Greatest Change to Ohio Title Law in Decades

Michael J. Sikora III spearheads first change to title cure law in 56 years

Back in 2010, Michael J. Sikora III began spearheading the change to Ohio’s title curative law when he became president of the Ohio Land Title Association. As managing partner of Sikora Law LLC (a law firm focused on real estate) and president of Omni Title LLC (a commercial title agency), he heard multiple clients raise concerns that they faced title issues in Ohio that weren’t issues in other states.

After more than 50 years of stagnation, Ohio’s title curative law was completely overhauled in 2017 when Senate Bill 257 went into effect. This change was seven years in the making, and it marks the most significant change to Ohio title law in decades.

“Anyone who has a real estate deal may be affected, especially if there are any issues with the documents on that deal – which there just are sometimes, but there is no way of knowing without reviewing the title evidence,” Sikora says. “Most significantly, it’s going to affect real estate developers and owners, lenders and title insurance companies, because the more volume and magnitude of real estate deals that you have, the more likely and more significantly you will be affected by this change in the law.”

Sikora drafted the new statute by taking the best attributes of other states’ curative laws. He gained the backing of the Ohio Land Title Association in 2011. Then he took the matter to the Ohio State Bar Association, first getting its Real Property Law Section Council on-board, and then convincing the Ohio State Bar Association as a whole to take the lead advocacy role on the issue. The Ohio Association of Realtors also agreed to support the initiative.

Sikora spent hundreds of hours advancing the bill from inception to passage. He presented expert testimony on behalf of the Ohio State Bar Association before the Ohio Senate and the Ohio House Committees. This is the second Ohio real property statute that Sikora has drafted and served as the Bar Association’s expert witness.

Because of his instrumental role overhauling Ohio’s title curative law, Sikora says his firms are uniquely positioned with the expertise to help real estate owners, developers, brokers, lenders and title insurance companies leverage the new statute to close deals and minimize post-transaction risk.

Omni Title LLC is an independent title agency that serves commercial real estate clients throughout Ohio from offices in Cleveland and Columbus. Omni’s experienced title professionals work closely with developers, transactional attorneys, commercial brokers and lenders to mitigate and eliminate risk through a full range of title and closing services. With extensive title law expertise, talent and technology in place, Omni is structured to complete commercial real estate transactions efficiently, while providing exceptional client service. Since 2004, Omni’s team has resolved thousands of title issues. To learn more, visit www.omnititlellc.com.

More and more transactions that we’re handling all over Ohio involve properties that have been owned by an entity or by a family for decades.  A good portion of those transactions have long-standing title issues and/or survey issues that need to be cleaned up prior to closing.

In a recent Supreme Court of Ohio Decision involving surface owners and mineral interest owners, the Supreme Court of Ohio found both the Marketable Title Act and Dormant Minerals Act are applicable to severed mineral interests.  See West v. Bode, 2020-Ohio-5473.

The Supreme Court of Ohio has once again provided further clarity as to mineral interests with respect to the Marketable Title Act and Dormant Minerals Act.  Simply put, the Marketable Title Act generally extinguishes property interests prior to the root of title (generally the arms-length conveyance that is 40 or more years before the current exam).   R.C. 5301.47.  The Dormant Minerals Act, on the other hand, operates to abandon a mineral interest during a 20 year period, so long as certain other savings events have not occurred during that period.  R.C. 5301.56.

In West,  there was a 1902 conveyance of a portion of the mineral interests made to C.J Bode and George T. Nalley.  Subsequently, the Wests obtained title to the surface rights in 2002 through a series of conveyances, and then filed a complaint under the Marketable Title Act against the unknown heirs and successors of Bode and Nalley.  The successors-in-interest of Nalley intervened in the case and filed a counterclaim against the surface owners under the Dormant Minerals Act.  The trial court ruled in favor of the successors of Nalley under the Dormant Minerals Act.  On appeal, the Seventh District Court of Appeals reversed the trial court’s ruling and remanded the case for determination under Ohio’s Marketable Title Act.

The Supreme Court of Ohio extensively evaluated both of the Marketable Title Act and the Dormant Minerals Act, including legislative history and historical and recent cases interpreting both.  Ultimately, the Supreme Court of Ohio affirmed the Decision of the Seventh District Court of Appeals and held that mineral interests are simultaneously subject to both the Marketable Title Act and the Dormant Minerals Act.

To review the West case, click here.

The American Land Title Association’s Title News Online featured Sikora Law’s 32nd appellate victory (Clinton v. Home Investment Fund V, LP, 2020-Ohio-4555 ) on the subject of lis pendens.   Check out that article on ALTA’s website by clicking here.

Ohio’s House Bill 75 – the proposed Bill that would have improved the tax appeal process passed the Senate but failed to obtain concurrence in the House and the Governor’s signature before the end of 2020.  Below are some of the main objectives of that legislation:

• Required a school board or the legislative authority of a county, municipal corporation, or township, before filing a property tax complaint or counter-complaint, to pass a resolution approving the complaint or counter-complaint at a public meeting.
• Modified the circumstances under which a county auditor must notify the property owner or a school board that a property tax complaint has been filed against a property.

Click here to review the latest version of House Bill 75.

There was also a concerted effort to enact legislation to provide the opportunity for property owners to seek a reduction in property value due to COVID-19 circumstances.  That effort came extremely close to passing but fell just short of the finish line.  Both efforts will resume this year – with the COVID-relief language having a chance at passing on an expedited basis.

Ohio’s Sixth District Court of Appeals recently affirmed an Order issued by the Ottawa County Court of Common Pleas granting summary judgment in favor of a lender.  See Nationstar Mtge., LLC v. Cody, 6^th Dist. Ottawa Case No. OT-18-041, 2020-Ohio-5553.

In Cody, the borrower received $938,250 in exchange for a mortgage granted on two adjacent parcels located on Put-in-Bay Island.  One parcel contained a residential structure.  The other parcel was mostly vacant, but a portion of a detached garage was located on that “vacant” parcel, along with a private boat dock.   The heirs argued that the legal description contained in the Mortgage listed only the street address of the residential parcel.

The Trial Court granted summary judgment, finding that the Mortgage was unambiguous and should be enforced as to both parcels described in the legal description.  On appeal, the heirs claimed error based on the Trial Court’s refusal to consider the heirs’ testimony about their father’s claimed statements that the Mortgage wasn’t supposed to encumber the vacant lot.  The Appellate Court further found that the legal description included in the Mortgage clearly and unambiguously described both the residential parcel and the vacant parcel, and therefore affirmed the grant of summary judgment in favor of the lender.

The Cody decision nicely illustrates the importance of using a complete and accurate legal description in your transaction and diffusing any ambiguity as to what property is supposed to be transferred and/or encumbered when you prepare any documents for your real estate transactions (ideally starting with the purchase agreement).

To review the Cody Decision, click here.

House Bill 251 (the Bill regarding Contract Action Statutes of Limitations) has been favorably reported out of the Senate Judiciary Committee (receiving only only one dissent).  If that Bill becomes law, it would further reduce Ohio’s statute of limitations for a breach of contract action from 8 years to 6 years.

To review HB 251, click here.

Throughout Ohio, there has been an uptick in commercial foreclosure and receivership cases, and that trend is likely to continue well into next year.  For many years, buyers of distressed real estate have faced a procedural quandary that has forced many of those transactions to be dragged-out, while waiting to obtain a definitive final appealable order.

In BankUnited NA v. Lowe, 2020-Ohio-3742, the Plaintiff lender foreclosed on its mortgage in default, and  the lender’s Complaint identified a recorded second mortgage as encumbering the property.  The borrower defaulted, but the junior lender filed an Answer asserting a mortgage lien arising from its recorded mortgage.  The trial court granted judgment in the foreclosing lender’s favor, ordered that the property be sold, and that the  junior lender would have a claim against “the proceeds derived from the sale of said premises” after satisfaction of court costs, property taxes, and Plaintiff’s first mortgage.  The borrower appealed from that foreclosure order, arguing that the second mortgage was invalid.

Ohio’s Second District Court of Appeals applied the following standard for determining whether an order in a foreclosure case is final and appealable: “if it determines the extent of each lienholder’s interest, sets out the priority of the liens, determines the other rights and responsibilities of each party, and orders the property to be sold by sheriff’s sale.”  Id. at ¶ 11.  Where the validity or priority of a mortgage or other encumbrance is denied by the property owner, or otherwise in doubt, the foreclosure order must resolve that challenge in order to be final.  Id. at ¶ 12.  But in this case, where the property owner defaulted and no other party challenged the validity of the second mortgage, the Court of Appeals concluded that the foreclosure order was sufficiently final, by making clear that the second mortgage was valid and junior in priority to the first.

The Lowe case adds to the growing legal authority addressing what constitutes a final appealable order on the validity and/or priority of liens in a case that will result in the sale of real estate, but that law still is not uniform throughout Ohio.   Working with our title team at Omni Title can empower you to overcome certain issues and will enable you to not just obtain a title policy, but to minimize post-transaction risk.

To review the Lowe Decision, click here.

An Ohio Court of Appeals recently decided an equitable mortgage case that stresses the importance of obtaining and maintaining records from your deals.  In Wilmington Savs. Fund Soc. v. Woods, 2^nd Dist. Montgomery No. 28730, 2020-Ohio-4599, the Plaintiff-lender Wilmington Savings Fund Society, FSB (“Wilmington”) sought to foreclose on property that had been owned by Joanna Woods (“Woods”), who died in 2014.  Wilmington asserted that Woods had also executed a Mortgage securing the Note.  However, that Mortgage was never recorded “as a result of an error made at the closing of the loan,” and “despite diligent efforts,” Wilmington could not locate even a copy of that Mortgage.  As such, Wilmington asked the trial court to find that Wilmington was entitled to an equitable mortgage encumbering the property.

Woods’ heirs argued that an equitable mortgage may only be enforced between the mortgagor and mortgagee, and not against third parties such as the heirs.  The trial court agreed with the heirs and granted their motion for summary judgment, reasoning that a mortgage is only effective against third parties once it has been recorded, and therefore, an unrecorded equitable mortgage cannot be enforced against a non-party to the underlying conveyance.

Ohio’s Second District Court of Appeals reversed the trial court’s decision.  The Court reasoned that because the heirs to an estate essentially “stand in the shoes” of the decedent, those heirs cannot inherit a greater interest than the decedent possessed before death.  Thus, the Court of Appeals held that, even though the Mortgage had not been recorded, the lack of recording did not affect the validity of the Mortgage as against the mortgagor or the mortgagor’s heirs or devisees.

The Wilmington case illustrates how important it is to retain copies of all instruments concerning a transaction.  If Wilmington had a copy of the Mortgage executed by Woods, Wilmington would be virtually assured of its ability to prove the existence of an enforceable mortgage.  But without even copy of that Mortgage, Wilmington still faces a steep hill to climb to achieve a total victory.

Recently, one of Omni Title’s Title and Escrow Officers, Brad Linville, was asked to address commercial real estate trends and serve on a Panel for Qualia’s on-demand program.  Omni Title has been using Qualia’s software for two years, and that software has enabled our company to work more efficiently and to serve the needs of our Clients at the highest level.  To check out Qualia’s LinkedIn post on the subject, which links out to the on-demand program, click here.

An Ohio Court of Appeals recently ruled in favor of a major title insurance underwriter on title coverage and closing protection coverage issues.  See Johnson v. U.S. Title Agency, Inc., 2020-Ohio-4056.  In that case, Plaintiff asserted claims for breach of contract and bad faith arising from mechanic’s liens that were recorded after the issuance of an Owner’s Policy of Title Insurance.   The jury specifically found that the underwriter did not breach the terms of the Policy or Closing Protection Letter, and entered a defense verdict on all claims.

The Court of Appeals unanimously affirmed the jury’s verdict.  The Court of Appeals held that the mechanic’s liens were not covered matters under the Owner’s Policy because those liens arose after the Owner’s Policy was issued.  Plaintiff’s transactional counsel claimed to have given vague, oral closing instructions to the closing agent, and the Court of Appeals recognized that was not enough evidence to entitle Plaintiff to the extraordinary relief that Plaintiff sought.

Certain fundamental escrow duties exist on commercial real estate deals as a matter of custom and practice.  The Johnson case recognizes that any duties beyond those fundamental duties require specific closing instructions stating those additional duties.