The rights of owners and tenants in post-foreclosure property have been dramatically altered by new legislation signed by President Obama. On May 20, 2009, President Obama signed the “Helping Families Save Their Home Act,” which contained provisions to aid renters whose landlords go through foreclosure. Title VII of the Helping Families Act (the “Act”) is
Ohio Lenders Precluded from Bringing Third Complaint on Same Note
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.
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Falling Property Values in Cuyahoga County
How low will they go?
Bending to market pressures, Cuyahoga County Auditor Frank Russo recently announced that the County’s 2009 valuation update will likely result in significant decreases in the County’s assessed value of residential homes – with an 8% average reduction across the County.
The media reports note that the State intends to compare Mr. Russo’s proposed values to the actual sales figures from each community and will ultimately approve new fair market values likely between 92% to 94% of the fair market value. The State’s suggestion of a 6% to 8% discount off of the appraised fair market value is really aimed at those properties that have not been recently sold. This “discount” should not be applicable to those non-residential properties where there was a recent arm’s length sale of the property.
School districts (when the sale exceeds the current assessed value) and property owners (when the sale is below the assessed value) actively seek adjustment of the market value of the non-residential properties to an amount equal to the purchase price. The Ohio Supreme Court has held that the purchase price paid in an arm’s length sale is the best indication of the fair market value of real property.
The Auditor’s decision to seek an 8% average reduction in value comes at the close of the property tax complaint filing season which ended March 31. In Cuyahoga County alone, a reported 17,000 decrease complaints were filed at the Cuyahoga County Board of Revision with respect to the 2008 tax year. Compared to the record 10,000 decrease filings last year with respect to the 2007 tax year, the 2008 “off-year” filings (the last year of the 2006-2008 triennium) are extremely notable.
Ohio Foreclosures – Legislative Update
Two foreclosure related bills of great interest to both borrowers and lenders were introduced in the Ohio House of Representatives in February but are moving slowly, if at all, through the legislative process. One of the bills is too bold to have a serious shot at getting signed by Governor Strickland, but the other is modest enough that it may pass.
House Bill 3, the more sweeping of the two, has languished in the Housing and Urban Revitalization Committee. At a very basic level, the bill would:
1. Impose a six-month foreclosure moratorium, during which a court could not hear or issue judgment on a foreclosure complaint. The moratorium loses a bit of its teeth, however, as a mortgagee an petition the court to proceed with the action if a borrower is more than thirty days late on a payment during the moratorium.
2. Establish new filing requirements for residential foreclosure complaints, including certain notices to be given to borrowers by loan servicers, a statement of mortgage information (including the identity of the note holder), an appraisal, and a $1,500 filing fee.
3. Allow common pleas judges to modify mortgage terms, including principal amount, in residential foreclosures if the judge determines the modification would benefit both parties.
4. Require mortgage loan servicers to register with the state and be subject to extensive regulation and oversight.
5. Establish a loan modification program, run by the Director of Commerce, which would allow borrowers to modify loans when a modification would result in a greater recovery to the lender than a foreclosure.
The drastic nature of HB 3, particularly the mortgage modification provisions, has led to strenuous opposition and even promises of constitutional challenges (and here) should it pass. While the bill as a whole likely won’t move much further, it wouldn’t be surprising to see small pieces of it come up for a vote. If any significant portion of HB 3 passes, lenders will be faced with sharply increased mortgage-related operating costs. They would need to quickly develop processes to determine which distressed properties are eligible for the moratorium bypass and whether the $1500 filing fee makes a workout preferable to foreclosure on a given property.
Sunny and Warm in Ohio
Monday marked the fourth straight day in Ohio of sunny skies and temperatures in the 80s. That’s quite remarkable given that we are just five weeks into spring and the summer solstice is almost two months off. The unusually hot weather was almost nice enough to make one think of being on a
FDIC Deposit Limitations (Time for CDARS)
How can you safely deposit the funds of a condominium association, development entity, municipality or any entity which needs to know that there is little or no risk of loss to the deposited funds ? The Federal Deposit Insurance Corporation (FDIC) temporarily increased deposit insurance for individuals to $250,000. The increased deposit insurance is scheduled
Free Money in Cleveland !
"Every night before I rest my head; See those dollar bills go swirling ’round my bed."
So sang Patti Smith in the composition Free Money on her critically acclaimed 1975 debut album, Horses.
That’s a tune that cash-desperate real estate developers and project owners may have found themselves humming during the current credit crisis. But
Cuyahoga County’s New Land Bank – A Step Toward a “Sustainable Cleveland”
As I mentioned in an earlier post, Ohio Governor Ted Strickland recently signed legislation creating a new “land bank” in Cuyahoga County. Like a dose of cold medicine, Senate Bill 353 is not a cure for the foreclosure crisis, but it should help solve one of its primary symptoms – abandoned and vacant housing.
More than any other area in the state, Greater Cleveland has struggled with vacant properties due to its dramatic population decline over the past fifty years. In 1950, Cleveland’s population stood at 914,808, making it the seventh largest city in the U.S. Today, the population is estimated at 438,000. In other words, the city was built for twice as many people, leaving Clevelanders with easy commutes and plentiful abandoned properties.
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Ohio Supreme Court Allows Collection of Attorney Fees on Mortgage Reinstatement
Mortgage lenders scored a victory at the Ohio Supreme Court in the recently decided Wilborn v. Bank One Corporation, 2009 Ohio 306 (2009). In Wilborn, eleven borrowers brought suit against their lenders. Ten of the eleven cases (the eleventh did not
involve a reinstatement provision and was decided differently) went like this: Lender brought
Ohio’s Foreclosure Prevention Task Force – Mission Accomplished?
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