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, 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.
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.