A helpful reminder to lenders – if you’re going to foreclose, read the note and mortgage and do what they say. In a recent Ohio Court of Appeals case, the bank failed to follow these instructions and was rewarded by having its foreclosure complaint dismissed.
The borrower missed a payment on her mortgage and the bank
A mechanics’ lien claim can give the contractor, subcontractor or material supplier making the claim a significant amount of leverage over a property owner in a payment dispute. This makes sense, of course, because the concept behind mechanics’ lien law is to provide some assurance that people will receive payment for work and materials they provide to improve real property. But what can the owner do where the claim for payment is disputed and the mechanics’ lien threatens to put the owner in default of its mortgage covenants or disrupt a sale or refinancing of the property?
When there is no external pressure from a lender or pending sale of the property, the owner does not necessarily need to do anything to address a lien. Ohio mechanics’ liens are valid only for a period of six years from the date of recording. If the owner believes the lien is invalid and therefore unlikely to be foreclosed upon, the owner can simply wait six years until the lien expires.
If, however, the lien needs to be removed prior to the expiration of the six-year period, the owner has several options. Ohio’s mechanics’ lien law is complex and contains many traps for the unwary that may render a mechanics’ lien invalid. For instance, on commercial projects, a mechanics’ lien claimant only has 75 after the last date of work in which to file the lien affidavit with the recorder’s office. The lien must then be served upon the owner or owner’s designee within 30 days. Failure to meet either of these deadlines will render the lien invalid.
Another stumbling block for potential lien claimants occurs when the owner has recorded a notice of commencement (which the owner typically should). The recording of the notice of commencement triggers an obligation on behalf of subcontractors or material suppliers to serve a notice of furnishing upon the owner in order to preserve their right to claim a lien. Check to see that a notice of furnishing was properly served by the lien claimant. If not, the claimant may have lost the right to file a lien. Note that the requirement to serve a notice of furnishing does not apply to someone who has a contract directly with the owner.
Continue Reading Lien on Me: Strategies for Resolving Mechanics’ Lien Claims
In U.S. Bank National Association v. Gullotta, 120 Ohio St 3d 399, the Ohio Supreme Court decided that multiple actions under the same note and mortgage are subject to the two-dismissal rule and res judicata preclusion. The decision could have far-reaching implications for lenders seeking to workout loans with troubled borrowers.
The history of the case is important to understanding its impact. In June 2003, Giuseppe Gullotta entered into a note and mortgage with MILA, Inc., which assigned the note to U.S. Bank. In April 2004, U.S. Bank filed a foreclosure complaint for the total principal due on the note, plus interest from November 1, 2003. It voluntarily dismissed this complaint in June 2004. In September 2004, U.S. Bank filed a second identical complaint, except with interest running from December 1, 2003, which it also voluntarily dismissed in March 2005. In October 2005, U.S. Bank filed a third foreclosure complaint on Gullotta’s note and mortgage. After Gullotta filed a motion to dismiss, U.S. Bank amended its complaint to seek interest only from April 1, 2005 (the first missed payment date after its second dismissal).
Ohio Civil Procedure Rules state that “a notice of dismissal operates as an adjudication on the merits of any claim that the plaintiff has once dismissed in any court.” A second dismissal is with prejudice and res judicata preclusion takes effect. Under a res judicata analysis, any claim “arising out of the transaction or occurrence that was the subject matter of the previous action” is barred.
The Court held that each missed payment under the same note and mortgage does not give rise to a new claim, and therefore U.S. Bank’s two earlier dismissals precluded a third action. It premised this holding on four critical facts: 1) the underlying note and mortgage never changed, 2) the bank accelerated the payment upon initial default and demanded the same principal payment in every complaint, 3) Gullotta never made another payment after his initial default, and 4) U.S. Bank never reinstated the loan.
Continue Reading Ohio Lenders Precluded from Bringing Third Complaint on Same Note
On November 26, 2008, LandAmerica Financial Group, Inc. (“LandAmerica”) and its affiliate, LandAmerica 1031 Exchange Services, Inc. (“LES”) filed for Chapter 11 protection from creditors. LES abruptly ceased its 1031 exchange intermediary business two days prior to the bankruptcy filing and LandAmerica sold its Lawyers Title and Commonwealth Title underwriting subsidiaries to Fidelity Title and Chicago Title shortly after the petition date.
Monday, April 6, was the deadline for creditors in each case to file their bankruptcy claims. A review of the filed claims in each case tells quite a tale of woe, with the 1031 exchange customers of LES hit exponentially hard.
As a 1031 intermediary, LES held proceeds from the sale of its customer’s “relinquished property” for 180 days or until “replacement property” was purchased if earlier. For an extended period, LES had been investing its customer’s sales proceeds in auction rate securities (“ARS”), the market for which froze in February 2008. By November, LandAmerica could no longer fund the cash needs for replacement property purchases and this led to the Chapter 11 filing.
Customers who were in the middle of their 180-day replacement period awoke to find that their cash proceeds were not only unavailable (and likely tied up long term in illiquid investments) but that they would not be able to obtain their planned tax deferral under Section 1031 of the Revenue Code. If that was not injury enough, many of these customers already had replacement properties firmly under contract and suffered the insult of potential breach lawsuits by the sellers of those properties.
One LES creditor’s claim is reflective of the many similarly situated customers. Deblu Realty Corporation had almost $1.5 million deposited with LES from the sale of relinquished property, but its proof of claim was not only for that amount but for $373,000 in lost deferral of taxes (at capital gains rates), $3.7 million in potential lost profits on the thwarted acquisition of replacement property as well as yet to be determined amounts for alternate financing costs and legal fees.
According to the Community Associations Institute, nearly 60 million people across the country live in association-governed communities. Many of these communities have been severely affected by the current economic downturn and increase in foreclosure rates. In a condominium or homeowners’ association, delinquencies and foreclosures create a ripple effect that impacts all owners. Once an owner ceases
In March 2007, Governor Strickland created the “Ohio Foreclosure Prevention Task Force” to address the ever-increasing number of foreclosures plaguing the state. The group’s final report, issued in September 2007, identified 27 recommendations for state action. Since the rise in foreclosures likely won’t be going away anytime soon, perhaps it’s appropriate to take stock of
On January 27, 2009, the front page of the Columbus Dispatch read, “44,000 Jobs Gone.”Other articles report of companies shuttering their facilities or filing bankruptcy. As one affected employee interviewed for the Dispatch article succinctly stated, “It’s scary.” And it’s no less scary for landowners and lenders dealing with properties that have been abandoned. Landowners whose tenants have abandoned their facilities are trying to recover past rent due and expenses related to cleaning up the equipment, products and chemicals remaining at the facility. Banks are foreclosing on property or are working within the bankruptcy court to recover their money.
Landowners and first mortgage lenders in these situations should also be aware that they may be subject to environmental clean-up obligations under the Cessation of Regulated Operations (“CRO”) program. CRO was created to protect the public against exposure or pollution from hazardous chemicals left at abandoned facilities. CRO requires the owner or operator of the facility to secure the facility from trespass or vandalism and to comply with 30-day and 90-day deadlines in removing regulated substances and reporting on the progress. If the owner or operator of the facility fails to perform its CRO obligations, then the landowner or first mortgage holder may be responsible to perform certain CRO activities.
A side effect of the foreclosure crisis has been a growing concern among lending institutions over the possibility of “lender liability.” Lender liability encompasses any number of actions that may be asserted by a borrower against a lender based on either the lending process or final loan documents. Borrowers have been seeking new and inventive ways of avoiding foreclosure