Where You Sue can Hurt You: Ohio Appellate Courts Split on Ability to Appeal in Foreclosure Actions

December 2012 By Christopher Dutton
onCite Newsletter

The Ohio Court of Appeals issued a decision in 2012 that serves as a reminder to participants in the construction process and their counsel that the old adage of "location, location, location" can become very important in a lien foreclosure action.  In U.S. Bank N.A. v. Mobile Associates National Network Systems, Inc., 195 Ohio App. 3d 699 (10th Dist. 2011) the court addressed the issue of whether a party could pursue an appeal of a trial court’s decision ordering the foreclosure on a parcel of property when, at the time of the appeal, the foreclosure sale had already occurred.  While the decision was favorable for the property owner in Mobile, it may have faced a different outcome had the property been located in a different appellate district.

Mobile Associates National Systems, Inc. was one of the original owners of the property, and the principal named defendant in the foreclosure lawsuit. On June 7, 2006, Mobile Associates and Bank of America, N.A. entered into a mortgage loan for $8 million. Mobile Associates made regular payments on the loan through September of 2008. Mobile Associates missed its monthly payment in October and November of 2008.  On November 13, 2008, the Bank referred the account to a debt collector.

In December, Mobile Associates unsuccessfully attempted to negotiate forbearance of the loan. On December 4, Mobile Associates made its regular payment for the month of December. On December 17, 2008, the Bank accelerated the maturity date of the loan and demanded payment of the entire loan balance within ten days. Mobile Associates did not comply with this request, and, instead, made its regular monthly payment for January and February 2009. Mobile Associates believed that the forbearance was pending. On February 18, 2009, however, the Bank filed a foreclosure lawsuit and a motion requesting that the court appoint a receiver for the property. On April 25, 2011 and May 13, 2011, more than two years later, the property was sold at a Sheriff’s sale to an entity affiliated with the Bank.

After the foreclosure sale, Mobile Associates filed an appeal claiming that the trial court committed various errors of law in the foreclosure proceedings. The Mobile Associates moved to dismiss the appeal, arguing that the issue was moot because the property had been sold and the proceeds of the sale had been distributed. The basis for the Bank’s argument was Ohio Revised Code §2329.45 which states, 

If a judgment in satisfaction of which lands… are sold is reversed, such reversal shall not defeat or affect the title of the purchase. In such case restitution may be made by the judgment creditor of the money for which such lands were sold, with interest from the day of sale.

Simply stated, the Bank alleged that since the foreclosure was irrevocable, the appeal would be fruitless regardless of its outcome. And since prosecuting meaningless appeals wastes judicial resources, the appeal should be dismissed entirely.

The Mobile court recognized that Ohio Appeals Court districts were split on this issue. Some Ohio Appeals Courts have found that the issue would, in fact, be moot after the sheriff’s sale. Other courts have found that other remedies are available and that the issue would not be moot.

In Charter Ohio Bank, F.S.B. v. Mysyk, 2004 Ohio 4391 (11th Dist.), the Court took the same position advocated by the Bank in Mobile, stating,

Once the sheriff sale has occurred, the merits of the trial court’s foreclosure order became moot… No relief can be afforded once the property has been sold at foreclosure sale because an appellate court is unable to grant any effectual relief at that point.

Other Ohio Appeals Districts have adopted similar positions. See also, Bankers Trust Co., of California, N.A. v. Tuton, 2009 Ohio 133. In LaSalle Bank Natl. Ass. v. Murray, 2008 Ohio 609, however, the court took the opposite position, stating, “R.C. 2329.45 preserves the remedy of restitution, even after the property has been sold at sheriff’s sale and the proceeds distributed…”

Based on LaSalle and similar decisions, the court in the Mobile case found that “Ohio courts have recognized that even where the real property itself is no longer recoverable, the case is not moot because the court is not without power to offer a remedy. Debtors may still obtain relief in the form of restitution from judgment creditors.”  In more pointed terms, the Mobile court found that a court may award the former property owner monetary damages to compensate for the wrongfully seized property. The court noted that its holding was particularly applicable in cases like Mobile, where the purchaser of the property at the foreclosure sale is affiliated with the judgment creditor.

The impact of the Mobile case is pertinent to property owners, lenders, and mechanics lien claimants in Ohio. Entities involved in Ohio foreclosure litigation (and their counsel) must determine if they are in a judicial district that follows the Mobile rule or the Charter Bank rule so they can properly assess the risks involved in such litigation.  In districts which follow Charter Bank, litigants in a foreclosure action may only get one “bite at the apple” regardless of how incorrect the trial court’s decision may be. Once the auctioneer’s gavel falls, the case is closed for good. Thus, a party and its counsel in such jurisdictions must be prepared to analyze what, if any, post-judgment steps can be taken to prevent such a sale from occurring.  Conversely, in districts controlled by the Mobile rule the opportunity to appeal trial court decisions remains available to litigants. While the property may be irretrievable, monetary damages to compensate for the lost property are not.

At some point, the Ohio Supreme Court may resolve this split statewide. But until it does, Ohio property developers, lenders, and contractors should determine what the “law of the land” is in jurisdictions where their projects are located and conduct themselves accordingly.

Practices

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