Fed. Home Loan Mortg. Corp. v. Schwartzwald

Decision Date03 June 2011
Docket NumberNo. 2010 CA 41.,2010 CA 41.
Citation74 UCC Rep.Serv.2d 850,194 Ohio App.3d 644,957 N.E.2d 790,2011 -Ohio- 2681
PartiesFEDERAL HOME LOAN MORTGAGE CORP., Appellee, v. SCHWARTZWALD et al., Appellants.
CourtOhio Court of Appeals


Scott A. King, and Terry W. Posey Jr., Dayton, for appellee.

Andrew M. Engel, for appellants.


[Ohio App.3d 648] {¶ 1} Duane and Julie Schwartzwald appeal from a judgment of the Greene County Court of Common Pleas, which granted summary judgment to the Federal Home Loan Mortgage Corporation (Freddie Mac), denied the Schwartzwalds' cross-motion for summary judgment, and entered a judgment and decree of foreclosure.

{¶ 2} The Schwartzwalds claim that Freddie Mac did not establish that it was the holder of the note and assignee of the mortgage, that Freddie Mac lacked standing to institute the foreclosure action, and that the trial court should not have granted Freddie Mac the equitable relief of foreclosure due to unclean hands. For the following reasons, the trial court's judgment will be affirmed.


{¶ 3} In November 2006, Duane and Julie Schwartzwald purchased the property located at 2202 East Spring Valley Painters Road in Xenia, Ohio. To finance the purchase, they executed a note in favor of Legacy Mortgage in the amount of $251,250 and signed a mortgage granting Legacy Mortgage a security interest in the property.

{¶ 4} According to Julie Schwartzwald's affidavit in response to Freddie Mac's summary-judgment motion, the couple began to have concerns during the summer of 2008 that Mr. Schwartzwald might be laid off from his employment. The Schwartzwalds contacted Wells Fargo regarding their loan. (Mrs. Schwartzwald did not indicate whether Wells Fargo was contacted as the loan servicer or the owner of the note.) Mr. Schwartzwald obtained a new job in Indiana in September 2008, and they placed their home on the market. By early 2009, they could no longer afford the mortgage payments, and they spoke to Wells Fargo about a loan modification or a short sale of the property. In April 2009, the Schwartzwalds had a buyer for a short sale of the property; the closing was set for June 2009 to allow Wells Fargo sufficient time to review the proposed sale. Mrs. Schwartzwald repeatedly spoke with Wells Fargo representatives and received no indications that the request for a short sale would be denied.

{¶ 5} On April 15, 2009, Freddie Mac filed a foreclosure action, alleging that it was the holder of a note, that the note was secured by a mortgage, and that the Schwartzwalds had defaulted on the note and mortgage.1 Freddie Mac sought [Ohio App.3d 649] judgment on the note in the amount of $245,085.18, with interest at the rate of 6.25 percent, as well as any court costs and advances. Freddie Mac also sought a finding that the mortgage was a valid first lien upon the real estate and an order that the mortgage be foreclosed and the property sold.

{¶ 6} Freddie Mac attached to the complaint as Exhibit A a purported copy of the mortgage. The mortgage identified the Schwartzwalds as the borrowers and Legacy Mortgage as the lender. The mortgage was recorded on December 4, 2006. A legal description of the property was attached to the complaint as Exhibit B. No copy of the note was attached; although the complaint alleged that Freddie Mac was the holder of the note, Freddie Mac further alleged that “a copy of [the note] is currently unavailable.”

{¶ 7} On April 24, 2009, Freddie Mac filed a “Notice of Filing of Note,” which attached a purported copy of the note signed by the Schwartzwalds. The note reflected that the Schwartzwalds, as borrowers, agreed to pay $251,250 to Legacy Mortgage, the lender. The note established a 30–year term, to be repaid with interest at a rate of 6.25 percent. Payments were to be made to Wells Fargo Home Mortgage, the loan servicer. The final page was blank except for two stamped apparent indorsements. The first stated:

“Without Recourse

“ Pay to the Order of

“Wells Fargo Bank, N.A.

The indorsement was signed by Joan M. Mills, Vice President. The second stated:

“Pay to the Order of

“ * * *

“Wells Fargo Bank, N.A.

“Without Recourse

“Legacy Mortgage”

This indorsement was signed by Lynette Hanson, Vice President.2

{¶ 8} On June 17, 2009, Freddie Mac filed a “Notice of Filing Assignment of Mortgage.” The notice attached an assignment of mortgage, dated May 15, 2009 (after the complaint was filed), and recorded on May 27, 2009, which transferred the Schwartzwalds' mortgage from Wells Fargo Bank to Freddie Mac.

{¶ 9} On July 6, 2009, Freddie Mac moved for a default judgment against the Schwartzwalds. The trial court denied the motion, because [a]n examination of the file in this action reveals that the mortgage filed with the Greene County [Ohio App.3d 650] Recorder's Office on December 4, 2006, in Volume 2648, Page 149 was recorded with an incorrect legal description.” The court granted leave to Freddie Mac to file an amended complaint in order to add a count for reforming the mortgage to match the legal description approved by the Greene County Tax Map Department. Freddie Mac subsequently filed an approved legal description, but indicated that it did not need to amend the complaint.

{¶ 10} According to Mrs. Schwartzwald, in September 2009, the Schwartzwalds received a letter from Wells Fargo denying their request for a short sale. Mrs. Schwartzwald stated in her affidavit, “At no time prior to the receipt of the letter denying approval of the short sale did Wells Fargo ever give me the impression that my short sale request would be denied. * * * It was only when we received the Court's Judgment Entry of September 29, 2009 [denying the motion for default judgment], did I realize that I had been misled by Wells Fargo.”

{¶ 11} In October 2009, the Schwartzwalds moved to file an answer out of time. The motion was supported by an affidavit by Julie Schwartzwald, describing Wells Fargo's dilatory conduct in addressing the Schwartzwalds' request that Wells Fargo approve a short sale of their property and stating that Wells Fargo had told the Schwartzwalds “don't worry about” the foreclosure action. The Schwartzwalds also attached a proposed answer, which asserted a general denial and raised several defenses, including that Freddie Mac lacked standing, was not the real party in interest, and had “unclean hands.”

{¶ 12} Freddie Mac renewed its motions for default judgment and, separately, moved for summary judgment. Freddie Mac's summary-judgment motion was supported by an affidavit by Xee Moua, Vice President of Loan Documentation for Wells Fargo, the servicing agent.

{¶ 13} On December 2, 2009, the trial court notified the parties that [a] review of the file in this action reveals an item missing and needed in order to issue a decision on the Motion for Default Judgment filed by Plaintiff on July 6, 2009.” The court ordered Freddie Mac to file, within 30 days, “the assignment that evidences the transfer of the original mortgage from Legacy Mortgage to its assignee and any subsequent assignments.”

{¶ 14} On December 14, Freddie Mac filed two assignments of mortgage: (1) from Legacy Mortgage to Wells Fargo, dated November 27, 2006, and (2) from Wells Fargo to Freddie Mac, dated May 15, 2009. On the same date (December 14), the court filed an agreed entry granting leave to the Schwartzwalds to file an untimely answer. Freddie Mac withdrew its pending motion for summary judgment. The answer was filed on December 18, 2009.

{¶ 15} In February 2010, Freddie Mac filed a new motion for summary judgment, supported by an affidavit from Herman John Kennerty, Vice President [Ohio App.3d 651] of Loan Documentation for Wells Fargo, the servicing agent. Kennerty stated that he had custody of the Schwartzwalds' account, that the records were compiled near the time of occurrence by persons with knowledge of the events, that the records were kept in the course of Wells Fargo's regularly conducted business, and that it was the regular practice to keep such records.

{¶ 16} Kennerty further averred, Plaintiff is the holder of the note and mortgage which are the subject of the within foreclosure action,” and he authenticated copies of the original note and mortgage, which were attached. Kennerty also authenticated an assignment of the mortgage from Wells Fargo to Freddie Mac, which “accounts for documented evidence that Plaintiff is the holder of the note and mortgage * * *.” Kennerty stated that the note and mortgage were in default, that payment was due for January 1, 2009, and all subsequent payments, and that plaintiff had elected to accelerate the balance. Finally, Kennerty indicated that the principal balance of $245,085.18 was due with interest from December 1, 2008, at a rate of 6.25 percent per annum, as well as advancements for taxes, insurance, and other expenses.

{¶ 17} The Schwartzwalds opposed Freddie Mac's summary-judgment motion on several grounds. First, they claimed that Freddie Mac had not established that it was the holder of the note and the mortgagee by assignment. They emphasized that the note attached to Kennerty's affidavit did not contain any indorsements on the note itself or any allonges. Similarly, the Schwartzwalds argued that Kennerty's affidavit did not explain “what right, if any, Wells Fargo bank had to assign the mortgage. On the face of the documents attached to Mr. Kennerty's affidavit, Legacy Mortgage is still the mortgagee under the Mortgage.”

{¶ 18} Second, the Schwartzwalds claimed that Kennerty's affidavit did not establish the amount that was due, because “all Mr. Kennerty can accomplish through his affidavit is to authenticate business records, and establish them as such for purposes of hearsay exclusion. He cannot simply testify to the content of those records.” The Schwartzwalds further claimed that because Freddie Mac did not hold the note and mortgage, it lacked standing to prosecute the case....

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