings affecting real property.  This might apply in situations in which there have been multiple filings by the same debtor or tag-team filings by a husband and wife. 

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The Ohio Real Estate Blog recently offered negotiating tips for commercial tenants entitled "40 Ways to Reduce Occupancy Cost/Risk in 2009" (with a hat tip to Greg Schenk of the The Schenk Company, Inc.).  While some of the suggestions (such as limiting guarantees in some respect) seem to fall in the category of "great, if you could get it", most are more realistic.  In general, the tips fall in the following areas:

• Exit Strategies.  Negotiate "kick-out" clauses  which allow early termination by the tenant at least under certain triggering events; more lenient assignment provisions, use shorter lease terms and more renewal options/ as many longer options as possible.

• Negotiation of CAM (Common Area Mantenance) terms.  Base on total rent without offset for vacancies or anchor tenants; eliminate or reduce inclusion of administrative fee; cap management fee (4%-6% is typical); make sure you have right to audit CAM.

• Default Provisions.  Get notice and cure periods; increase grace period for late rent payments and other cure periods; decrease late fees; limit number of events of default

Some others that I particularly liked:

• Eliminate ability of landlord to relcate tenant or make relocation at landlord's expense.
• No percentage rent or at least establlish a break-point before percentage rent commences
• Make sure property's rules and regulations cover potential problems other tenants might create
• Obtain right of first refual with respect to adjacent space or to buy property

 For commercial tenants looking at lease renewal in 2009, Greg Schenk breaks the news that landlords are likely to offer better deals to new tenants than those already in place and offers the following tips:

• Start the renegotiation process early, as much as a year for long term leases.
• Seek out other suitable locations and obtain real viable bids from other prospective landlords.
• Never accept your current landlord's first offer.
• Never reveal your interest in renewing your lease to the landlord or any of its agents, including property managers, maintenance or janitorial personnel.
• Always refer your landlord to your attorney or other professional representative. 

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In my last post, I highlighted a post by Mark Edwards at the Concurring Opinions blog focused on the plight of perhaps "blameless" tenants being evicted from property being foreclosed upon.  Although I think Mark has overstated the problem somewhat, I also believe he raises an excellent point of general application reminding us that there is a "human" consequence entailed in foreclosure that shouldn't just be ignored.

Keith Mullen of the Tough Times for Lenders blog who brought my attention to Mark's post has followed up with a post entitled "Foreclosure and the Residential Tenant: Some Helpful Hints".  In this post, Keith explains that commercial lenders should be more concerned about this topic because"the time will come when evicting a small business owner, or evicting families who occupy abandoned property (or a model home), or evicting laid-off workers occupying an abandoned warehouse ofr factory will gain the attention of the local media."  His suggestions, aimed at getting the property back "while managing media coverage":

• Realize that a broader spectrum of people and entities may need to be notified, i.e get the lender's community/governmental relations group involved so that they can "rach out to local community organizations and governmental agencies".
• As soon as you have the legal right to do so COMMUNICATE directly with the occupant(s) about the process and options available to them (e.g. local community and governmental resources)
• Consider entering into short-term leases both as a bridge to finding a replacement tenant and to allow occupants to find other housing
• Examine title records to determine any restrictions burdening the property.

Commercial lenders DO need to be concerned about the likely increasing complications involved in regaining possession of real property, but Keith's list seems to me to miss the point, both from the lender perspective of wanting the shortest least complicated route to clean possession and resale of the property and from the perspective of addressing the true underlying problem.  The challenge presented by the presence of perhaps unwanted occupants in foreclosed property is not as simple as just shoving the problem off to another division of the lender, but neither does it have to be a circus.   

Foreclosure, at least in Ohio, is not an especially swift process (click here and here for previous posts describing the procedures in Ohio). The best way to deal with the problem of squatters and/or other potentially unwanted occupants is to obtain the appointment of a receiver to manage the operation of the property and to sort out the occupancy issues during the pendency of the case.  Properly handled, any "media' issues should be able to be dealt with incrementally.  In addition, Keith's idea of utilizing short term leases to ameliorate any harshness entailed as a result of the forclosure process also seems like a useful approach.

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As a footnote to my last couple (click here and here) of posts about the Ohio foreclosure process, I thought it would be worthwhile to link to this recent post on "Evicting the Blameless Tenant"  by Mark Edwards of the Concurring Opinions blog which, especially for a legal blog post, has drawn substantial vociferous comments.  (Hat tip to the Tough Times for Lenders blog for their aptly titled "The Very Dark Side: Evicting tenants from foreclosed apartments" for drawing my attention to this post and pointing up the dichotomy between the lender/servicer view of apartment investment real estate as "project collateral" and the owner/investor (and certainly the tenant) perspective of an "apartment community").

This extremely well written post  poses the question of who as between a lender and a tenant should bear the risk of foreclosure.  It begins:

One of the most pernicious effects of the mortgage crisis has been the eviction of blameless tenants. Leases are usually terminated by foreclosure. Tenants who have never missed a rent payment, and who have no idea that their landlord has not been applying rent payments to their mortgage obligations, suddenly face eviction -- often with no notice.

 

It is difficult to overstate the trauma of the eviction. Tenants are not only turned out into the streets. Often their personal property is put on the curb or thrown into dumpsters. They don't just lose their homes -- they can lose everything they own. Passing rainstorms or scavengers can turn a lifetime's worth of work into nothing. Children in particular can be traumitized by seeing parents rendered powerless, by losing their possessions, and by the fear of the unknown. Violence is a constant threat.

While it is hard not to be moved by these words, it remains difficult for me to be believe that lenders routinely make the effort to boot out truly "blameless" tenants.   Although I can certainly conceive of situations in which tenants have dutifully paid their rent to an unscrupulous landlord who has filed to make mortgage payments, thus resulting in a foreclosure. it remains difficult for me to believe that the truly "blameless" tenant, whether residential or commercial, is all that frequently in danger of being thrown out on the street without warning.  For one thing, at least in Ohio, they would need to be named as defendants in the foreclosure for their rights to be definitively cut off.  

If the tenant is willing and able to continue paying rent at something close to a market rate, I just can't imagine that any purchaser in their right mind would want to disturb such a scenario.  In my experience, low vacancy properties with paying tenants are precisely the sort of commercial real estate valued most highly.  Why?  Because it's a turnkey operation and all the new owner has to do is notify the tenant(s) of a new address to which rent checks should be sent.  Why would any rational purchaser want to dump perfectly good tenants in favor of having to expend resources of time and money to go out and find others?

What I suspect is more likely the case is a situation in which the tenant has perhaps been a bit lax in consistently making timely rent payments - perhaps not so much deliquent that the property owner would be inclined to go to the trouble to get the tenant out, but enough to adversely affect the value of the property as a commercial investment.  In this scenario, it is not the "pure as the driven snow"  tenant we all feel for that we are really talking about.  

And now we are really back to the central issue in the larger foreclosure crisis - what to do about people who can no longer afford to remain in their homes and whether it matters whether we think they are at fault for allowing themselves to be in this situation.  Edwards (correctly in my view) recognizes that '[f]or the bank, the risk is that it is saddled with the responsibility of property management, and that it might be more difficult to sell the property".  He goes on to contend that the relative harm to the tenant of possible eviction and loss of personal property is higher and that

the absolute harm to society in general is greater [than the harm to the lender] when blameless tenants are evicted because of foreclosure, because eviction of blameless tenants has significant negative externalities for neighborhoods and cities. 

A number of the comments to the post (which are themselves interesting to read) seem to elicit an unusual amount of passion. and appear preccupied with allocating the moral supeiority high ground between the lender and tenant.  One more cogent comment by Nate Oman made the most sense to me and reflects my own questions as I read the post:

I am curious as to the underlying economics of these foreclosures. I can understand why the banks don't want to go into the property management business, but I don't see why avoiding that business requires evicting the tenants. Why can't the banks simply sell the properties along with the leases, which if the tenants really are blameless are a valuable income stream after all?

 

It seems to me that there are two possible issues. First, banks can't sell occupied property. Second, the leases lock in rental rates that no longer pay for the landlord. Niether of these seem intuitively plausible to me. The first possiblity is certainly belied by the routine sale of occupied commercial real estate. The second seems odd to me as well. If rent was somehow tied to the land lord's costs, then we would expect leases written at the height of the bubble to actually have very attractive terms given the current real estate market.

 

In short, I am confused as to exactly why this is happening. I suspect that there is some important part of the story that we are missing, and I'd like to understand what it is before signing off on any particular policy response.

While I certainly agree that commercial foreclosures could result in "collateral damage" to those actually living in the foreclosed property and that the"human element" of displaced residents raises issues that need to be addressed, I see these as social issues to be dealt with in a larger context.   Simply saying that because the lender has deeper pockets, it should have to deal with the problem (and in essence maintain the status quo of allowing continued occupancy of an apartment complex without regard to whether market rate rate is being paid by the third-party tenant)  seems too superficial (and frankly unfair) a solution to the issue. 

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In my last post, I made some overall observations about Ohio's required judicial foreclosure procedures and explained the initial steps necessary to begin the foreclosure process.  In this post, I will explain what is involved, once the Complaint has been properly filed, in getting the property being foreclosed upon to sheriff's sale

One other caveat about this explanation is that it relates to foreclosures filed in STATE court as opposed to FEDERAL court.  While foreclosures are generally filed in state court, especially when receivership is involved, if diversity jursidiction can be met, foreclosures are now being filed somewhat more often in federal court.  in Ohio, this seems to happen most often in Cuyahoga County where the federal court route is perceived as a faster track option.

STEP THREE - Receivership Detour.  (Less than one day to several weeks after Complaint is filed.)  When commercial investment property is involved such as an office building, apartment complex, or multi-family property, the real property is generating revenues in the form of rental payments from tenants.  Lenders wanting to protect that stream of income and apply it to the defaulted loan will often seek appointment of a receiver to manage the property.  In addition, property securing defaulted loans has often been the subject of deferred maintenance and lenders are frequently concerned about deteriorating value of the property as a result.

Virtually all commercial loan mortgages securing a loan of any size have explicit provisions in them pursuant to which the mortgagor consents in advance to the appointment of a receiver in advance.  The following is a very typical such provision:

If an Event of Default has occurred and is continuing, regardless of the adequacy of Lender’s security, without regard to Borrower’s solvency and without the necessity of giving prior notice (oral or written) to Borrower, Lender may apply to any court having jurisdiction for the appointment of receiver for the Mortgaged Property to take any or all the actions set forth in the preceding sentence. If Lender elects to seek the appointment of a receiver for the Mortgaged Property at any time after an Event of Default has occurred and is continuing, Borrower, by its execution of this instrument, expressly consents to the appointment of such receiver, including the appointment of a receiver ex parte if permitted by applicable law.

Thus, commercial borrowers have by contract usually agreed to the appointment of a receiver in the event of a default. 

If for some reason, the mortgage lacks the requisite language consenting to appointment of a receiver,  Ohio Rev. Code 2735.01 permits appointment of a receiver when:

 A receiver may be appointed by ... the court of common pleas or a judge thereof in his county … in the following cases:            …

(B) In an action by a mortgagee, for the foreclosure of his mortgage and sale of the mortgaged property, when it appears that the mortgaged property is in danger of being lost, removed, or materially injured, or that the condition of the mortgage has not been performed, and the property is probably insufficient to discharge the mortgage debt;

…

(F) In all other cases in which receivers have been appointed by the usages of equity.

Appointment of a receiver is also permissible under common law whenever it will prevent a wasting of assets. 

To expedite appointment of a receiver, a motion seeking appointment of a receiver is usually filed at the same time as the Complaint.  Technically, the identity of a receiver and the terms of his/her appointment are up to the Court, but generally (although this varies considerably from county to county and from judge to judge) the Court will follow the suggestion of the foreclosing creditor.  Once appointed, the party appointed as receiver will have to post a bond in an amount set by the Court.

While appointment of a receiver often makes sense with respect to income producing property, lenders must weigh those benefits against the additional costs associated with receivership such as the premium for a receiver's bond, fees and expenses of the receiver, and additional attorneys' fees.  

STEP FOUR - Obtaining Decree in Foreclosure.  (No less than 6 weeks, generally 16-24 weeks, sometimes much longer.)  Once the Complaint, and any applicable motion for a receiver, is filed, service of process must be obtained upon the defendants just as in any other lawsuit.  Generally, service is first sought by way of certified mail, then by regular ordinary first class U.S. mail, and then, if necessary, by appointment of a special process server or by advertising.  Obtaining good service on all defendants may take as little as a week or several months; generally this process only takes about a week or two.

Twenty-eight (28) days after being served, a defendant must file an answer to the Complaint.  If no answer ot other responsive pleading is filed, a default judgment will be entered against the defendant.  If a senior lienholder fails to answer, their lien can be eliminated without. any payment to the lienholder so it is important not to ignore a foreclosure initiated by another creditor.  If the foreclosure has been commenced by another creditor, a creditor has the option of  either (A) "crossclaiming" by setting forth its own foreclosure claims which can continue even if the first creditor resolves its differences with the delinquent borrower; or (B) simply filing an answer setting forth its interest in the property being foreclosed.

If one or more defendants answer, then a motion for summary judgment must be filed before a decree in  foreclosure can be obtained.  If factual issues exist, a full-blown trial may even be necessary. 

Unless and until a receiver has been appointed, the delinquent mortgagor may remain in possession of the real property throught the pendency of the foreclosure proceeding.

STEP FIVE - Setting a Date for Sheriff's Sale.  (No less than 6 weeks and often much longer.)  After the Court has entered the Decree in Foreclosure, whether by default judgment, grant of a summary judgment motion, or following trial on the merits, a separate Order of Sale must be entered directing the Sheriff to sell the subject property at auction,  Once the Decree in Foreclosure has been obtained, the Order of Sale is a formality and serves as the operational document to put the mechanics of the foreclosure sale procedure in motion.

Pursuant to Ohio Rev. Code 2329.17 and Ohio Rev, Code 2329.18, the Sheriff must obtain an appraisal of the property from three (3) appraisers and file a copy of the appraisals with the Court.  The Sheriff handles the appraisal process on his own without intervention, consultation, or assistance from the foreclosing creditor.  The average of the appraisals establishes a floor below which the property cannot be sold; pursuant to Ohio Rev. Code 2329.20, the required MINIMUM BID is TWO-THIRDS of the APPRAISED VALUE based on the appraisal filed with the Court. 

Before the real property can be sold, Ohio Rev. Code 2329.26  requires that a notice of sale, showing time and place of sale, address of the property,and certain other required information,  must be published in a newspaper of general circulation within the county beginning at least thrity (30) days before the date of sale.  The notice must be published at least once a week, on the same day of the week, for at least three weeks.  All defendants (other than those who failed to respond to the Complaint) must be served with the notice of sale at least seven days before the sale. 

STEP SIX - Selling the Property at Sheriff's Sale.  Once the date of sale has been obtained and proper notice has been sent out, there is little for anyone to do but wait.   While Ohio Rev. Code 2339.272 permits the Sheriff to hold an "open house" at which prospective purchasers may view the property being foreclosed upon, in my experience, that rarely, if ever, happens.  Commercial investment property has typically remained open to the public thoroughout  the foreclosure proceedings so in these cases, perhaps the need for an "open house" is relatively small.  However, in residential foreclosures, the borrower may have moved out and the actual condition of the property may not be readily apparent.   In both cases, the doctrine of caveat emptor, i.e."buyer beware" has never been more applicable.  There are NO warranties about the condition of the property being sold at foreclosure sale, the successful purchaser is buying "AS IS, with all faults". 

And, no, the foreclosing lender will not make arrangements for prospective bidders to get inside to see the property so don't bother even asking!

On the appointed date of sale, the Sheriff holds an auction sale of the property, often quite literally on the steps of the County Courthouse, with bidding beginning at two-thirds of the appraised value as determined by the Sheriff. Thus, if the real property has been appraised at $150,000, it cannot be sold at sheriff's sale for less than $100,000.   If no one is willing to purchase at the required minimum bid, the property will be re-appraised and re-noticed for sale. 

The highest bidder becomes the succcessful purchaser of the property and is awarded ownership of the property free and clear of all liens belonging to defendants named in the forecosure action.   Typically, the successful bidder is required to make an immediate down payment to the Sheriff of at least ten percent of the winning bid with the balance due within a specified time thereafter, usually 15-30 days.  The foreclosing creditor is permitted to bid at the sale and if it is the successful high bidder, it need only pay the amount, if any, by which its successful "credit bid" exceeds the amount owed to te foreclosing creditor.  In addition the successful bidder is permitted to assign its bid to another party on whatever terms are agreeable between it and its assignee upon the filing of approriate pleading to the effect with the Court.

For the sake of comparison, it may be helpful to visit a post on the Calculated Risk blog entitled "Foreclosure Sales and REO for UberNerds" (which contains a further useful link to a website purporting to contain summaries of foreclosure procedures in all 50 states) to see how the Ohio foreclosure sale process differs in several significant ways from that in several other states.

STEP SEVEN - Completing the Foreclosure Sale Process.  (Approximately 4-6 weeks).  Following completion of the foreclosure sale and payment in full of the purchase price by the successful bidder (or bid assignee), a Confirmation Order approving the sale and ordering delivery of the deed to the successful bidder must then be entered by the Court of Common Pleas.

Once the Confirmation Order is entered by the Court, the delinquent mortgagor has no further right of redemption.   Ohio Rev. Code 2923.31 and Ohio Rev. Code 2329.33.  This differs from many other states.  Prior to entry of the Confirmation Order, the mortgagor can redeem the property and in  essence undo the foreclosure sale by paying the amount of the judgment, plus interest on the purchase price at the rate of 8% per annum from the date of deposit.

Again, every foreclosure is different and has its own timetable.  Local procedures vary considerably from county to county in Ohio and from judge to judge.  In addition, unique issues may arise which complicate the process.  However, in general, this is how a typical Ohio foreclosure unfolds when filed in state court.

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When you're part of the Ohio outpost of a Michigan-based law firm, you get asked questions about Ohio law that you're so used to knowing, it sorta surprises you initially... until you stop and realize there's a whole heckuva lot about Michigan law that you don't know.  Anyway, recently I was asked about foreclosure procedure in Ohio and it occurred to me that in the current economic climate, this might be useful information for lots of folks. 

So, here's a two part post laying out a roadmap for a typical Ohio foreclosure.  Part One covers getting from declaring default to bringing foreclosure proceedings into full swing.  Part Two deals with obtaining the judgment decree in foreclosure once the case is filed, selling the property at sheriff's sale, and the adminstrative details involved in completing the process.  

And of course, my disclaimer: Every foreclosure is unique and presents its own problems and challenges so the following description of the process should be seen only as the most general outline and not relied upon as a detailed explanation of how every forclosure will proceed.  

Whether involved in a foreclosure from the creditor side or as the delinquent mortgagor, everyone always wants to know how long it will take.  And the short answer is longer than you might think.  The length of foreclosure proceedings in Ohio varies considerably from one county to the next and of course every case has its own pace,  However, in my experience, Ohio foreclosures rarely, if ever, take any less than at least six months and often take much longer, not infrequently more than a year.

Initial Observations.  In Ohio, foreclosure proceedings work much the same way regardless of whether the property involved is residential, i.e. someone's home, or commercial/investment.  The most significant difference is that a receiver is often appointed in cases involving commercial investment property to protect the value of the property and the flow of income from occupants in the property.  Because my law practice here in Central Ohio primarily involves representation of creditors with liens on commercial or investment properties, this post will focus primarily on how the process works in those situations.  However, most of what is said is equally applicable to the resdential side as well.  

Ohio, unlike many other states, does not offer creditors the option of a nonjudicial foreclosure, strict foreclosure or deed of sale.  (Click here for a very brief explanation of the difference between judicial and nonjudicial foreclosure.)  If a creditor has a mortgage or judgment lien on real property in Ohio and wishes to convert that lien to cash to pay off the borrower's debt, a lawsuit MUST be filed; there is NO summary procedure or shortcut.  The only out of court alternative available is a "deed-in'lieu" situation in which the borrower voluntarily conveys the real property to the creditor in full or partial satisfaction of the outstanding obligation.  (This could and probably will be the subject of a separate post.)

Because Ohio does enforce cognovit promissory notes evidencing commercial obligations which permit creditors to obtain money judgment immediately upon filing a Complaint, creditors are allowed to pursue post-judgment collection actions with respect to a debtor and its personal property assets during the pendency of the foreclosure proceeding if they have taken a cognovit judgment on the underlying monetary obligation.  Perhaps the most important point here is that a creditor can both take a cognovit judgment and pursue foreclosure simultaneously.

The fact that the titled owner of the real property may be a guarantor rather than a borrower does not affect foreclosure proceedings in any meaningful way.  Nor does the fact that the loan agreement, note, or mortgage is a "hypothecated" obligation or contains "exculpatory" provisions, both of which relieve the signatory of liability in excess of the value of the property pledged, change any aspect of the foreclosure proceedings other than eliminate any attempt to obtain money judgment.

While statutes and court rules governing foreclosure are uniform throughout Ohio, several counties have additional supplementary local rules, many of which fall in the "unwritten" variety, that must be followed by the foreclosing creditor.  Several counties, including Cuyahoga (think Cleveland) and Hamilton (think Cincinnati), use magistrates for foreclosure proceedings.  This can add time to the process because Magistrate Decisions must be adopted by Common Pleas judges before becoming effective.

STEP ONE - Establishing the Event of Default.    (Generally 1 -3 weeks, occasionally 4-5 weeks.) Obviously, an event of default, whether monetary or nonmonetary, must first occur before the foreclosure remedy is appropriate.  Typically, upon default, a demand letter of some sort will be sent to the borrower and any guarantors setting out the amount owed and referencing the occurrence of the default.  Nonmonetary default can include many things, a number of which will likely be spelled out in the applicable loan documents, and can include such things as default on obligations to other creditors, decrease or deterioration in the value of the real property, failure to maintain insurance, or filing of a mechanics' lien upon the real property. 

Before commencing a foreclosure action, lenders must take care to comply with any applicable cure period which allows the borrower to bring the obligation current or otherwise correct the default.  Loans guaranteed by the Small Business Administration, or in which the Veterans' Administration or the Federal Housing Administration is involved may have specific notice periods and guidelines that must be observed before foreclosure should be initiated.   

STEP TWO - Preparing and Filing Foreclosure Complaint.  (Typically 1- 3 weeks, depending on the complexity of the title work required; process can occur contemporaneously with STEP ONE.)  To ensure that all creditors with liens on the real property --  including junior or senior mortgageholders, judgment lien holders, mechanics' lien holders, and taxing authorities -- are properly included as defendants in the foreclosure action, a title report must be ordered from a title company.  It is important to include all such lienholders because if omitted, the lien will remain an encumbrance on the real property even following foreclosure sale, and depending on its priority, might even be entitled to recover proceeds from the foreclsoure sale from other recipients. 

Purusant to Ohio Rev Code 2329.191, the title report or preliminary judicial report (sometimes called PJR, for short), must be filed with the Complaint in the Common Pleas Court in the Ohio county in which the real property is located.  The key is WHERE the property is located; it does not matter if the debtor is a  foreign corporation headquartered in, say Delaware, or if the loan documents were all signed in Michigan, or even if the principal place of business of the debtor is in another county or state. 

Defendants named in the complaint MUST include the follwing:

• Original mortgagor (i.e. party granting the mortgage) - note that this may or may not be the principal borrower and that if not, the principal borrower is not required to be named a defendant
• Current owner of the property, if different from the original mortgagor
• Junior or senior lienholders, including mortgage holders, judgment lien holders, statutory lien holders such as mechanics' liens and others
• Spouse of individual debtor (to eliminate dower rights)
• Current tenants and other occupants, whether there pursuant to written lease or not
• Holders of other interests such as easements, if wish to eliminate them

The Complaint may seek only foreclosure or may also include other counts for such causes of action as money judgments against the borrower(s) and guarantor(s), replevin (i.e.personal property foreclosure - yes, this too will likely eventually be the subject of a separate post), or other related claim.  If a lender has determined appointment of a receiver is warranted, the Complaint will also include a count seeking appointment of a receiver and the lender should have selected a preferred receiver appointee before filing the Complaint.

So this is how a typical Ohio foreclosure generally begins.  In my next post, I'll explain what happens once the foreclosure action is filed and how the process culminates in a sheriff's sale conveying good title to the real estate being foreclosed to another party and providing the source of funds to payall or part of the delinquent debt.

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For some reason lately, I've had several questions come up that basically come down to I/my neighbor has built a fence across/used property belong to the adjacent property for years, the arrangement is now causing some sort of problem, and now someone wants to know if they can claim this land/if they can throw the interlopers off the land being "borrowed".

So I'd already decided to post on this topic when lo and behold the Ohio Supremes issue an opinion on precisely this question in Evanich v. Bridge, 2008-Ohio-3820.  (As always, the Ohio Supreme Court's Office of Public Information has issued an excellent summary of the decision.)  This case answers the question: does it matter if the use/occupation of the other person's land was unintentional, i.e. do you have to intend to take something you know is not yours?  In finding that the intent of one person to possess the land of another person is determined by an objective rather than subjective standard, the Ohio Supremes may have thrown a new wrinkle into the analysis. 

Adverse Possession Defined.  This sort of situation raises what lawyers call "adverse possession" - which is one of the few concepts from law school not directly part of my practice that I seem to remember all these years later.  The short answer is that it takes a a REALLY LONG TIME for "adverse possession" to kick in to alter the ownership rights to real property.

The longer answer is that the fence or other use of someone else's real property must be "open and notorious" for a number of continuous years that varies somewhat from state to state.  In Ohio, the magic number is 21 years.  Ohio courts require that the use/occupation of the land be such as to put the true owner on notice that someone is asserting an adverse/hostile claim to the property.  Thus if the use/occupation of the land was done with the express or implied permission of the true owner, "adverse possesssion" cannot be established. 

An Example.  A few years ago I represented a client interested in selling a portion of some commercial acreage he owned to another party who intended to construct a manufacturing facility on the real property.  Because the portion of the property being conveyed did not directly abut a public street, access was understandably a critical issue in the transaction for the buyer. 

Some years before a private drive had been constructed along the edge of the property being retained which could be extended to the portion destined for the new owner.  So the easy answer would seem to be simply to grant an easement to the buyer to provide access.  Unfortunately, when it came time to prepare the proper legal description for the easement and the survey showing the roadway had been examined, it turned out that a portion of the private drive had been constructed on the other side of the property line separating my client's property from his adjacent neighboring landowners' property.  Half the road had been constructed on the neighbor's vacant land.        

Aside from the obvious lesson that this is why it really is important to have a survey done before undertaking construction or purchasing real property, this illustrates how adverse possession can come about.  You can't get more "open and notorious" than running slabs of concrete across someone else's land, right?  On the other hand, why complain if someone else wants to build something potentially useful to you on your land, but doesn't bother to charge you for doing it?  In addition, the encroachment of the drive onto the adjacent property probably was inadvertent.   

In this particular case, the requisite time period had not yet expired.  However, it had been some time since the roadway had been constructed without objection and but for the desire to sell the property at that particular point, I think it quite likely that nothing would have disturbed the situation.

Evanich Case.  The recent Evanich case is interesting because it involves a set of facts that has probably been played out many many times.  After the Evanichs bought certain real property, they built a house on it and then in 1967 began doing some rather elaborate landscaping.  Based on where they thought the property line was, the Evanichs installed a split rail fence, decrative rail ties, and various plantings along what they thought was the edge of their lot.  When the neighboring property was sold ten years later, the landscaping was in place.

For some reason, the Evanich's neighbors decided to get a survey in 2002.  When that survey was done, it was discovered that the landscaping encroached on the neighbor's property by approximately 97/10,000 of an acre.  The neighbors then asked the Evanichs to remove the landscaping and they refused.  The lawsuit ensued.

The trial court saw it Evanich's way, as did a majority of the Court of Appeals, and held that the Evanichs could keep the landscaping because they had successfully satisfied the elements of adverse possession.  The dissenting Court of Appeals judge felt that the Evanichs had failed to demonstrate the requisite intent required to claim adverse possession since they never really intended to take their neighbor's land.   

The Ohio Supreme Court also sided with the Evanichs, saying

In a claim for adverse possession, intent is objective rather than subjective in determining whether the adversity element of adverse possession has been established, and the legal requirement that possession be adverse is satisfied by clear and convincing evidence that for 21 years the claimant possessed property and treated it as the claimant’s own. This has been the law in Ohio for over 140 years, and we are unwilling to alter a rule that has successfully directed the application of the doctrine of adverse possession for so long.

The court of appeals concluded that the Evaniches had acted in a way consistent with true ownership by installing landscaping that included railroad ties, stone blocks, fencing, bushes, flowers, and at least one tree. It held that the Evaniches possessed the necessary intent based on their exclusive control over the property for 35 years. (emphasis supplied)

Analysis.  Without giving it a heckuva lot of thought, I probably have assumed up to now that you had to have some sort of actual intent to take what's not yours to establish adverse possession - how else could it really be "adverse"?  However, sticking with only the outward consequence of actions leading to adverse possession certainly does make it easier to apply a bright line test.  

Ultimate Lesson.  The ultimate lesson here is that if your neighbor puts up a fence along your mutual property line or starts driving over your property, it's probably worth your time to either (1)determine for sure where that property line is so you don't lose that land; or (2) make it extremely obvious that if there is an encroachment, you're letting it stay there permissively. 

UPDATE:  for further analysis of the Supreme Court's decision in Evanich, visit this post entitled "Ohio Supreme Court Rules that Possession of Another's Property by Mistake, Still 'Adverse' Possession"  by Stephen D. Richman of the Ohio Real Estate Blog. 

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Unless I’ve somehow agreed to get up at the crack of dawn to play golf, Sunday morning is a lazy relaxing time for me - definitely a law free zone.  I gradually become aware that I’m awake.  The cats and I have a little “quality” time while I lie in bed watching the CBS Sunday Morning television news magazine.  Eventually I rouse myself to get showered and go downstairs to read the newspaper while watching one of the Sunday morning news talk shows. 

THE HOOK.  After the politicians have had their debates, an infomercial typically comes on next which I sometimes leave on whilst I'm preparing lunch.  This week, it’s “JOHN BECK'S FREE & CLEAR REAL ESTATE SYSYTEM" which promises me that I can profitably invest in all manner of real estate by spending only a few hundred dollars at government “tax sales”.  I’ve seen part of this infomercial on other Sunday mornings, but this time I became intrigued and went on a mission, in part because a client had recently been asking me some questions about real estate investments.

For only $39.95, the infomercial promised to send me a kit explaining how I too could make wads of money  -- just like the folks giving testimonials  -- by taking advantage of government tax foreclosure sales most people don't even know exist.  According to the infomercial, by using the special "Free & Clear Real Estate System",  I will be able to buy tax foreclosure properties for "pennies on the dollar" and own them "free and clear" with no monthly payments.  The infomercial also tells me that all I have to do to get these properties is pay the back taxes owed on them and assures me there are many properties in my area I could get.  Numerous examples were shown of houses bought for only a few hundred dollars, but  worth far more.  And of course there's a money-back guarantee!!! 

TAKING A CLOSER LOOK.  Having long been an adherent of the “if it sounds too good to be true, it probably is” school of thought, I found it difficult to believe this “system” actually worked, but was nevertheless curious.  As an attorney with substantial experience in real estate and foreclosure law, it also just didn’t square with what I thought I knew about Ohio law in this area.  But I’m always willing to learn new things….

So I decided to investigate.  Google and the internet are a wonderful tool!!  It wasn’t long before I found a website called Infomercialscams.com with page after page of complaints about this very program.  Among the least of the issues with the “Free & Clear Real Estate System” was that the $39.95 apparently wasn’t a one-time fee as the program certainly implied, but instead was a recurring monthly charge.  There was also heart-wrenching story after story of people induced to part with thousands of dollars to "upgrade" to more intensive training and/or who vainly tried to cancel the entire transaction.  Well, if I had been inclined to shell out some money just to check it out, I certainly wasn’t going to do it anymore.  

But I was still confused about how this would work even in theory.  The idea is that because county governments need the tax money to provide necessary services to citizens, they have the power to sell property on which taxes have not been paid.  OK, so far so good – that’s all true and some Ohio counties do indeed have annual tax lien sales.  That, however, is where reality stops.    

A quick look at the Ohio Revised Code (See ORC 5721.30 through 5721.43) and a little more internet research.  I soon determined that while I suppose it’s possible (though I think unlikely) this “buy at tax sales” plan might work in other states, it CERTAINLY DOESN’T WORK IN OHIO!!!

OFFER NOT VALID IN OHIO. Here’s why:

1.  No Such Sales.  Perhaps the most important reason it won’t work here is that Ohio simply doesn’t do a retail “over-the-counter” business in tax lien sales.  Since 1997, only counties with more than 200,000 in population are even permitted to have tax lien sales AND all of them sell tax liens once annually solely to an institutional investor as a single lot costing more than a million dollars.

2.  The Long Wait.  Even if you could participate in a tax lien sale in Ohio, it isn’t the carefree and direct road to quick profits portrayed on the infomercial.  While it is true that if property taxes remain unpaid, the county will eventually offer a tax lien certificate for sale with respect to a particular parcel, that is only the beginning of a rather long journey towards making any money. 

The tax lien certificate does in fact carry an 18% interest rate plus penalties that are dangled before the uninitiated as the safe, secure, and amazingly large return on investment.  What is not disclosed is that having once purchased the tax lien certificate, probably at a discount (i.e. with an interest rate less than 18%), you CANNOT do anything with it for TWELVE MONTHS. 

What you hope happens is that the delinquent taxpayer somehow has an upturn in his financial fortunes and suddenly becomes able to pay off the taxes, plus interest and penalties – in the unlikely event this happens, then yes, you will make money.  However, you are not permitted to contact the delinquent taxpayer during this period and must just wait and see.  In at least some counties, payment plans are offered to those delinquent taxpayers wishing to redeeem their property, thus further delaying your ability to profit on the investment.   In addition, during this period, you may also find yourself dealing with zoning and nuisance issues associated with the property. 

3.  Working Through Foreclosure of the Lien.  If the property is not “redeemed” during this year following your purchase of the tax lien certificate, then you have the “opportunity” to foreclose on your tax lien certificate and finally get possession of the property.  However, you must do so within three years.  In addition,  Ohio is a “judicial” foreclosure state which means that you can’t just schedule a sale of the property and be done with it.  No, a foreclosure action requiring a court filing fee of probably at least $200, has to be filed in the local Court of Common Pleas and wind its way through the courts.  For a fee, generally around $3,500, you can use the services of the County Prosecutor to get this done; it’s also possible for you to engage the services of a lawyer in private practice although I rather doubt there would be any savings with this approach.  By this time you should be adding up the time and expense and wondering why anyone would want to do this.  But there's more......

4.  Minimum Bids Required.  So, assume that you finally get through the foreclosure litigation in a timely manner, perhaps in only a few months. Now what?  Can you still get real estate at a fraction of its true fair market value?  Nope.  Under Ohio law, property sold at foreclosure sale must be appraised (more court costs) and offered for a MINIMUM BID of TWO-THIRDS of its VALUE.  If no one is willing to pay the minimum bid, then the property will be reappraised and offered at a somewhat lower price, but probably not enough less to make it worthwhile.

5.  Dealing with Lenders "Bidding It In".  Maybe you think buying property at two-thirds of its value still sounds like a good deal, especially if you can immediately “flip” it.  Unfortunately, the likelihood of getting the property for that little is not particularly good in practice.  Usually, there will be at least one mortgage on the property as well as possibly some judgment liens.  The bank or financial institution holding the mortgage will not infrequently “bid it in”, meaning that until it bids more than is owed on the mortgage, the lender is essentially playing with “house” money and will not have to come out of pocket to take title to the property.  If the property IS worth having, chances are the lender will have figured that out and bid accordingly.

6.  If You Don't Believe Me...  For the "official" version of what I've just explained, visit the explanations of tax lien sales provided by the Franklin County Treasurer, Hamilton County Treasurer, Cuyahoga County Treasurer, and Lucas County Treasurer.

Look Before You Leap.  Every state is different so the strategy might be more viable elsewhere, but there are bound to be some important procedures you should be sure you’re aware of that must be followed before you can realize any profits.  Some of those may be similar to what I've pointed out above.  In particular, at a minimum, I would suggest determining if the state is a “judicial” foreclosure state like Ohio.  If it is, then it will probably take longer and cost more to get to the point where you can sell or take possession of the property.  Make sure you really understand ALL the steps that need to be taken for you to get from putting money out to supposedly getting more money back.        

My point in going into some detail here is that it’s important to understand fully the process by which you are supposed to get rich before investing even a little hard-earned cash into the deal.  Whether it's this "system" or some other way to invest in real estate, or some other "plan" to make lost of money quickly with almost no risk and little effort, it really is BUYER BEWARE out there.  If there really was a foolproof method of turning real estate into cash, many more people would be financially independent.

Soo.. now you know how I spent part of my Sunday… Scary, huh?

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Now that I've been doing this law blog thing for about eight months, I've had a chance to get acquainted with my neighbors in the blogosphere.  There are of course my subject matter compatriots all across the country that I've enjoyed coming to know through their blogs (Chris Moander of the relatively new Wisconsin Business Law and Litigation blog and Rush Nigut of Rush on Business from Iowa (the home in my youth) especially come to mind).  But today I wanted to focus on my geographically proximate neighbors practicing law in Ohio while writing their blogs.  

Like anyone else I have my favorites.  I don't claim to be any arbiter of quality or worth so the following is really nothing more than what I've found I've liked the most so far. 

Perhaps my own personal favorite Ohio-based blog is The Briefcase which has been published by solo practitioner Russ Bensing for quite a while.   It promises to provide "commentary and analysis of Ohio law" and it certainly delivers.  Russ gives brief summaries and case updates of Ohio civil and criminal cases decided by the various Court of Appeals and the Ohio Supreme Court with a bit more criminal than civil cases.  While this is of course useful, his regular "Friday Roundup" feature focusing on the more entertaining legal cases out there is a must-read for me every week.  In addition, even the case updates and summaries are given with a definite bit of "attitude" that makes them much more interesting than the usual dry case summary.  And his "About" section is particularly well done.  Russ's stuff is not often the sort of thing I tend to link to (which may say more about me than him), but I certainly appreciate his contributions.

My other "substantive" favorite  Ohio-based blog is the Ohio Employer's Law Blog published by Jon Hyman of Kohrman, Jackson & Krantz  for more than a year.  Its tagline is  "Practical employment law information for businesses in Ohio and beyond."  What I like about this blog is Jon's well written, informative, and useful (even "practical") posts about important issues in the labor and employment law areas.  I also think Jon's analysis of the legal issues he covers is clear and seems right on point.  In addition, I like his regular "What I'm Rreading" series which features several quick links to other interesting posts around the blogosphere.  I don't practice in this area so I appreciate having such excellent resource available to keep me up to date about pertinent legal developments. 

Ohio Employer's Law Blog is one of two Ohio-based blogs focusing on employment and labor issues.  The other is Porter, Wright, Morris & Arthur's Employer Law Report which says it will be "Reporting on recent legal developments and trends affecting employers".  It has been published sporadically over the last couple of years, but now seems to be adding new worthwhile posts more frequently. 

The D&O Diary published by Kevin M. LaCroix of Oakbridge Insurance Services, an insurance intermediary focused exclusively on management liability issues, focuses on perhaps the most complex issues of any Ohio-based law blog.  It is intended to be "A Periodic Journal Containing Items of Interest from the World of Directors and Officers Liability, with Occasional Commentary".  I haven't had much chance to become fully acquainted with this blog yet, but hope to so in the near future.

When it comes to coverage of both substantive and professional developments of interest to Ohio lawyers, I like the Cleveland Law Library Weblog the best.  It explains that "our goal is to inform local attorneys of major legal developments important to their practice".    I often find ideas for posts by reading this blog and appreciate the links usually provided.  The Cincinnati Law Library Blog  and the Moritz Legal Information Blog which provides "Legal Information and Research Resources Brought to You by The Michael E. Moritz Law Library at The Ohio State University" also provide these sort of services.

One of the newest Ohio-based law blogs is the Ohio Real Estate Blog published by the attorneys of the Real Estate Practice Group of Kohrman, Jackson & Krantz which started up only a couple of months ago in April.  In same real estate practice area is the Build on This! blog published by the attorneys of the Real Estate and Construction Practice Group of Buckingham, Doolittle & Burroughs, LLP which offers "Current news, information, and events affecting the real estate, construction and land use industry and its professionals".

Another recent addition to the blogosphere is the Reasonable Doubts blog published by Jeffrey Davis.  It started in March 2008 and, as its name would suggest, focuses on crminal law.  In addition, the Ohio Family Law Blog, published by Robert Mues of Holzfaster, Cecil, McKnight & Mues, LPA, began in December 2007 and tries to provide "Family Law and Divorce Information for Ohio Families Seeking Solutions".

Interestingly, there are TWO Ohio based law blogs called Sixth Circuit Blog.  One seems to focus on criminal law and offers "Case summaries and commentaries by federal defenders of the Sixth Circuit".  The other, published more sporadically by Eric Zagrans, focuses primarily on civil law and is "Devoted to Appellate Law and Practice Within the Sixth Circuit and Its Constituent States"

Rounding out the roster of Ohio-based law blogs (at least those I'm aware of) are the following with which I am less familar, in part because they relate to areas of law with which I have less experience in my day to day practice:

• The Ohio Trust and Estate Blog published by Michael D. Bonasera of Buckingham, Doolittle & Burroughs, LLP
• Tsibouris & Associates Law Blog published by the attorneys at Tsibouris & Associates 
• Consumer Rights Law Blog published by Ron Burdge  and focusing on "Motor Vehicle Lemon Law, Consumer Protection Law, Car Law, News, Notes, Issues, and Updates"

While there are several newer Ohio based law blogs, there are also many that have been published for two or three years or even longer.  There are also some earlier Ohio-based blogs that are no longer publishing.  In addition, there are several "business" blogs based in Ohio that touch on legal issues from time to time, but that's a subject for another day.

I hope I haven't forgotten anyone, but if I have, just add a comment with your URL and then we'll know about you too. 

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Whether you're a lender making a loan secured by a mortgage on real estate, a prospective buyer, or an unpaid tradesman making improvements to real estate, understanding Ohio mechanics' lien law is very important.  Guernsey Bank v. Milano Sports Enterprises, LLC, 2008-Ohio 2420 (May 20, 2008), a decision recently handed down by the Franklin County Tenth Appellate District Ohio Court of Appeals, while not really that interesting as far as making new law, underscores this importance and should be seen as a warning of what could happen if proper procedures are not followed.  Francisco Luttecke of Bricker & Eckler LLP provides a useful and complete summary of the facts and holding of this case in an e-alert to whose mailing list I seem to have been added (not that I'm complaining).

Facts of Guernsey Bank Case.  At the most basic level, the Guernsey Bank case illustrates some of the problems that can arise in more complicated transactions.  The defendant Milano Sports Enterprises, LLC ("Milano Sports") had entered into a purchase contract to buy an indoor tennis facility that it intended to convert into an ice rink.  Because Milano Sports wanted to get started on renovations immediately rather than waiting to close on the purchase, it entered into a lease agreement with the seller.  About two months later, the purchase was consumated and financed by a loan from Guernsey Bank secured by a mortgage on the subject real estate. 

Meanwhile, in the intervening two months, an electrical contractor and other tradesmen performed some of the work necessary for the conversion, but were not paid.  After the purchase transaction went through and the Guernsey Bank mortgage had been recorded, the electrical contractor and other unpaid contractors filed mechanic's lien affidavits.  It should also not come as too much of a surprise that a few months after this, Guernsey Bank started foreclosure proceedings regarding the real estate. 

Eventually the property was sold at foreclosure sale for $525,000, leaving Guernsey Bank with a deficiency of approximately $75,000.  A priority fight broke out over who was entitled to the foreclosure sale proceeds with Guernsey Bank challenging the priority and validity of the mechanics' liens.  Ultimately, Guernsey Bank received only about $137,000 of the foreclosure sale proceeds because the Court found the mechanics' lien holders had priority.  Thus Guernsey Bank wound up with a deficiency of more than $475,000 instead of only $75,000. 

What to Know About Mechanics' Liens.  Which brings us to the lessons to be learned from this rather ordinary case:

1. Mechanics' liens CAN trump and have priority over previously recorded mortgages in certain circumstances.  If no notice of commencement is filed, the relative priority of a mortgage and a mechanics' lien depends upon when the first of the labor or material was performed or furnished.  If the mortgage is recorded prior to any labor, work or furnishing, then the mortgage lien will have priority.  Ohio Rev. Code §§1311.13(A); 5301.23.  If, however, the labor, work or furnishing begin before the mortgage is filed for record, then the mechanics' lien will have priority over the entire mortgage for the entire amount of the mechanics' lienholder's claim even if (A) some of the goods or services were provided after the mortgage was recorded or (B) the lien affidavit perfecting the mechanics' lien is filed after the mortgage is recorded.  Ohio Rev. Code §§1311.13(A); 5301.23.
2. Determining when the first of the labor or materials were performed or furnished means establishing the date the "first visible" work or material being performed or furnished.  Ohio Rev. Code §1311.13(A)(1).  This test was set forth in the case of Huntington National Bank v. Treasurer of Franklin County, 13 Ohio App.3d 408, 469 N.E.2d 535 (10^th App. Dist. 1983) as

    whether the work performed had produced visible results which were sufficient to make it reasonably apparent to a person examining the site that the construction, excavation, or improvement had actually commenced.... In order for the work to be deemed the commencement of construction, it must form a part of the work necessary for the construction and be of a nature that can afterward be considered a component part of the structure.

   See also Schalmo Builders, Inc. v. Malz, 90 Ohio App.3d 321, 629 N.E.2d 52 (1993).
3. Make sure you get a title insurance policy and don't just rely on a title insurance commitment.  One of the things Guernsey Bank did right was buy a title insurance policy pursuant to which the title company promised to indemnify Guernsey Bank against any loss or damage incurred because of the "[l]ack of priority of the lien of the insured mortgage over any statutory lien for services, labor or material [ ] arising from an improvement or work related to the land which is contracted for or commenced prior to the Date of Policy * * *."  As a result, at least Guernsey Bank didn't have to pay the mechanics' lienholders out of its own pocket.
4. If you are the lender and/or purchaser in a real estate transaction, make sure you get an affidavit from the seller about off-record matters such as whether any labor or materials have been supplied to the property, just in case the title policy is not as generous as the one here.   
5. If you're going to rely on the construction mortgage exception (set forth in Ohio Rev. Code 1311.14) to the special priority given mechanics' liens, make sure you have more evidentiary support than a settlement statement (which the Court ruled was inadmissible in Guernsey Bank).
6. When preparing and filing a mechanics' lien, take care to follow the form of affidavit set forth by statute.  Ohio Rev. Code 1311.06.  Guernsey Bank challenged the validity of one mechanics' lien because it incorrectly stated the amount due.  While in this case, the Court upheld the validity of the mechanics' lien,  the law in this area is often very strictly interpreted.  Crock Constr. Co. v. Stanley Miller Constr. Co., 66 Ohio St. 3d 588, 613 N.E.2d 1027 (1993).  Pursuant to Ohio Rev. Code §1311.06 - which helpfully contains an acceptable form -- the lien affidavit must contain the following information: 
   • Amount due over and above all legal set offs
   • Description of the property sufficient to identify the premises with reasonable certainty, i.e as though for purposes of conveyance or by inclusion of the legal description contained in the deed conveying title to the owner (Ohio Rev. Code §§1311.06(D); 1311.04(B)
   • Name and address of the person to or for whom labor or work was performed or material furnished
   • Name of the owner, part owner, or lessee
   • Name and address of lien claimant
   • First and last days that the lien claimant performed any labor or work or furnished any material to the improvement giving rise to the lien
7. Another thing to remember is that an Affidavit of Lien must be filed with the county recorder for the county in which the property is located within seventy-five (75) days of the last day work was performed or furnished.  Ohio Rev. Code §1311.06(B)(3).  In addition, to perfect a mechanics' lien, it is also necessary to serve the lien affidavit in accordance with the provisions of Ohio Rev. Code §§1311.07 and 1311.19 upon the owner of the subject property within thirty (30) days after it has been recorded by the appropriate county recorder; if service cannot be accomplished, then the lien affidavit must be conspicuously posted at the subject property within ten (10) days after the thirty (30) day service period.  Even if the contracting party has actual knowledge of the lien, it must still be served (or posted) to be valid.  Brown v. Pearson, 1995 Ohio App. LEXIS 2788 (2^nd App. Dist).

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