Avoid Foreclosure in Ohio

Washington Mutual Bank vs. Cowles
2006-Ohio-0076
September 14, 2007

The borrower claimed that she was granted a special forbearance plan by the lender considering that she was ill for sometime. Being in default in payments, she inquired about a loan modification her file was routed out from the loan mitigation department to the collections department. She claimed that she filed an application for a new loss mitigation plan but her file just collected dust in the collections department, although she was assured that no foreclosure will occur without the representative from the loss mitigation department review.

Foreclosure was commenced with the lender as the Plaintiff. Although Mortgage Electronic Registration Systems, Inc. (MERS) filed its appearance, it failed to show the assignment from it as the original mortgagee to the lender of the mortgage. The borrower requested for a reinstatement figure after sometime from the date of filing of the foreclosure but failed to receive it.

The issues raised in this case were:

• a) that the borrower was guilty of negligence in handling of the loss mitigation discussions and delays;
• b) the lender is barred from not complying with his promise under the principle of promissory estoppel;
• c) the lender had no legal right to file the action for foreclosure; and,
• d) the borrower's right to ask for reinstatement after the acceleration. The borrower was not served with the notice.

According to the borrower, the lender is guilty of negligence and delays in handling her loan mitigation matters. The Court ruled that negligence can only be relevant in non-contractual cases, i.e. torts. And since foreclosure is a contract, the negligence is not an issue even if the lender mishandled matters.

On the issue of promissory estoppel, according to the borrower lender should not be allowed to avoid his promise and therefore make good and comply with it. But the Court however, ruled that the borrower failed to present evidence that her reliance on such promise caused her injury. Thus, lacking in one of the requisites needed to establish the claim of promissory estoppel.

Anent the lack of standing of the lender (not a real-party-in-interest) to file the action for foreclosure, the Court ruled that ordinarily foreclosure cases are filed by entities in anticipation of an eventual assignment of mortgage being recorded before the judgment. Although the lender was not able to establish that he is the owner of the mortgage and note, the assignment of mortgage may be recorded later but before judgment.

The borrower had a right to reinstate the loan after acceleration but she failed to make reinstatement payments as required. And finally on the issue of failure to notify the borrower before acceleration as required by the mortgage, the Court explained that this lack of notice to the borrower was a basis for the dismissal of foreclosure. Lender would have been required to send the notice to the lender and then file for a new foreclosure after the time period to cure the defect. However, what saved the lender from this was the fact that borrower failed to raise and interpose this at the most opportune time. In this case, she merely raised this issue after the Court has already granted the motion for summary judgment. This, the Court declared is a waiver of such right.

The Motion for Summary Judgment was granted by the court in favor of the lender subject to the condition that the assignment from MERS to the lender be registered and recorded first before a final decree of foreclosure can be made.

This case was ruled in favor of the plaintiff. At LoanModificationStudio.com, we also bring forth cases in which the banks win so that you may learn from previous defenses.

Lesson Learned:

The entire case would have had a completely different result if the borrower or her counsel were aware of their rights under the contract of mortgage. The failure to assert this right in a timely fashion has consistently been interpreted by the courts as waiver. It is by the conduct of the party in abandoning or surrendering a legal right, which in this case, was a contractual right to receive notice after acceleration. Moreover, the law presumes that the rights and obligations of each of the contracting parties are clearly known to them. It is therefore important to be aware of one's right under the contract and to choose a counsel who would be circumspect and diligent in asserting these rights at the proper time.

This case is part of the overwhelming majority of foreclosure cases in Ohio where the lender files a case against a defaulting homeowner, sometimes without ultimately producing the note and the mortgage, thus not being able to establish legal standing. The reason for this was because most homeowners would just abandon their property or fail to file an answer to the foreclosure action and on the part of the lender, it is difficult, if not impossible to track down the original mortgage and note because of securitization. Consequently, defenses such as legal standing are no longer raised before the courts by counsels or homeowners.

With the recent ruling of Judge Boyko in the case of In re Foreclosure Cases, it becomes imperative to establish standing first before the complaint is decided on the merits.

"Failure is instructive. The person who really thinks learns quite as much from his failures as from his successes."
- John Dewey

Written by Kevin Levonas and Giselle G.