BAC Home Loans Servicing, L.P. v. Blythe | OHIO Court of Appeals - BAC has failed to demonstrate that it has standing to accelerate the note and foreclose the mortgage


BAC Home Loans Servicing, L.P. v. Blythe | OHIO Court of Appeals – BAC has failed to demonstrate that it has standing to accelerate the note and foreclose the mortgage

BAC Home Loans Servicing, L.P. v. Blythe | OHIO Court of Appeals – BAC has failed to demonstrate that it has standing to accelerate the note and foreclose the mortgage







{¶1} Appellant Walter J. Blythe appeals the Columbiana County Common
Pleas Court’s decision granting summary judgment in favor of Appellee, BAC Home
Loans Servicing, L.P., in a foreclosure action. Appellant challenges the trial court’s
finding that Appellee had standing to foreclose in the absence of evidence that
Appellee was the holder of the note creating the obligation. Appellant relies on the
material submitted by Appellee in support of this claim. Because the copy of the note
filed by Appellee is specifically indorsed to Countrywide Bank, FSB, not Appellee,
and there is nothing to indicate otherwise, Appellee has failed to demonstrate that it
has standing to accelerate the note and foreclose the mortgage. The judgment of the
trial court is reversed and the suit dismissed for lack of standing.

Statement of Facts

{¶2} On May 2, 2007 Appellant financed the purchase of a house located at
32282 Wooddale Dr., Hanoverton, Ohio, 44423 with a loan issued by Quicken Loans
Inc. Appellant signed a promissory note as the sole obligor in the amount of
$116,000.00. The note named the lender, Quicken Loans Inc., as the sole obligee.
The promissory note was transferred by Quicken Loans Inc. in an undated special
indorsement on page three of the note. The indorsement reads “WITHOUT
RECOURSE Pay To the Order of Countrywide Bank, FSB” and was signed by Scott
Johnson, capture manager for Quicken Loans, Inc. (1/27/12 Status Aff., Exh. A.)

{¶3} The note was secured by a mortgage on the Wooddale property
granted by Appellant to Mortgage Electronic Registration Systems, Inc. (“MERS”) as
mortgagee “acting solely as a nominee for Lender and Lender’s successors and
assigns.” (9/1/10 Complaint, Exh. B, Mortgage, p. 1.) Quicken Loans Inc. is
identified in the mortgage as the lender. (9/1/10 Complaint, Exh. B, Mortgage, p. 2.)
The mortgage was recorded in Columbiana County on either June 11 or August 11,
2007; the copy provided by Appellee is not clear. The mortgage, without reference to
the note, appears to have been assigned by MERS “as nominee for Quicken Loans,
Inc.” to BAC Home Loans Servicing, LP, on March 22, 2010. (9/1/10 Complaint,
Assignment.) The assignment was prepared by Lerner, Sampson, and Rothfuss,
executed in Cincinnati, Ohio, and recorded in Columbiana County on either March 26
or March 28, 2010 (copy provided by Appellee is unclear).

{¶4} Appellee alleges that the account is due and owing from October 1,
2009, in the amount of $116,000.00, with interest accruing at the amount specified in
the note from October of 2009. The accounting provided by Appellee reflects
payment by the homeowner every month between the June, 2007 origination of the
loan and October of 2009, when payment was apparently made for the month in
which the default is alleged to have occurred. The accounting provided by Appellee
reflects a zero balance for each month of the documented life of the loan. Appellee
alleged default under the terms of the mortgage but does not specify nonpayment or
otherwise identify the default that gave rise to acceleration and foreclosure.
Procedural History

{¶5} Appellee filed this foreclosure action in Columbiana County on
September 1, 2010. The complaint was served via certified mail on or about
September 14, 2010 and completed on September 17, 2010. On September 30,
2010, Appellant filed a timely answer to the complaint denying all allegations in the
complaint, alleging as a defense that Appellee had failed to state a claim on which
relief could be granted, and asserting his right to equitable redemption. The matter
was then referred to mediation.

{¶6} Appellee moved for summary judgment, without leave and well beyond
the dispositive motion’s deadline, on January 27, 2012. On that same date Appellee
separately filed an affidavit of status of account and military affidavit and a second
military affidavit. (1/27/12 Status Aff.) It is unclear, but one or both of these may be
the “Affidavit Supporting Plaintiff’s Motion for Summary Judgment” mentioned in
Appellee’s motion. (Motion for Summary Judgment, p. 2) The status of account
affidavit was executed in Texas by Gregory Higeons, an Assistant Vice President of
BAC Home Loan Servicing, LP. He does not specify a date of default, but states
generally that the account is due “from the date of default” in the amount of
$116,000.00 “together with interest thereon” “at the rate specified in the note.”
(1/27/12 Status Aff., ¶3.) Copies of the note, mortgage, and an accounting are
attached to the affidavit but are not referenced in or incorporated by the affidavit.
(1/27/12 Status Aff.) Appellee’s complaint and Appellant’s brief both suggest that
Appellant has filed personal bankruptcy. No evidence of bankruptcy or discharge
appears in the record.

{¶7} Appellant filed a response in opposition to summary judgment and a
motion to strike the summary judgment motion which was filed without leave in
violation of the trial court’s dispositive motion schedule. In opposition, Appellant
argued that Appellee lacked standing to foreclose and was not the real party in
interest due to the absence of evidence in the record showing a transfer of interest in
the note to Appellee. Appellee did not respond. The trial court overruled the motion
to strike and granted Appellee’s motion for summary judgment on February 17, 2012.
Final judgment granting summary judgment and a decree in foreclosure was entered
on February 24, 2012. Appellant filed a timely appeal of both orders. Appellant
sought a stay of execution, which the trial court conditioned on a supersedeas bond
of $50,000.00. It is unclear whether bond has been posted and no order granting a
stay appears in the record.

Argument and Law
Assignment of Error


{¶8} Appellant contends that the trial court erred in deciding to grant
summary judgment to Appellee because it lacked standing to foreclose. Summary
judgment is governed by Civ.R. 56(C), which states:
Summary judgment shall be rendered forthwith if the pleadings,
depositions, answers to interrogatories, written admissions, affidavits,
transcripts of evidence, and written stipulations of fact, if any, timely
filed in the action, show that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment as a
matter of law. No evidence or stipulation may be considered except as
stated in this rule. A summary judgment shall not be rendered unless it
appears from the evidence or stipulation, and only from the evidence or
stipulation, that reasonable minds can come to but one conclusion and
that conclusion is adverse to the party against whom the motion for
summary judgment is made, that party being entitled to have the
evidence or stipulation construed most strongly in the party’s favor.
A fact is material if it affects the outcome of the case under the applicable substantive
law. Russell v. Interim Personnel, Inc., 135 Ohio App.3d 301, 733 N.E.2d 1186
(1999). A court may not resolve ambiguities in the evidence presented and is strictly
limited to the evidence or stipulation in the record. Civ.R. 56(C); Inland Refuse
Transfer Co. v. Browning-Ferris Industries of Ohio, Inc., 15 Ohio St.3d 321, 474
N.E.2d 271 (1984).

{¶9} The party seeking summary judgment bears the initial burden of
informing the trial court of the basis of the motion and identifying the portions of the
record which demonstrate the absence of a genuine issue of fact on a material
element of the non-moving party’s claim. Drescher, supra. Once the moving party
meets its initial burden, the burden shifts to the non-moving party to set forth specific
facts demonstrating a genuine issue of material fact does exist. Id. The non-moving
party may not rest upon the allegations and denials in the pleadings, but instead
must submit some evidentiary material showing a genuine dispute over material
facts. Henkle v. Henkle, 75 Ohio App.3d 732, 600 N.E.2d 791 (1991). However,
even a complete failure to respond to a motion for summary judgment does not, by
itself, warrant that the motion be granted. Morris v. Ohio Cas. Ins. Co., 35 Ohio St.3d
45, 47, 517 N.E.2d 904 (1988). In every case, a trial court’s analysis must focus on
whether the movant has satisfied the initial burden to show that reasonable minds
could only conclude that the case should be decided against the nonmoving party.
Id. Only where the movant has discharged this burden does the court move on to
address whether the nonmovant has met its reciprocal burden of establishing that a
genuine issue remains for trial. Id. A trial court should not enter a summary
judgment if it appears that a material fact is genuinely disputed, or if, construing the
allegations most favorably towards the non-moving party, reasonable minds could
draw different conclusions from the undisputed facts. Houndshell v. American States
Ins. Co., 67 Ohio St.2d 427, 424 N.E.2d 311 (1981).

{¶10} Appellant relies on Ohio’s version of Article 3 of the Uniform
Commercial Code, including R.C. 1303.21(B), in support of his argument that
Appellee failed to satisfy its burden to establish standing. R.C. 1303 governs
commercial paper, which includes the note that creates the obligation at issue. R.C.
1303.02, R.C. 1303.03(A), (B), (E)(1). R.C. 1303.21 defines “negotiation” as the
“voluntary or involuntary transfer of possession of an instrument by a person other
than the issuer to a person who by transfer becomes the holder of the instrument.”
R.C. 1303.21(A).

{¶11} Under the same section, “if an instrument is payable to an identified
person [or entity], negotiation requires transfer of possession of the instrument and its
indorsement by the holder. If an instrument is payable to bearer, it may be
negotiated by transfer of possession alone.” R.C. 1303.21(B). Indorsement under
the code “means a signature, other than that of a signer as maker * * * that alone or
accompanied by other words is made on an instrument for any of the following
purposes: (a) [t]o negotiate the instrument.” R.C. 1303.24(A)(1).

{¶12} An indorsement that identifies the person or entity “to whom it makes
the instrument payable” is a special indorsement. R.C. 1303.25(A). “An instrument,
when specially indorsed, becomes payable to the identified person and may be
negotiated only by the indorsement of that person.” R.C. 1303.25(A). A special
indorsement exists in opposition to a blank indorsement, which does not identify a
payee, and instead makes the instrument “payable to bearer” and negotiable “by
transfer of possession alone until specially indorsed.” R.C. 1303.25(B).

{¶13} Appellee claims that ownership of the note is not necessary to enforce
the agreement. While Appellee is correct that R.C. 1303.31(B) allows a person who
is not the owner of the instrument or is in wrongful possession of the instrument to
enforce the instrument, the special indorsement on this note precludes enforcement
by any party other than the named entity. R.C. 1303.25.

{¶14} Appellee argues that it is the “holder” of the instrument. The term
“holder” has specific legal significance in this context and is defined by R.C. 1303.32,
which regulates that the holder must satisfy the applicable requirements included in
that section. The first requirement is that the instrument is “issued or negotiated to
the holder.” R.C. 1303.32(A)(1).

{¶15} The note at issue here was originally payable to Quicken Loans, Inc.,
and was transferred (negotiated) by special indorsement, to Countrywide Bank, FSB.
Appellee, BAC Home Loan Servicing, LP is not Countrywide Bank, FSB. The record
from the trial court does not contain any evidentiary material suggesting that Appellee
is transferee or successor in interest of Countrywide Bank, FSB. For the first time on
appeal, Appellee asserts that we “may take judicial notice” that “Countrywide Bank,
FSB was converted to a national banking association under the title of Countrywide
Bank, N.A. and immediately thereafter merged with Bank of America, N.A.”
(Appellee’s Brf., p. 4.) If Appellee were correct and we could take judicial notice of
such facts, they would not be sufficient to establish Appellee’s alleged standing as
the holder of the note.

{¶16} As we have recently noted, “[a] corporate name is a very precise term”
and for this reason even “minor variations in the spelling and punctuation of a
corporate name” can have dispositive legal significance. CitiMortgage v. Foster,
2012-Ohio-6274, ¶12. Appellee, BAC Home Loan Servicing, LP is not Bank of
America, N.A. The two are demonstrably separate corporate entities; one is a limited
partnership, and the other is a national association; that is, a federally regulated
bank. Appellee’s claim that it has holder status by virtue of the merger of two
corporate entities other than itself is meritless.

{¶17} Appellee’s assertion that it is a nonholder in possession and entitled to
enforce is similarly mistaken. As the official comment to R.C. 1303.31/UCC 3-301
indicates, a nonholder in possession must establish that it has “acquired rights of a
holder by subrogation,” by transfer, is a successor to a holder, or “otherwise acquires
the holder’s rights.” (UCC 3-301, official comment 1990, R.C. 1303.31.) To
demonstrate status as a nonholder in possession of specially indorsed commercial
paper, Appellee would have to demonstrate the transfer or acquisition of the paper.
Nothing in this record establishes the transfer or acquisition of Countrywide Bank
FSB’s right to the note by any means. Even if Bank of America, N.A., and not
Appellee, BAC Home Loan Servicing, LP, had filed suit with the exact copy of the
note filed in this instance, Bank of America, N.A. would be required to produce Civ.R.
56 evidence of the transaction, merger, or mergers that gave rise to an interest in the
subject note.

{¶18} At summary judgment, unlike trial, the material a court may consider is
strictly limited: “[n]o evidence or stipulation may be considered except as stated in
this rule.” Civ.R. 56(C). The material explicitly allowed by the rule includes only
“pleadings, depositions, answers to interrogatories, written admissions, affidavits,
transcripts of evidence, and written stipulations of fact.” Civ.R. 56(C). “The proper
method for introducing evidentiary materials not specifically authorized by Civ.R.
56(C) is to incorporate them by reference into a properly framed affidavit.” Citibank v.
McGee, 7th Dist. No. 11 MA 158, 2012-Ohio-5364, ¶14; Civ.R. 56(E). The absence
of a properly framed affidavit requires us to exclude material, even copies of
government records, where that material has not been properly placed in the record.
CitiMortgage v. Foster, supra, ¶9-11 (stating that a copy of a bank’s corporate
registration was not properly before the court and “not evidence to support summary
judgment” because “Appellee did not reference its corporate registration in an
affidavit.”) No certificate of merger or mergers evidencing a relationship between
Countrywide Bank FSB and any other entity appears in this record. The evidence in
the record does not support the right of any party other than Countrywide Bank FSB
to enforce the subject note. Unlike the note produced by CitiMortgage in Foster, the
note Appellee seeks to enforce is not bearer paper. Appellee cannot overcome the
multiple evidentiary deficiencies in this record with a copy of a specifically indorsed

{¶19} We note that:
For nearly a century, Ohio courts have held that whenever a promissory
note is secured by a mortgage, the note constitutes the evidence of the
debt and the mortgage is a mere incident to the obligation. Edgar v.
Haines (1923), 109 Ohio St.159, 164, 141 N.E. 837. Therefore, the
negotiation of a note operates as an equitable assignment of the
mortgage, even though the mortgage is not assigned or delivered.
Kuck v. Sommers (1950), 100 N.E.2d 68, 75, 59 Ohio Abs. 400.
U.S. Bank Nat’l. Assn. v. Marcino, 181 Ohio App.3d 328, 2009-Ohio-1178, 908
N.E.2d 1032, ¶52. The note in this instance, unlike the note in Marcino, is not bearer
paper: it is payable to a specific entity and Appellee is not that entity. Countrywide
Bank FSB, not Appellee, is the holder of the note filed in this action. “The current
holder of the note and mortgage is the real party in interest in foreclosure actions.”
Id. at ¶32. “Where a party fails to establish itself as the current holder of the note and
mortgage, summary judgment is inappropriate.” Id.

{¶20} “[S]tanding to sue is part of the common understanding of what it takes
to make a justiciable case.” Fed. Home Loan Mtge. Corp. v. Schwartzwald, 134 Ohio
St.3d 13, 2012-Ohio-5017, 979 N.E.2d 1214, ¶21, quoting Steel Co. v. Citizens for a
Better Environment, 523 U.S. 83, 102, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998).
“[S]tanding is a ‘jurisdictional requirement * * * [i]t 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.” (Emphasis sic.) Id. at ¶22. “[T]he issue of standing, inasmuch as it is
jurisdictional in nature, may be raised at any time during the pendency of the
proceedings.” Id. “The lack of standing at the commencement of a foreclosure
action requires dismissal of the complaint; however, that dismissal is not an
adjudication on the merits and is therefore without prejudice.” Id. at ¶40. Appellee is
not the holder entitled to enforce the subject note and fails to meet the jurisdictional
requirements to file suit. Due to Appellee’s lack of standing, Appellant’s assignment
of error is sustained, the judgment of the trial court reversed, and the complaint is
dismissed without prejudice.


{¶21} Appellee has not established that it is the current holder of the note and
mortgage that are the subject of this action, hence, Appellee does not have standing
to file suit. Appellant’s single assignment of error is sustained and, under
Schwartzwald, the judgment of the trial court is reversed. The complaint is hereby
dismissed without prejudice. All costs are taxed to Appellee.

Donofrio, J., concurs.
DeGenaro, P.J., concurs.

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