Equitable Mortgage Decision Highlights Importance of Obtaining & Maintaining Records from Your Deals

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.

CRE Trends, Presented by Qualia, Featuring Omni Title

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.

Specific Closing Instructions Required to Impose Extraordinary Escrow Duties

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.

Ohio’s Judgment Lien Statute May Improve

On July 24, 2020, Mike Sikora presented to the Ohio State Bar Association’s Council of Delegates – consisting of over 200 lawyers from all throughout Ohio – on suggested improvements to Ohio’s Judgment Lien Statute.  Those recommendations presented by Mike Sikora were approved by the Council of Delegates, and now the Ohio State Bar Association will take the lead on advancing this initiative through its legislative advocacy process.

Clear Reservation Language Necessary to Exclude Something from a Transfer

The Supreme Court of Ohio recently decided a dispute involving commercial real estate and held that, absent an express reservation, the right to receive rents from a lessee runs with the land and follows legal title.  See LRC Realty, Inc. v. B.E.B. Properties, 2020-Ohio-319.  The Supreme Court of Ohio’s decision in LRC overturned a lower court’s decision regarding a dispute over whether the buyer or seller was entitled to receive rental payments from the owner of cell tower located on the commercial real estate that had been transferred to the buyer.  The LRC Court summarized the general rule in Ohio that all real property rights transfer with title, unless there is a clearly stated reservation of rights to the contrary.  Thus, the Court concluded that the buyer was entitled to those rental payments, despite the seller’s receipt of some of them and the seller’s mistaken belief that it was entitled to receive them and keep them.