Fed. Nat'l Mortg. Ass'n v. Herren

• Decision Date: 02 November 2017
• Docket Number: No. 105088,105088
• Citation: Fed. Nat'l Mortg. Ass'n v. Herren, 2017 Ohio 8401, 99 N.E.3d 1071 (Ohio App. 2017)
• Parties: FEDERAL NATIONAL MORTGAGE ASSOCIATION, Plaintiff–Appellee v. Thomas R. HERREN, et al., Defendants–Appellants
• Court: Ohio Court of Appeals

99 N.E.3d 1071

2017 Ohio 8401

FEDERAL NATIONAL MORTGAGE ASSOCIATION, Plaintiff–Appellee

v.Thomas R. HERREN, et al., Defendants–Appellants

No. 105088

Court of Appeals of Ohio, Eighth District, Cuyahoga County.

RELEASED AND JOURNALIZED: November 2, 2017

Dan L. McGookey, Kathryn M. Eyster, McGookey Law Office, L.L.C., 225 Meigs Street, Sandusky, Ohio 44870, ATTORNEYS FOR APPELLANTS

Michael L. Wiery, Jessica Wilson, Reimer, Arnovitz, Chernek & Jeffrey Co., L.P.A., P.O. Box 96696, 30455 Solon Road, Solon, Ohio 44139, ATTORNEYS FOR APPELLEE

Nelson M. Reid, Bricker & Eckler, L.L.P., 100 South Third Street, Columbus, Ohio 43215, Keesha N. Warmsby, Baker Hostetler, 65 East State Street, Suite 2100, Columbus, Ohio 43215, For JPMorgan Chase Bank, N.A., s.b.m. Bank One, N.A.

Mike DeWine, Ohio Attorney General, 150 East Gay Street, 21st Floor, Columbus, Ohio 43215, For State of Ohio Department of Taxation

Marlon A. Primes, Assistant United States Attorney, U.S. Courthouse, Suite 400, 801 West Superior Avenue, Cleveland, Ohio 44113, For United States of America

BEFORE: Celebrezze, J., E.T. Gallagher, P.J., and Blackmon, J.

JOURNAL ENTRY AND OPINION

FRANK D. CELEBREZZE, JR., J.:

{¶ 1} Appellants, Sandra J. Herren and Thomas R. Herren, appeal the grant of summary judgment in favor of Federal National Mortgage Association ("Fannie Mae") in a foreclosure case. The Herrens argue that there are genuine issues of material fact that make summary judgment inappropriate. After a thorough review of the record and law, this court reverses and remands.

I. Factual And Procedural History

{¶ 2} Sandra and Thomas executed a note and mortgage on December 1, 2001.¹ The note involved appellants and Nexthome Mortgage Corporation ("Nexthome"). The note submitted in this case bears an endorsement from Nexthome to Metropolitan Bank ("Metropolitan") and a further endorsement from Ohio Savings Bank, N.A. ("Ohio Savings") in blank. Attached to the note is an allonge from Metropolitan to Ohio Savings. The assignments of mortgage submitted with the complaint include three assignments. The first is an assignment from Nexthome to Ohio Savings. The second is a corrective assignment from CitiMortgage, Inc. ("Citi"), as attorney-in-fact for Ohio Savings to Citi. This assignment includes language indicating that the Federal Deposit Insurance Corporation ("FDIC") took over the assets of Ohio Savings and that Citi was acting on behalf of the FDIC when making the assignment.² The third assignment is from Citi to Fannie Mae. In 2010, the Herrens were in default and Citi, the purported owner of the note, sent them a default letter setting forth their right to cure and accelerated the note. In 2011, a foreclosure complaint was filed by Citi. This complaint was eventually dismissed without prejudice. The note was then transferred to Fannie Mae, and it instituted a second foreclosure case on July 9, 2014.

{¶ 3} The case proceeded through discovery and depositions, and Fannie Mae filed a motion for summary judgment. The Herrens opposed the motion by filing a brief in opposition supported by affidavits and deposition testimony and also filed a motion to strike an affidavit attached to Fannie Mae's motion based on an alleged lack of personal knowledge of the affiant. Fannie Mae then filed a reply brief in support of summary judgment and a brief in opposition to the motion to strike.

{¶ 4} On August 22, 2016, the magistrate assigned to the case issued a decision finding that Fannie Mae was entitled to summary judgment and entitled to the relief sought in the complaint. The magistrate also denied the motion to strike. The Herrens filed objections to the magistrate's decision, and Fannie Mae filed a reply in support. On September 21, 2016, the trial court adopted the magistrate's decision in a separate opinion. The Herrens then filed the instant appeal, claiming that "[t]he trial court erred in granting Fannie Mae's motion for summary judgment."

II. Law and Analysis

A. Standard of Review

{¶ 5} Summary judgment under Civ.R. 56 provides for the expedited adjudication of matters where there is no material fact in dispute to be determined at trial. To obtain summary judgment, the moving party must show that "(1) there is no genuine issue of material fact; (2) the moving party is entitled to judgment as a matter of law; and (3) it appears from the evidence that reasonable minds can come to but one conclusion when viewing evidence in favor of the nonmoving party, and that conclusion is adverse to the nonmoving party." Grafton v. Ohio Edison Co. , 77 Ohio St.3d 102, 105, 671 N.E.2d 241 (1996), citing State ex rel. Cassels v. Dayton City School Dist. Bd. of Edn. , 69 Ohio St.3d 217, 219, 631 N.E.2d 150 (1994).

{¶ 6} The moving party has the initial responsibility of establishing its entitlement to summary judgment. Dresher v. Burt , 75 Ohio St.3d 280, 292–293, 662 N.E.2d 264 (1996). "[I]f the moving party meets this burden, summary judgment is appropriate only if the nonmoving party fails to establish the existence of a genuine issue of material fact." Deutsche Bank Natl. Trust Co. v. Najar , 8th Dist. Cuyahoga No. 98502, 2013-Ohio-1657, 2013 WL 1791372, ¶ 16, citing Dresher at 293, 662 N.E.2d 264.

{¶ 7} Once a moving party demonstrates no material issue of fact exists for trial and the party is entitled to judgment, it is the nonmoving party's duty to come forth with argument and evidence that demonstrates a material issue of fact does exist that would preclude judgment as a matter of law. Id.

B. Standing

{¶ 8} The Herrens first assert that Fannie Mae lacks standing. Standing requires that, in order to invoke the jurisdiction of a court, a party must have a real interest in the litigation at the outset. Fed. Home Loan Mtge. Corp. v. Schwartzwald , 134 Ohio St.3d 13, 2012-Ohio-5017, 979 N.E.2d 1214. A plaintiff is required to show it " ‘suffered (1) an injury that is (2) fairly traceable to the defendant's allegedly unlawful conduct, and (3) likely to be redressed by the requested relief.’ "

Deutsche Bank Natl. Trust Co. v. Holden , 147 Ohio St.3d 85, 2016-Ohio-4603, 60 N.E.3d 1243, ¶ 20, quoting Moore v. Middletown , 133 Ohio St.3d 55, 2012-Ohio-3897, 975 N.E.2d 977, ¶ 22. In the foreclosure context, that requires a plaintiff to show that it is entitled to enforce the note and has an interest in the mortgage. Fannie Mae v. Hicks , 2016-Ohio-8484, 77 N.E.3d 380, ¶ 4 (8th Dist.), fn. 2, citing Holden at ¶ 27.

1. Entitled to Enforcement

{¶ 9} Under Ohio's version of the Uniform Commercial Code ("UCC"), one entitled to enforce an instrument is any of the following:

(1) The holder of the instrument;

(2) A nonholder in possession of the instrument who has the rights of a holder;

(3) A person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 1303.38 [dealing with lost or destroyed instruments] or division (D) of section 1303.58 of the Revised Code [dealing with mistaken payments].

R.C. 1303.31(A). Below, Fannie Mae argued that it was a holder of the note signed by the Herrens, or, at the very least, a nonholder with rights of a holder. The Herrens dispute that Fannie Mae is a holder or has the rights of a holder.

i. Holder

{¶ 10} One becomes a holder through the specific process of negotiation. Deutsche Bank Natl. Trust Co. v. Gardner , 8th Dist. Cuyahoga No. 92916, 2010-Ohio-663, 2010 WL 663969, ¶ 21. Negotiation is a defined term under the UCC. "Negotiation" means "a voluntary or involuntary transfer of possession of an instrument by a person other than the issuer to a person who by the transfer becomes the holder of the instrument." R.C. 1303.21(A). The statute goes on to provide, with limited exception, "if an instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement³ by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of possession alone." R.C. 1303.21(B).

{¶ 11} Here, Fannie Mae asserts that the note is endorsed in blank, and is therefore bearer paper; mere possession is sufficient to demonstrate that it is a holder.

{¶ 12} An endorsement in blank transforms a negotiable instrument into bearer paper, meaning it is payable to whoever has possession of the instrument absent a limited set of circumstances or defenses. However, the validity of that blank endorsement from Ohio Savings is in dispute. Ohio Savings must have had rights of a holder in order to bestow that status on future possessors of the note. R.C. 1303.22(B) ("Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course * * *.").

{¶ 13} The issue becomes whether Metropolitan's endorsement is valid and the impact that has on Ohio Savings endorsement in blank when that endorsement came long before the allonge attached to the note purporting to negotiate the instrument to Ohio Savings existed.

{¶ 14} Fannie Mae complicated this question by claiming ignorance as to the origins of the allonge attached to the note. Fannie Mae's arguments and the deposition testimony of its witness indicate that the allonge was merely lost, later found, and reattached to the note. The Herrens provided the affidavit of Julie DeLucia, a Huntington National Bank ("Huntington") employee, who signed the endorsement from Metropolitan to Ohio Savings. According to DeLucia, in 2011 a representative from Citi sought to have her sign an undated, already prepared allonge purporting to negotiate the note from Metropolitan to Ohio Savings. The Herrens demonstrated that Metropolitan ceased to exist by this time. However, Fannie Mae showed that Huntington was successor to Metropolitan's interests by providing records of succession, and DeLucia averred in her affidavit that she had authority to sign on behalf of Metropolitan because Huntington was the successor to Metropolitan's interests. See ...