[Cite as Wells Fargo Bank, N.A. v. Goebel, 2014-Ohio-472.]
IN THE COURT OF APPEALS OF OHIO
SECOND APPELLATE DISTRICT
MONTGOMERY COUNTY
WELLS FARGO BANK, N.A. :
: Appellate Case No. 25745
Plaintiff-Appellee :
: Trial Court Case No. 12-CV-5363
v. :
:
NICKLAS S. GOEBEL, et al. : (Civil Appeal from
: (Common Pleas Court)
Defendants-Appellants :
:
...........
OPINION
Rendered on the 7th day of February, 2014.
...........
SCOTT A. KING, Atty. Reg. #0037582, and JESSICA E. SALISBURY, Atty. Reg. #0085038,
Thompson Hine LLP, Austin Landing I, 10050 Innovation Drive, Suite 400, Miamisburg, Ohio
44122
Attorney for Plaintiff-Appellee, Wells Fargo Bank, NA
MARC E. DANN, Atty. Reg. #0039425, GRACE M. DOBERDRUK, Atty. Reg. #0085547,
DANIEL M. SOLAR, Atty. Reg. #0085632, and JIM M. DOUGLASS, Atty. Reg. #0022085,
Dann, Doberdruk & Harshman, 4600 Prospect Avenue, Cleveland, Ohio 44103
Attorneys for Defendant-Appellant, Nicklas S. Goebel and Ashley Powell
MATHIAS H. HECK, JR., by DOUGLAS TROUT, Atty. Reg. #0072027, Montgomery County
Prosecutor’s Office, Appellate Division, Montgomery County Courts Building, P.O. Box 972,
301 West Third Street, Dayton, Ohio 45422
Attorney for Defendant-Appellee, Montgomery County Treasurer
.............
HALL, J.,
{¶ 1} Nicklas S. Goebel appeals from the trial court’s entry of summary judgment
against him on plaintiff-appellee Wells Fargo Bank’s complaint for judgment on a note and
foreclosure on a mortgage.
{¶ 2} Goebel advances two assignments of error on appeal. First, he contends the trial
court erred in entering a judgment entry and decree of foreclosure where Wells Fargo has not
obtained a judgment against all parties with an interest in the subject property. Second, he claims
the trial court erred in entering summary judgment against him where genuine issues of material
fact exist for trial.
{¶ 3} The record reflects that Goebel and co-defendant Ashley Powell borrowed money
from Southern Ohio Mortgage, LLC, to purchase a home in Centerville, Ohio. Goebel and Powell
executed a note in the amount of $147,283. To secure repayment, they executed a mortgage
against the home. Southern Ohio Mortgage later endorsed the note in favor of Wells Fargo,
which endorsed the note in blank. Southern Ohio Mortgage also assigned the mortgage to Wells
Fargo. Thereafter, Goebel and Powell became delinquent on the note. Wells Fargo filed the
present action against them in July 2012, seeking a judgment on the note and a decree of
foreclosure. In January 2013, Wells Fargo moved for summary judgment against Goebel and
Powell. Wells Fargo subsequently withdrew the motion with regard to Powell when a question
arose as to whether the correct person had been served with the complaint. The trial court then
granted Wells Fargo’s summary judgment motion as to Goebel. It entered judgment against
Goebel on the note and issued a decree foreclosing “the equity of redemption of any and all
defendants and all persons claiming under and through them” and authorizing a sheriff’s sale of
3
the home. The ruling contained Civ.R. 54(B) certification. (Doc. #50). This appeal by Goebel
followed.
{¶ 4} In his first assignment of error, Goebel contends the trial court erred in entering a
judgment entry and decree of foreclosure where Wells Fargo has not obtained a judgment against
co-defendant Powell. Goebel reasons that “without obtaining judgment against all titleholders of
the subject property and all parties to the subject note and mortgage, there cannot be a decree of
foreclosure with provisions authorizing the sale of the subject property.”
{¶ 5} We find Goebel’s argument to be persuasive with respect to the decree of
foreclosure. The note Goebel and Powell executed made them jointly and severally liable for the
money they borrowed. (Doc. #38 at Exh. A). We see no reason why the trial court could not enter
judgment separately against Goebel on the note. See, e.g., Ohio Sav. Bank v. Virden, 9th Dist.
Summit No. 17885, 1997 WL 89222, *1 (Feb. 26, 1997) (“When a contract provides for joint and
several liability, an obligee may proceed against one or more of the obligors.”). The trial court
erred, however, in issuing a decree foreclosing the equity of redemption of all persons claiming
an interest in the subject property and authorizing a sheriff’s sale.
{¶ 6} A person holding an interest in mortgaged property is a necessary party to a
foreclosure action. Western Mortgage & Realty Co. v. Bouquett, 2d Dist. Montgomery No.
15441, 1996 WL 99775, *4 (March 8, 1996), citing Hembree v. Mid-America Federal Savings &
Loan Assn., 64 Ohio App.3d 144, 580 N.E.2d 1103 (2d Dist.1989), abrogated on other grounds,
Hausman v. Dayton, 73 Ohio St.3d 671, 675, 653 N.E.2d 1190 (1995); see also Nutter v.
Phillips, 2013-Ohio-184, 986 N.E.2d 579, ¶ 6-7 (2d Dist.) (“Necessary parties to a foreclosure
4
action include those with an interest in the equity to be foreclosed.”). “‘[I]n order to foreclose or
cut off [a property] right * * * the party holding the right must be joined in the action.’”
UAP-Columbus JV326132 v. Young, 10th Dist. Franklin No. 11AP-926, 2012-Ohio-2471, ¶ 19,
quoting Hembree at 152.
{¶ 7} Here, of course, Powell was joined in the action. Although some confusion
existed about proper service of process, she remains a defendant below and a renewed summary
judgment motion is pending against her. Implicit in the requirement to join all persons with an
interest in the property to a foreclosure action is a concomitant requirement to obtain a judgment
that forecloses their right of redemption before authorizing a sheriff’s sale. Here the trial court’s
judgment entry and decree of foreclosure extinguishes the equity of redemption held by “all
defendants.” But Wells Fargo has not yet properly obtained such relief against Powell, who has
not yet had her day in court. The fact that Powell is a necessary party to this action demonstrates
that she has a right to participate in the proceeding before the trial court can foreclose her equity
of redemption and authorize a sheriff’s sale of her home. Accordingly, we hold that the trial
court erred in entering a decree of foreclosure against all defendants that authorized a sheriff’s
sale of the subject real estate. The first assignment of error is sustained.
{¶ 8} In his second assignment of error, Goebel claims summary judgment was
improper because genuine issues of material fact exist for trial. Specifically, he argues that
factual disputes exist regarding (1) Wells Fargo’s standing to seek foreclosure and (2) Wells
Fargo’s compliance with the face-to-face interview requirement of 24 C.F.R. §203.604, which
Goebel claims is a condition precedent to foreclosure.
5
{¶ 9} With regard to standing, Goebel advances several arguments. First, he challenges
the sufficiency of a summary judgment affidavit by Wells Fargo vice president Amanda
Weatherly. He contends she (1) failed to aver familiarity with the compiling and retrieval of
loan-related records at issue and (2) failed adequately to establish default on the note and the
amount owed. Second, Goebel contends a genuine issue of material fact exists as to Wells
Fargo’s entitlement to enforce the note and mortgage when it filed its complaint. Specifically, he
challenges the validity of the assignment of the mortgage to Wells Fargo. He also claims Wells
Fargo did not establish possession of the note when it filed its complaint. He points out that the
note was endorsed from Southern Ohio Mortgage to Wells Fargo and then endorsed in blank by
Wells Fargo. Goebel observes that both endorsements were made by the same person. He
questions that person’s authority to execute two endorsements. Finally, Goebel claims the
existence of an endorsement in blank by Wells Fargo suggests negotiation of the note to another
entity.
{¶ 10} We are unpersuaded that any of the foregoing arguments preclude summary
judgment. We see no material defect in Weatherly’s affidavit. She averred that her affidavit was
based on her review of the pertinent loan documents and her personal knowledge of how they are
“kept and maintained.” (Doc. #38). Contrary to Goebel’s argument, we are unconvinced that
Weatherly had to use the words “complied and retrieved” as opposed to “kept and maintained.”
We also believe Weatherly adequately established Goebel’s default on the note. She averred that
he was in default and identified the amount due. Nothing more was required. “An affidavit
stating the loan is in default is sufficient for purposes of Civ.R. 56 in the absence of evidence
6
controverting those averments.” Bank One, N.A. v. Swartz, 9th Dist. Lorain No. 03CA008308,
2004-Ohio-1986, ¶ 14, citing Yorkwood S. & L. Assn. v. Jacobs, 2d Dist. Montgomery No.
11998, 1990 WL 107840 (July 31, 1990).
{¶ 11} With regard to assignment of the note and mortgage, we see no impediment to
Wells Fargo’s standing. The note, which had been endorsed in blank, was in Wells Fargo’s
possession before it commenced the present action. Therefore, Wells Fargo was a holder of the
note with a right to enforce it. See Bank of New York Mellon v. Baird, 2d Dist. Clark No.
2012-CA-28, 2012-Ohio-4975, ¶ 17-18. We see no significance in the fact that the same person
endorsed the note twice. Both signatures presumptively were genuine and authorized.
Citifinancial, Inc. v. Warren, 11th Dist. Trumbull No. 2003-T-0090, 2004-Ohio-5326, ¶ 17,
citing R.C. 1303.36(A). Although the same person endorsed the note from Southern Ohio
Mortgage to Wells Fargo and then endorsed the note in blank for Wells Fargo, Goebel presented
no evidence that either endorsement was not genuine or was unauthorized. We see no reason why
a person cannot serve as an officer of two corporations. Finally, the fact that Wells Fargo holds a
note it endorsed in blank is not indicative of anything meaningful. A party can endorse a
negotiable instrument without transferring it. Doing so does not deprive a holder of authority to
enforce it.
{¶ 12} Even if we assume, arguendo, that there was some irregularity in the assignment
of the mortgage, Wells Fargo indisputably held the note secured by the mortgage when it filed its
complaint. That being so, Wells Fargo was not even required to have the mortgage formally
assigned to it. Ohio courts have recognized that the mortgage automatically follows the note it
7
secures. See, e.g., Bank of New York Mellon v. Loudermilk, 5th Dist. Fairfield No. 2012-CA-30,
2013-Ohio-2296, ¶ 43 (citing cases); Deutsche Bank Natl. Trust Co. v. Najar, 8th Dist. Cuyahoga
No. 98502, 2013-Ohio-1657, ¶ 65 (“Even if the assignment of mortgage from Argent to Deutsche
Bank was invalid, Deutsche Bank would still be entitled to enforce the mortgage because under
Ohio law, the mortgage ‘follows the note’ it secures. * * * The physical transfer of the note
endorsed in blank, which the mortgage secures, constitutes an equitable assignment of the
mortgage, regardless of whether the mortgage is actually (or validly) assigned or delivered.”);
U.S. Bank Natl. Assn. v. Gray, 10th Dist. Franklin No. 12AP-953, 2013-Ohio-3340, ¶ 31-34
(recognizing that the transfer of a note automatically results in equitable assignment of a
mortgage securing the note).
{¶ 13} Nothing in Fed. Home Loan Mortg. Corp. v. Schwartzwald, 134 Ohio St.3d 13,
2012-Ohio-5017, 979 N.E.2d 1214, is contrary to our analysis herein. In Schwartzwald, the
plaintiff commenced a foreclosure action before obtaining an assignment of a promissory note
and mortgage. Under these circumstances, the Ohio Supreme Court held that the plaintiff lacked
standing to file a foreclosure action. The Schwartzwald court further held that the lack of
standing could not be cured by the plaintiff obtaining an assignment after commencing the action.
Unlike Schwartzwald, Wells Fargo obtained the promissory note and an actual or equitable
assignment of the mortgage before filing its foreclosure action. Therefore, Wells Fargo had
standing to file the present action.
{¶ 14} We turn next to Goebel’s claim that Wells Fargo failed to comply with the
face-to-face interview requirement of 24 C.F.R. §203.604. With some exceptions, this regulation
8
obligates a lender to attempt an in-person meeting with a borrower. Goebel argues that Wells
Fargo was required to demonstrate compliance with the regulation, or the applicability of an
exception, as a condition precedent to maintaining the present action. Because Wells Fargo’s
summary judgment motion and accompanying evidence failed to address the regulation, Goebel
asserts that the bank failed to meet its burden. Therefore, he contends the trial court erred in
finding Wells Fargo entitled to a decree of foreclosure.1
{¶ 15} In response, Wells Fargo asserts that non-compliance with 24 C.F.R. §203.604 is
an affirmative defense on which Goebel bore the burden of proof. Wells Fargo claims Goebel’s
affidavit opposing summary judgment failed to demonstrate a genuine issue of material fact as to
the bank’s non-compliance with the regulation. Therefore, Wells Fargo argues that the trial
court properly entered summary judgment in its favor and issued a decree of foreclosure.
{¶ 16} Controversy over whether the regulation at issue imposes a condition precedent
on a lender or creates an affirmative defense for a borrower has been recognized often. Seldom,
however, has an Ohio court actually and necessarily decided the issue. See Ohio Consumer Law,
§29.11, FHA-insured loans—Non-compliance as defense to foreclosure (“In line with HUD’s
clear regulation, Ohio appellate courts have consistently held that lenders cannot obtain a
foreclosure judgment without complying with FHA regulations; however, the appellate districts
have employed different legal analyses to reach this conclusion. * * * Many courts have simply
1
Although we already have found the decree of foreclosure improper based on Ashley Powell’s unresolved right of redemption, we
note that Wells Fargo currently has an identical summary judgment motion pending against her. If Wells Fargo obtains summary judgment
against Powell, as it did against Goebel, the affirmative-defense -versus-condition-precedent issue with regard to 24 C.F.R. §203.604 likely
will be before us once again. Therefore, judicial economy favors addressing the issue now.
9
not analyzed the distinction between defenses and conditions precedent in holding that
non-complying lenders could not proceed with foreclosure.”).
{¶ 17} This court has addressed 24 C.F.R. §203.604 at least twice. Neither time did it
explicitly resolve the condition-precedent-versus-affirmative-defense issue. In Washington Mut.
Bank v. Mahaffey, 154 Ohio App.3d 44, 2003-Ohio-4422, 796 N.E.2d 39 (2d Dist.), this court
stated that non-compliance with the face-to-face interview requirement was an “equitable
defense” to a foreclosure action. In that case, however, the parties themselves both characterized
it as such. Id. at ¶ 1-2, 11. Nowhere in Mahaffey did this court explicitly consider an argument
that compliance with the regulation was a condition precedent to a foreclosure action. We did
consider such an argument in U.S. Bank Natl. Assn. v. Stanze, 2d Dist. Montgomery No. 25554,
2013-Ohio-2474, ¶ 12. We found no need to resolve it, however, because the borrower had
waived the issue by neither pleading non-compliance with a condition precedent with specificity
as required by Civ.R. 9(C) nor raising non-compliance as an affirmative defense in its answer. Id.
at ¶ 17-18; see also BAC Home Loans Servicing, LP v. Taylor, 2013-Ohio-355, 986 N.E.2d 1028,
¶ 17 (9th Dist.) (“Further, in the absence of any argument that the Taylors waived their right to
argue noncompliance with HUD regulations, this Court need not consider whether the defense is
properly treated as an affirmative defense or condition precedent for pleading purposes.”).
{¶ 18} Unlike Mahaffey and Stanze, the condition-precedent-versus-affirmative-defense
issue is squarely before us. In its complaint, Wells Fargo generally alleged compliance with all
conditions precedent. As required by Civ.R. 9(C), Goebel’s answer specifically alleged
non-compliance with the face-to-face interview requirement as a condition precedent to
10
foreclosure. (Doc. #13 at 4). The effect of this specific denial was to place the burden of proof on
Wells Fargo to establish compliance with 24 C.F.R. §203.604 if the regulation constitutes a
condition precedent to foreclosure. LSF6 Mercury REO Investments Trust v. Locke, 10th Dist.
Franklin No. 11AP-757, 2012-Ohio-4499, ¶ 11 (recognizing that where “compliance with
conditions precedent is put at issue, and where the plaintiff moves for summary judgment, it has
the burden of establishing the absence of this question by reference to materials set forth in
Civ.R. 56"); HSBC Mortgage Servs., Inc. v. Edmon, 6th Dist. Erie No. E-11-046,
2012-Ohio-4990, ¶ 37 (“In her affidavit, Vadney did not address the issue of whether HSBC
satisfied the conditions precedent in Edmon’s mortgage. Therefore, HSBC failed to meet its
initial Dresher burden of pointing to portions of the record that show the absence of a genuine
issue of material fact that the conditions precedent have been satisfied.”). Wells Fargo admittedly
did not address the issue of compliance with 24 C.F.R. §203.604 when it moved for summary
judgment. Therefore, the trial court’s issuance of a decree of foreclosure on summary judgment
was improper if the regulation constitutes a condition precedent.
{¶ 19} On the other hand, if non-compliance with 24 C.F.R. §203.604 is an affirmative
defense, then the trial court did not err. This is so because Goebel failed to create a genuine issue
of material fact as to Wells Fargo’s non-compliance with the regulation. In an affidavit opposing
summary judgment, Goebel averred “[u]pon information and belief” that Wells Fargo had a
branch office within 200 miles of his home. 2 (Doc. #43). He also averred that he “d[id] not
recall” having a face-to-face meeting with anyone from Wells Fargo. (Id.). Averments made
2
If there is no office within 200 miles of a borrower’s residence, a lender need not attempt a face-to-face interview.
11
“upon information and belief” are not indicative of personal knowledge and are insufficient to
create a genuine issue of material fact. Insurance Co. of North America v. Mall Builders, Inc., 2d
Dist. Montgomery No. 7756, 1982 WL 3840 (Oct. 28, 1982); State ex rel. Anderson v. Obetz,
10th Dist. Franklin No. 06AP-1030, 2008-Ohio-4064, ¶ 18. Similarly, an averment denying an
ability to remember the occurrence of an event is insufficient to create a genuine issue of material
fact as to whether the event occurred. Discovery Bank v. Combs, 4th Dist. Pickaway No.
11CA25, 2012-Ohio-3150, ¶ 20; State ex rel. Mike v. Warden, Trumbull Correctional Inst., 11th
Dist. Trumbull No. 2002-T-0153, 2003-Ohio-2237, ¶ 10-12.
{¶ 20} The critical issue, then, is whether 24 C.F.R. §203.604 creates a condition
precedent or provides an affirmative defense. “Whereas an affirmative defense is separate from
the merits of the plaintiff’s cause of action and bars recovery even when the plaintiff has
established a prima facie case, a condition precedent is directly tied to the merits of the plaintiff’s
cause of action, which is itself contingent upon satisfaction of the condition.” National City
Mortg. Co. v. Richards, 182 Ohio App.3d 534, 2009-Ohio-2556, 913 N.E.2d 1007, ¶ 20 (10th
Dist.). Upon review, we believe 24 C.F.R. §203.604 creates an affirmative defense on which
Goebel bore the burden of proof.3 In resolving the issue, we find this court’s prior opinion in
3
A fair argument could be made that a violation of 24 C.F.R. §203.604 does not directly benefit Goebel at all and that the
loan-servicing requirements contained in the Code of Federal Regulations enure to the benefit of the federal government, which insures the
loans. The parties present this case to us to decide whether the “servicing defense” is an affirmative defense or condition precedent.
Consequently we do not decide whether the regulations are at all applicable. It is clear that a borrower has no private cause of action for a
violation of 24 C.F.R. §203.604 or other loan-servicing requirements. See, e.g., Nat. Mortg. Ass'n v. LeCrone, 868 F.2d 190, 193 (6th
Cir.1989) (noting that there is “no express or implied right of action in favor of the mortgagor * * * for violation of HUD mortgage servicing
polices”); Wells Fargo Home Mortg. v. Neal, 398 Md. 705, 719, 922 A.2d 538, 546 (Md. App.2007) (“The overall purpose of the FHA
mortgage insurance program is to encourage leading lenders, in exchange for a government guarantee of the loan, to extend mortgages to
12
Mahaffey instructive.
{¶ 21} This court held in Mahaffey that a genuine issue of material fact existed
“concerning [the borrower’s] equitable defense alleging the bank’s failure to comply with [24
C.F.R. §203.604] * * * .” (Emphasis added). Mahaffey at ¶ 2 and ¶ 53. Admittedly, Mahaffey did
not explicitly address the possibility that 24 C.F.R. §203.604 might create a condition precedent
rather than an affirmative defense. Nevertheless, we believe Mahaffey’s holding correctly
identified non-compliance as an equitable “defense” to foreclosure. In discussing the regulation’s
face-to-face interview requirement, this court reasoned:
* * * [I]f a lender's failure either to have a face-to-face interview, or to
make a reasonable effort to arrange the interview, within the first three months of
default is deemed to preclude the lender from ever bringing a foreclosure action,
the regulation would have too much force. A commonsense construction of the
regulation is that it requires, subject to the exceptions contained in division (c)(2),
those carrying higher credit risks. * * * Thus, the regulations do not control directly the relationship between the mortgagor and mortgagee
and may not be invoked by the mortgagor as a sword in an offensive cause of action against the mortgagee.”). On the other hand, many
courts have held that a borrower may raise the loan-servicing requirements defensively, as a shield, when a non-compliant lender attempts to
foreclose. See Ohio Consumer Law, §29.11, FHA-insured loans—Non-compliance as defense to foreclosure (“In line with HUD’s clear
regulation, Ohio appellate courts have consistently held that lenders cannot obtain a foreclosure judgment without complying with FHA
regulations; however, the appellate districts have employed different legal analyses to reach this conclusion.”); see also GMAC Mortg. of
Pennsylvania v. Gray, 10th Dist. Franklin No. 91 AP-650, 1991 WL 268742, * 6-7 (Dec. 10, 1991) (citing Bankers Life Co. v. Denton, 120 Ill.
App.3d 576, 458 N.E.2d 203 (Ill. App.1983), and recognizing that the remedies available to the federal government when a lender repeatedly
violates the loan-servicing requirements are “useless” to an individual borrower facing foreclosure). One could question whether federal
government remedies remain “useless” in light of recent litigation such as United States v. Bank of America, N.A., et al, Case No.
12–CV–0361 (D.D.C ., April 5, 2012) where five major banks, including the plaintiff in this case, agreed to pay $25 billion in addition to
billions in direct principal reduction.
13
that a lender either have a face-to-face interview or make a reasonable effort to
arrange the interview before bringing a foreclosure action, and that the mortgagee
is urged, by the regulation, to have the interview, or to make a reasonable effort to
arrange the interview, within the three-month default period. We find support for
this construction in Section 203.606(a), which provides:
“Before initiating foreclosure, the mortgagee must ensure
that all servicing requirements of this subpart have been met. The
mortgagee may not commence foreclosure for a monetary default
unless at least three full monthly installments due under the
mortgage are unpaid after application of any partial payments that
may have been accepted but not yet applied to the mortgage
account. * * *”
Thus, the scheme of the regulation is that a lender may not commence
foreclosure until at least three full monthly installments are due but unpaid, and
the lender, before initiating foreclosure, must ensure that the servicing
requirements have been met, including the face-to-face interview requirement. It
would be inconsistent with Section 203.606(a) to allow a lender to commence
foreclosure after three full months of default, without having complied with the
face-to-face interview requirements of Section 203.604(b). Although it would not
be inconsistent with 203.606(a) to construe Section 203.604(b) to forever bar a
foreclosure action when the lender has failed to comply with the face-to-face
14
interview requirement during the first three months of default, we conclude that a
construction to that effect would be unduly harsh to lenders[.]
(Emphasis added) Mahaffey at ¶ 22-24.
{¶ 22} Construing 24 C.F.R. §203.604 as an equitable affirmative defense, rather than a
condition precedent, is consistent with avoiding the “unduly harsh” scenario this court
recognized in Mahaffey. In reaching this conclusion, we note that “actions in foreclosure arise in
equity.” Wells Fargo Bank v. Young, 2d Dist. Darke No. 2009 CA 12, 2011-Ohio-122, ¶ 40.
Thus, Wells Fargo’s lawsuit against Goebel itself is equitable in nature, at least insofar as it seeks
to cut off his “equity of redemption.” Id. at ¶ 29. In our view, it is not unreasonable to interpret
24 C.F.R. §203.604 as providing Goebel with a corresponding equitable defense based on the
lack of a face-to-face interview.
{¶ 23} We note too that “[w]hen a party raises an equitable defense, it is the
responsibility of the court to weigh the equitable considerations[.]” Gorsuch Homes, Inc. v.
Wooten, 73 Ohio App.3d 426, 436, 597 N.E.2d 554, 561 (2d Dist.1992); see also Takis, LLC v.
C.D. Morelock Properties, Inc., 180 Ohio App.3d 243, 2008-Ohio-6676, 905 N.E.2d 204, ¶ 18
(10th Dist.). Such equitable considerations certainly may preclude a lender from foreclosing
when the face-to-face meeting requirement of 24 C.F.R. §203.604 has not been satisfied. On the
other hand, equitable considerations may not justify forever barring a foreclosure action when a
lender has not complied with the face-to-face interview requirement, even though, as this court
recognized in Mahaffey, it “would not be inconsistent with [24 C.F.R.] 203.606(a) to construe
15
Section 203.604(b)” in such a way.4 Mahaffey at ¶ 24.
{¶ 24} In finding that a lender’s non-compliance with 24 C.F.R. §203.604 is an
affirmative defense to foreclosure, we also recognize “the law disfavors conditions precedent[.]”
Evans, Mechwart, Hambleton & Tilton, Inc. v. Triad Architects, Ltd., 196 Ohio App.3d 784,
2011-Ohio-4979, 965 N.E.2d 1007 , ¶ 15 (10th Dist.). Thus, courts will avoid construing a
provision as a condition precedent unless the intent to create such a condition is obvious. Rudd v.
Online Resources, Inc., 2d Dist. Montgomery No. 17500, 1999 WL 397351, *7 (June 18, 1999).
Here we see nothing in the Code of Federal Regulations or elsewhere evidencing a clear intent to
make the face-to-face meeting requirement of 24 C.F.R. §203.604 a condition precedent to
foreclosure.
4
One problem with failing to satisfy the face-to-face interview requirement, or all of the numerous other loan-servicing obligations
in subpart C of 24 C.F.R. Part 203, each of which, following Appellant’s logic, would become a condition precedent (203.606(a) applies to
“all servicing requirements of this subpart”), is that many of the regulations impose a deadline for a lender to act. Once a particular deadline
has expired, the particular servicing requirement would forever prevent foreclosure. For example, 24 C.F.R. §203.604 obligates a lender to
attempt a face-to-face interview with a borrower “before three full monthly installments due on the mortgage are unpaid.” It is unclear how a
lender ever could comply with this requirement after three monthly payments become due. Months later, when the borrower raises the
servicing defense, the borrower is even further behind and the window of opportunity is closed. As this court recognized in Mahaffey, a strict
reading of 24 C.F.R. §203.604 permanently could bar a foreclosure action where the face-to-face interview requirement is not timely satisfied.
We agree with Mahaffey that such a result seems “unduly harsh” and inequitable.
16
{¶ 25} In relevant part, 24 C.F.R. §203.500 states: “It is the intent of the Department [of
Housing and Urban Development] that no mortgagee shall commence foreclosure * * * until the
requirements of this subpart have been followed.”5 Similarly, 24 C.F.R. §203.606(a) provides:
“Before initiating foreclosure, the mortgagee must ensure that all servicing requirements of this
subpart have been met.”6 This language has the force and effect of law because it has been
codified in the Code of Federal Regulations. CitiMortgage, Inc. v. Carpenter, 2d Dist.
Montgomery No. 24741, 2012-Ohio-1428, ¶ 21. Although 24 C.F.R. §203.500 and 24 C.F.R.
§203.606 both evidence a clear intent for banks to comply with the face-to-face interview
requirement before commencing foreclosure actions, neither regulation addresses whether
compliance is a condition precedent to foreclosure or whether non-compliance is an affirmative
defense. Therefore, we find no clear or obvious intent to create a condition precedent.
{¶ 26} Finally, we recognize that the Fifth District Court of Appeals has reached a
conclusion contrary to ours. In one of few opinions actually deciding the
condition-precedent-versus-affirmative-defense issue, the Stark County Court of Appeals in U.S.
Bank v. Detweiler, 191 Ohio App.3d 464, 2010-Ohio-6408, 946 N.E.2d 777 (5th Dist.), rejected
the appellee bank’s argument that non-compliance with the face-to-face interview requirement
was an affirmative defense rather than a condition precedent. In support, the Detweiler court
reasoned:
5
Both 24 C.F.R. §203.500 and 24 C.F.R. §203.604 are contained in Subpart C of Part 203.
6
The face-to-face interview requirement of 24 C.F.R. §203.604 is one of the servicing requirements contained in Subpart C of Part
203.
17
It has been held that a term in a mortgage such as one requiring prior
notice of a default or acceleration to the mortgagor is not an affirmative defense
but rather a condition precedent. LaSalle Bank v. Kelly, Medina App. No.
09CA0067-M, 2010-Ohio-2668, 2010 WL 2347077, ¶ 13, citing First Fin. Bank
v. Doellman, Butler App. No. CA2006-02-029, 2007-Ohio-222, 2007 WL
136746, ¶ 20. If a provision is a condition precedent, it is subject to the
requirements of Civ.R. 9(C). Civ.R. 9(C) states, “In pleading the performance or
occurrence of conditions precedent, it is sufficient to aver generally that all
conditions precedent have been performed or have occurred. A denial of
performance or occurrence shall be made specifically and with particularity.”
We find that the mortgage loan in this case is federally insured and that by
the terms in the note and mortgage it is subject to HUD regulations in the case of
default or acceleration. The HUD regulations, incorporated within the terms of the
default or acceleration provisions, include those requirements found in Sections
203.602 and 203.604, Title 24, C.F.R., as stated above. Those requirements,
therefore, are conditions precedent.
Id. at ¶ 52-53.
{¶ 27} Having reviewed Detweiler, we are unpersuaded by its cursory examination of the
issue before us. We therefore decline to follow the Fifth District’s approach. For the reasons set
forth above, we conclude that 24 C.F.R. §203.604 imposes no impediment to foreclosure by
Wells Fargo. This is so because Goebel failed to create a genuine issue of material fact on his
18
affirmative defense regarding the bank’s alleged non-compliance with the face-to-face interview
requirement.
{¶ 28} The trial court’s judgment is affirmed in part and reversed in part. The judgment
is affirmed insofar as the trial court entered judgment against Goebel on the note and for
foreclosure. The judgment is reversed insofar as the trial court foreclosed the equity of
redemption of Defendant Ashley Powell and authorized a sheriff’s sale. The cause is remanded
for further proceedings.
.............
DONOVAN and WELBAUM, JJ., concur.
Copies mailed to:
Scott A. King
Jessica E. Salisbury
Marc E. Dann
Daniel M. Solar
James M. Douglass
Grace M. Doberdruk
Mathias H. Heck
Douglas Trout
Hon. Timothy N. O’Connell
Wells Fargo Bank, N.A. v. Goebel
Combined Opinion