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, 2nd 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.