[Cite as BAC Home Loan Serv. v. McFerren, 2013-Ohio-3228.]
STATE OF OHIO ) IN THE COURT OF APPEALS
)ss: NINTH JUDICIAL DISTRICT
COUNTY OF SUMMIT )
BAC HOME LOANS SERVICING, LP fka C.A. No. 26384
COUNTRYWIDE HOME LOANS
SERVICING, LP
Appellee
v. APPEAL FROM JUDGMENT
ENTERED IN THE
GARRICK P. MCFERREN, aka COURT OF COMMON PLEAS
GARRICK MCFERREN, et al. COUNTY OF SUMMIT, OHIO
CASE No. CV-2011-06-3570
Appellant
DECISION AND JOURNAL ENTRY
Dated: July 24, 2013
BELFANCE, Presiding Judge.
{¶1} Garrick McFerren appeals the decision of the Summit County Court of
Common Pleas awarding summary judgment to Bank of America, N.A. For the reasons
set forth below, we reverse.
I.
{¶2} On February 19, 2008, Mr. McFerren signed a promissory note (“the
Note”) for $211,500.00 with Quicken Loans, Inc. That same day, he also signed a
mortgage (“the Mortgage”) purporting to secure the Note, which named Mortgage
Electronic Registration Systems, Inc. (“MERS”) as “the mortgagee under this Security
Instrument.” Quicken Loans later transferred the Note to Countrywide Bank, FSB, which
subsequently endorsed the Note in blank, thus leaving the space for “payable to” empty.
On March 16, 2011, MERS assigned the mortgage to BAC Home Loan Servicing, LP,
and the assignment was recorded on April 19, 2011. BAC initiated foreclosure
proceedings on June 30, 2011.
{¶3} On July 1, 2011, BAC merged with Bank of America, N.A., and Bank of
America was substituted as party plaintiff on August 30, 2011. Bank of America moved
for summary judgment, and Mr. McFerren filed a motion in opposition, albeit untimely.
The trial court never ruled on Mr. McFerren’s motion for leave to file his motion in
opposition, and it awarded summary judgment to Bank of America on March 12, 2012, in
a judgment entry prepared by Bank of America.
{¶4} Mr. McFerren has appealed, raising a single assignment of error for our
review.
II.
ASSIGNMENT OF ERROR
REVIEWING THE APPELLEE’S MOTION FOR SUMMARY
JUDGMENT DE NOVO, THE RECORD IS CLEAR AND
CONVINCING THAT THE TRIAL COURT ERRED TO THE
PREJUDICE OF APPELLANT BY GRANTING APPELLEE’S
MOTION FOR SUMMARY JUDGMENT IN FAVOR OF APPELLEE
ON THE FORECLOSURE COMPLAINT AND AGAINST
APPELLANT ON THE QUIET TITLE COUNTERCLAIMS AND
THIRD PARTY COMPLAINT.
{¶5} Mr. McFerren argues that the trial court erred in awarding summary
judgment to Bank of America because BAC lacked standing to initiate the action. We
agree that, given the record before us, we cannot conclude that BAC had standing to
initiate the action.
{¶6} Bank of America argues that we should not reach the question of standing
because Mr. McFerren failed to properly raise it in the trial court; however, it is well-
established that “the issue of standing, inasmuch as it is jurisdictional in nature, may be
raised at any time during the pendency of the proceedings.” New Boston Coke Corp. v.
Tyler, 32 Ohio St.3d 216 (1987), paragraph two of the syllabus. See also Fed. Home
Loan Mtge. Corp. v. Schwartzwald, 134 Ohio St.3d 13, 2012-Ohio-5017, ¶ 22 (citing
Tyler with approval).
{¶7} In Schwartzwald, the Ohio Supreme Court determined that a plaintiff in a
foreclosure action must have standing at the time it files the complaint in order to invoke
the jurisdiction of the court. Schwartzwald at ¶ 41-42. “It is an elementary concept of
law that a party lacks standing to invoke the jurisdiction of the court unless he has, in an
individual or representative capacity, some real interest in the subject matter of the
action.” (Internal quotations and citations omitted.) Id. at ¶ 22. Standing to sue is
jurisdictional in nature as it concerns a party’s capacity to invoke the jurisdiction of the
court, and, therefore, whether a party has standing is evaluated at the time of the filing of
the complaint. Id. at ¶ 24. Moreover, the lack of standing cannot be cured by a
subsequent assignment of the note and mortgage subsequent to filing the complaint. Id.
at ¶38 (“Standing is required to invoke the jurisdiction of the common pleas court.
Pursuant to Civ.R. 82, the Rules of Civil Procedure do not extend the jurisdiction of the
courts of this state, and a common pleas court cannot substitute a real party in interest for
another party if no party with standing has invoked its jurisdiction in the first instance.”).
In Schwartzwald, the record did not establish that the plaintiff/bank was the holder of the
note or mortgage when it filed the complaint. As such, it “concede[d] that there [wa]s no
evidence that it had suffered any injury at the time it commenced th[e] foreclosure
action.” Id. at ¶ 28. “Thus, because it failed to establish an interest in the note or
mortgage at the time it filed suit, it had no standing to invoke the jurisdiction of the
common pleas court.” Id.
{¶8} Prior to Schwartzwald, this Court also held that in order to have a real
interest in a foreclosure action, a party must be the owner and holder of the note and the
mortgage at the time it commences the action. See U.S. Bank, N.A. v. Richards, 189
Ohio App.3d 276, 2010-Ohio-3981, ¶ 13 (9th Dist.), quoting Everhome Mtge. Co. v.
Rowland, 10 Dist. Franklin No. 07AP-615, 2008-Ohio-1282, ¶ 12 (“‘In foreclosure
actions, the real party in interest is the current holder of the note and mortgage.’”). BAC
filed the complaint at issue in this case. Bank of America was substituted as the plaintiff
and then moved for summary judgment. Relative to the mortgage, Bank of America
submitted copies of the Mortgage naming MERS as mortgagee and the assignment of the
Mortgage from MERS to BAC.1 With respect to the Note, Bank of America attached a
copy of the Note payable to Quicken Loans. The note contained an endorsement from
Quicken Loans to Countrywide Bank, FSB, which at some point Countrywide Bank
endorsed in blank. Bank of America also submitted the affidavit of Linda Geidel. In her
affidavit, Ms. Geidel averred that she is an officer of Bank of America, that Bank of
America was successor by merger to BAC, and the Bank of America had possession of
the Note. However, Ms. Geidel did not aver that BAC had possession of the Note at the
time that it filed the complaint.2
1
Attached to the complaint was a certificate from the Texas Secretary of State
that indicated that BAC had formerly been known as Countrywide Home Loan Services,
Inc.
2
To illustrate the path both the Note and the Mortgage have taken, we have
created the chart that is attached as Appendix A at the end of this opinion.
{¶9} Accordingly, none of the evidence in the record demonstrates that BAC
had possession of the Note at the time that it filed the complaint. The copy of the Note
attached to the complaint does not show anything beyond the fact that BAC had access to
a copy of the Note. The Note itself is payable to bearer by virtue of Countrywide Bank’s
blank endorsement, meaning that nothing on the Note itself indicates when, or if, BAC
became its owner through possession of the note. Further, the fact that Bank of America
had possession of the Note at the time it moved for summary judgment does not
demonstrate that BAC had obtained possession of the Note when it filed the complaint.
See Rowland at ¶ 15 (“[Bank of America] does not specify how or when [it] became the
holder of the note and mortgage. Without evidence demonstrating the circumstances
under which it received an interest in the note and mortgage, [it] cannot establish itself as
the holder.”). Nor is there evidence that Countrywide Bank, FSB, ever delivered the
endorsed Note to BAC or its predecessors.
{¶10} Nevertheless, Bank of America maintains that the record establishes that
BAC had standing because the mortgage assignment was dated and recorded prior to the
complaint being filed. It reasons that the assignment of the mortgage alone conferred
standing. Specifically, it refers to that portion of Schwartzwald where the Supreme Court
stated that Federal Home Loans did not have standing because “it failed to establish an
interest in the note or mortgage at the time it filed suit,” Schwartzwald, 134 Ohio St.3d
13, 2012-Ohio-5017, at ¶ 28, and points to Citimortgage, Inc. v. Patterson, 8th Dist.
Cuyahoga No. 98360, 2012-Ohio-5894, to support its interpretation. In Patterson, the
court noted that Schwartzwald had held “that Federal Home Loans did not have standing
because * * * ‘it failed to establish an interest in the note or mortgage at the time it filed
suit.’” (Emphasis sic.) Id. at ¶ 21, quoting Schwartzwald at ¶ 28. The Patterson court
concluded that the use of “or” marked a departure from its previous holdings that a party
needed “‘the note and mortgage when the complaint was filed[]’” in order to have
standing. (Emphasis sic.) Patterson at ¶ 21, quoting Wells Fargo Bank, N.A. v. Jordan,
8th Dist. Cuyahoga No. 91675, 2009-Ohio-1092, ¶ 23. Thus, the court held that, in light
of Schwartzwald, a party may establish its standing by showing that it is the assignee of
the mortgage or is the holder of the note. Patterson at ¶ 21.
{¶11} We do not find the Eighth District’s rationale persuasive. It is apparent
that the Ohio Supreme Court did not consider this precise issue in Schwartzwald given
that the bank had conceded that it was not the holder of the note or mortgage. See, e.g.,
Schwartzwald at ¶ 28 (noting that Federal Home Loans conceded there was no evidence
that it had either). Thus, the language must be read in the context of the entire opinion.
Like the Eighth District, this Court has previously held that a party must have the note
and the mortgage in order to demonstrate standing. See, e.g., Richards, 189 Ohio App.3d
276, 2010-Ohio-3981, at ¶ 13. Other districts have made similar holdings. See, e.g.,
Losantiville Holdings L.L.C. v. Kashanian, 1st Dist. Hamilton No. C-110865, 2012-Ohio-
3435, ¶ 17; Arch Bay Holdings, L.L.C. v. Brown, 2d Dist. Montgomery No. 25073, 2012-
Ohio-4966, ¶ 16; U.S. Bank Natl. Assn. v. Marcino, 181 Ohio App.3d 328, 2009-Ohio-
1178, ¶ 32 (7th Dist.); Rowland, 2008-Ohio-1282, at ¶ 12. It is unlikely that the Supreme
Court intended to overturn the holdings of all of the appellate courts on the issue,
especially since the issue was not directly before it.
{¶12} Moreover, as explained in Schwartzwald, the fundamental requirement of
standing is that the party bringing the action is actually the party who has suffered the
injury. See Schwartzwald, 134 Ohio St.3d 13, 2012-Ohio-5017, at ¶ 23, 28. A party who
only has the mortgage but no note has not suffered any injury given that bare possession
of the mortgage does not endow its possessor with any enforceable right absent
possession of the note. See Restatement of the Law 3d, Property, Mortgages, Section
5.4(e), at 385 (1996) (“[I]n general a mortgage is unenforceable if it is held by one who
has no right to enforce the secured obligation.”). In other words, possession of the
mortgage is of no import unless there is possession of the note. While it is possible to
assign a mortgage and retain possession of the note, “[t]he practical effect of such a
transaction is to make it impossible to foreclose the mortgage, unless the transferee is
also made an agent or trustee of the transferor * * *.” Restatement, Section 5.4(c), at
384. See also id. (noting that UCC 3-203 likely requires courts to disregard a mortgage
assignment when the negotiable note is not also delivered); Christopher L. Peterson, Two
Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory,
53 Wm. & Mary L.Rev. 111, 119 (2011), fn. 34 (compiling cases from many jurisdictions
finding that the note and the mortgage are inseparable and that the assignment of a
mortgage alone is a nullity). This would further support the conclusion that the Supreme
Court did not intend to imply that simply possessing the mortgage is sufficient to
establish standing given that a party who simply holds the mortgage suffers no injury.
See Schwartzwald, at ¶ 28.
{¶13} Thus, we conclude that Schwartzwald did not overturn long-standing
property and foreclosure principles and, therefore, BAC had to be holder of the Note and
the Mortgage at the time it initiated this action order to have standing. Id. It follows that,
if BAC did not have standing at the time it filed the complaint, then Bank of America
likewise did not have standing upon merging with BAC.
{¶14} Mr. McFerren has set forth arguments concerning the legal effect of
splitting the Note and Mortgage from the inception of the transaction.3 Bank of America
argues that Mr. McFerren has no standing to assert defenses which relate to the legal
effect of the prior assignments of the note or mortgage.4 However, we need not address
3
As noted above, at the inception of the transaction, the Mortgage named MERS
as the mortgagee and contains language that indicates that MERS is the nominee of
Quicken Loans. This Court has not squarely addressed the legal effect of splitting a note
and mortgage at its inception. See generally Peterson, 53 Wm. & Mary L.Rev. 111
(discussing analysis of various jurisdictions relating to legal effect of splitting note and
the mortgage and the significant departure by MERS from the traditional land registration
system and the public policies undermined by the corporation’s methods). See, e.g.,
Peterson, 53 Wm. & Mary L.Rev. 144 (noting the problematic manner in which MERS
transfers its mortgages because “MERS has a web page in which mortgage servicers and
law firms can enter names of their own employees to automatically produce a boilerplate
corporate resolution that purports to designate the servicers’ and law firms’ employees as
certifying officers of MERS with the job title of assistant secretary, vice president, or
both.”). In Deutsche Bank Natl. Trust Co. v. Traxler, 9th Dist. Lorain No. 09CA009739,
2010-Ohio-3940, this Court discussed in dicta the limited argument that MERS lacked
authority as nominee to assign a mortgage to the foreclosing bank. Id. at ¶ 19. The
argument was premised upon the contention in its status as “nominee” MERS was only
permitted to enforce the mortgage, but not to assign it. Id. As such, it was argued that
the right to assign the mortgage was retained by the original lender who possessed the
note. Id. However, Traxler did not ultimately answer this question but did refer to cases
suggesting that MERS had authority to assign a mortgage when designated as both a
nominee and mortgagee. Id. at ¶ 19-21. However, the cases cited in Traxler concerning
that issue were decided without evidence in the record as to the method by which MERS
operated. See id. at ¶ 19 (compiling cases from other districts that “recognized MERS’
authority to assign a mortgage when designated as both a nominee and mortgagee”).
4
We note that it is unclear why a foreclosure defendant would lack “standing” to
raise issues concerning the legal effect of prior assignments or other transactions in
defending the foreclosure action. In that context, the defendant may raise legally relevant
defenses as such would relate to the character of the obligation (i.e. secured or not
secured) and to whom the obligation is actually owed (in cases of multiple assignments,
to avoid the risk that multiple parties claim the right to collect). Bank of America relies
upon Livonia Props. Holdings, LLC v. 12840-12976 Farmington Rd. Holdings, LLC, 399
Fed.Appx. 97 (6th Cir.2010), and Bridge v. Aames Capital Corp., N.D.Ohio No. 1:09 CV
2947, 2010 WL 3834059 (Sept. 29, 2010), in support. However, the procedural posture
those arguments, as the record before us does not allow us to conclude that BAC was the
owner of the Note when it initiated the action.
{¶15} Mr. McFerren’s assignment of error is sustained.
III.
{¶16} In light of the foregoing, the judgment of the Summit County Court of
Common Pleas is reversed, and the matter is remanded for further proceedings consistent
with this opinion.
Judgment reversed,
and cause remanded.
There were reasonable grounds for this appeal.
We order that a special mandate issue out of this Court, directing the Court of
Common Pleas, County of Summit, State of Ohio, to carry this judgment into execution.
A certified copy of this journal entry shall constitute the mandate, pursuant to App.R. 27.
Immediately upon the filing hereof, this document shall constitute the journal
entry of judgment, and it shall be file stamped by the Clerk of the Court of Appeals at
which time the period for review shall begin to run. App.R. 22(C). The Clerk of the
Court of Appeals is instructed to mail a notice of entry of this judgment to the parties and
to make a notation of the mailing in the docket, pursuant to App.R. 30.
and substantive issues addressed in those cases are distinct from the instant matter and
those cases do not stand for the blanket proposition that in all contexts an obligor may not
raise defenses concerning the assignment of the obligation. Bridge is readily
distinguishable because the mortgagor was a plaintiff seeking a declaratory judgment and
the court addressed standing in the context of Ohio’s declaratory judgment statute.
Livonia addressed the question of the meaning of “record chain of title” under
Michigan’s foreclosure by advertisement statute. See id. at 99.
Costs taxed to Appellee.
EVE V. BELFANCE
FOR THE COURT
HENSAL, J.
CONCURS.
CARR, J.
DISSENTING.
{¶17} I agree with the majority’s conclusion that “none of the evidence in the
record demonstrates that BAC had possession of the Note at the time that it filed the
complaint,” but I would not remand this matter for further proceedings. Instead, I would
hold that BAC’s failure to demonstrate standing at the commencement of this foreclosure
action requires dismissal of the complaint pursuant to the Supreme Court of Ohio’s
decision in Fed. Home Loan Mtge. Corp. v. Schwartzwald, 134 Ohio St.3d 13, 2012-
Ohio-5017, ¶ 40; see also Wells Fargo Bank NA v . Horn, 9th Dist. No. 12CA010230,
2013-Ohio-2374.
APPEARANCES:
DAVID N. PATTERSON, Attorney at Law, for Appellant.
STACY L. HART and CARSON A. ROTHFUSS, Attorneys at Law, for Appellee.
_____________________
Appendix A
The appendix cannot be displayed.