Sec'y of Veterans Affairs v. Anderson

• Decision Date: 14 August 2014
• Docket Number: No. 99957.,99957.
• Citation: 17 N.E.3d 1202
• Parties: SECRETARY OF VETERANS AFFAIRS, Plaintiff–Appellee v. Donald L. ANDERSON, et al., Defendants–Appellants.
• Court: Ohio Court of Appeals

17 N.E.3d 1202

SECRETARY OF VETERANS AFFAIRS, Plaintiff–Appellee

v.Donald L. ANDERSON, et al., Defendants–Appellants.

No. 99957.

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

Aug. 14, 2014.

James R. Douglass, James R. Douglass Co., L.P.A., Cleveland, OH, for appellants.

Brett A. Housley, Rachel M. Kuhn, Reimer, Arnovitz, Chernek & Jeffrey, Solon, OH, for appellee Secretary of Veterans Affairs.

Midland Funding, L.L.C., San Diego, CA, for Midland Funding L.L.C.

Sherry M. Phillips, Assistant Attorney General, Columbus, OH, for State of Ohio Department of Taxation.

David A. Ruiz, Assistant U.S. Attorney, Cleveland, OH, for United States of America.

Before: ROCCO, P.J., KEOUGH, J., and KILBANE, J.

Opinion

KATHLEEN ANN KEOUGH

, J.

{¶ 1} Defendant-appellant Donald L. Anderson appeals from the trial court's judgment that adopted a magistrate's decision in a foreclosure action and granted plaintiff-appellee the Secretary of Veterans Affairs (“Secretary”) a decree of foreclosure. Finding no merit to the appeal, we affirm.

I. Factual History and Procedural Background

{¶ 2} On October 1, 1997, Anderson and his then-wife executed a promissory note in the amount of $145,850 in favor of Norwest Mortgage, Inc. for their residential property in Strongsville, Ohio. The note was secured by a mortgage. The note was subsequently modified two times, resulting in a principal balance of $179,050. The note and mortgage were assigned to the Secretary.

{¶ 3} On June 19, 2012, the Secretary filed an amended complaint for foreclosure against Anderson and other necessary parties relating to the Andersons' alleged nonpayment of the note. The amended complaint asserted that the Secretary was the holder of the note, that the Andersons had defaulted under the terms of the note and mortgage, and that $179,050 plus interest at 4% per annum from February 1, 2008 was due and owing on the note. The amended complaint further alleged that the Secretary had complied with all conditions precedent as set forth in the note, loan modification agreements, and mortgage before filing its complaint in foreclosure.

{¶ 4} Anderson filed a two-paragraph answer to the amended complaint in which he denied the Secretary's allegations. He did not raise any affirmative defenses in his answer, nor did he assert that the Secretary had not complied with the conditions precedent to foreclosure.

{¶ 5} The matter was referred to a magistrate, who subsequently granted default judgment to the Secretary against all non-answering parties, including Anderson's ex-wife. The Secretary then moved for summary judgment. The affidavit of Therese Pfullmann, an employee of Residential Credit Solution, a loan servicer for the Secretary, was attached to the motion for summary judgment. Anderson filed a two-paragraph “answer” to the Secretary's motion in which he objected to Pfullmann's affidavit, arguing that it was “hearsay third-party circumstantial evidence.”

{¶ 6} The magistrate subsequently issued a decision granting the Secretary's motion for summary judgment. Anderson then retained counsel, who filed objections to the magistrate's decision. On April 23, 2013, the trial court entered judgment overruling Anderson's objections to the magistrate's decision. Then, on May 3, 2013, the trial court issued a judgment entry granting foreclosure on the premises. This appeal followed.

II. Analysis

A. Final, Appealable Order

{¶ 7} In his first assignment of error, Anderson contends that the trial court's judgment is not final for appeal or execution because the trial court simply adopted the magistrate's decision, instead of entering its own judgment.

{¶ 8} When the court adopts, rejects, or modifies a magistrate's decision, it must also enter a judgment. Civ.R. 53(D)(4)(e)

. The judgment may not simply incorporate the magistrate's decision by reference. Flagstar Bank, FSB v. Moore, 8th Dist. Cuyahoga No. 91145, 2008-Ohio-6163, 2008 WL 5050139, ¶ 1. “To constitute a final, appealable order, the trial court's journal entry must be a separate and distinct instrument from that of the magistrate's order and must grant relief on the issues originally submitted to the court.” Id. “The court's judgment entry should address all issues submitted to the court for determination so that the parties may know, by referring to the judgment entry, what their responsibilities and obligations may be.” In re Elliott, 4th Dist. Ross No. 97 CA 2313, 1998 WL 101351 (Mar. 5, 1998). In short, the trial court, “separate and apart from the magistrate's decision,” must enter its own judgment containing a clear pronouncement of the trial court's judgment and a statement of the relief granted by the court. Flagstar Bank at ¶ 8; Ameriquest Mtge. Co. v. Stone, 8th Dist. Cuyahoga No. 89899, 2008-Ohio-3984, 2008 WL 3126185, ¶ 3.

{¶ 9} The trial court in this case did exactly that. On April 23, 2013, the trial court issued a journal entry overruling Anderson's objections to the magistrate's decision. Then, on May 3, 2013, the trial court issued a judgment entry in which it adopted the magistrate's decision and specifically addressed all the issues submitted to the court: it granted summary judgment in favor of the Secretary against Anderson; it granted default judgment in favor of the Secretary against the other named defendants; it granted judgment in favor of the Secretary against Anderson in the amount of $179,050 plus interest at the rate of 4% per annum from February 1, 2008; it ordered that unless this sum plus costs, taxes, and interest was paid within three days of the judgment, the premises were to be sold; and it ordered how the proceeds of the sale were to be distributed.

{¶ 10} The trial court's judgment did not merely incorporate the magistrate's decision; it was a separate judgment entry that contained a clear pronouncement of the court's judgment and a statement of the relief granted by the court. Accordingly, the first assignment of error is overruled.

B. Conditions Precedent

{¶ 11} In his second assignment of error, Anderson contends that the trial court erred in granting summary judgment to the Secretary absent any evidence that the Secretary had satisfied the conditions precedent to foreclosure. Specifically, Anderson argues that government-insured loans, such as the note and mortgage at issue in this case, are subject to federal regulations that establish conditions precedent to initiating a foreclosure action, and that the affidavit in support of the Secretary's motion for summary judgment failed to demonstrate that the Secretary complied with these regulations before bringing this foreclosure action.

{¶ 12} The Secretary concedes that the federal regulations set forth in 38 C.F.R. 36 regarding default and acceleration of federally-insured loans were incorporated into the terms of the note and mortgage at issue in this case. Like Anderson, the Secretary contends that the regulations establish conditions precedent to foreclosure, but he argues that Anderson waived any argument regarding the Secretary's alleged non-compliance with applicable conditions precedent because Anderson failed to deny performance of the conditions precedent in his answer to the Secretary's complaint, as required by Civ.R. 9(C)

.

{¶ 13} Before we address the waiver issue, we note that there is disagreement among Ohio's appellate districts whether the federal regulations regarding accelerating the balance of a note and initiating foreclosure proceedings on federally-insured loans create conditions precedent or provide affirmative defenses. Recently, in Wells Fargo Bank, N.A. v. Goebel, 2014-Ohio-472, 6 N.E.3d 1220

, the Second District addressed the condition-precedent/affirmative-defense issue and held that a bank's failure to comply with federal regulations regarding notice to the mortgagor prior to initiating a foreclosure action could be raised as an affirmative defense. Shortly after Goebel, however, the Seventh District held that compliance with federal housing regulations regarding foreclosure is more properly characterized as a condition precedent in foreclosure litigation. PNC Mtge. v. Garland, 7th Dist. Mahoning No. 12 MA 222, 2014-Ohio-1173, 2014 WL 1325908, ¶ 25.

{¶ 14} Other districts have likewise disagreed as to whether federal regulations regarding foreclosure are conditions precedent or affirmative defenses to foreclosure. Compare U.S. Bank v. Detweiler, 191 Ohio App.3d 464, 2010-Ohio-6408, 946 N.E.2d 777 (5th Dist.)

(HUD regulations regarding default and acceleration of federally-insured note and mortgage are conditions precedent); LaSalle Bank, N.A. v. Kelly, 9th Dist. Medina No. 09CA0067–M, 2010-Ohio-2668, 2010 WL 2347077, ¶ 13–14 (“[W]here the note or mortgage instrument requires prior notice, the provision of this notice is a condition precedent that must be demonstrated by the moving party under Civ.R. 56.”); GMAC Mtge. of Pennsylvania v. Gray, 10th Dist. Franklin No. 91AP–650, 1991 WL 268742 (Dec. 10, 1991) (plaintiff's failure to comply with HUD regulations could be raised as an affirmative defense to foreclosure action).

The distinction is important because each carries with it a different burden for pleading and summary judgment practice. For example, if compliance with [federal housing] regulations is a condition precedent, the bank must generally aver in its complaint that it has complied with all conditions precedent, the borrower then has a reciprocal burden to alleged with specificity and particularity how the bank failed to comply. Civ.R. 9(C)

. In a motion for summary judgment, the bank would then bear the burden of establishing the absence of any issue of material fact on the issue of whether it complied with the specific HUD regulation. * * *

Alternatively, if compliance is deemed an affirmative defense, the bank has no pleading burden in its complaint; the borrower must generally allege non-compliance as an affirmative defense in its answer. And on summary judgment, the bank has no burden to discuss

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