[Cite as PHH Mtge. Corp. v. Unknown Heirs of Cox,

.]

IN THE COURT OF APPEALS OF OHIO SECOND APPELLATE DISTRICT MONTGOMERY COUNTY

PHH MORTGAGE CORPORATION : : Appellate Case No. 25617 Plaintiff-Appellee : : Trial Court Case No. 2011-CV-03860 v. : : UNKNOWN HEIRS, DEVISEES, : (Civil Appeal from LEGATEES OF DELORES K. COX, : (Common Pleas Court) et al. : : Defendant-Appellant : : ........... OPINION Rendered on the 18th day of October, 2013. ...........

ELIZABETH S. FULLER, Atty. Reg. #0081032, JENNIFER SCHAEFFER, Atty. Reg. #0084893, and STACY L. HART, Atty. Reg. #0081870, Lerner, Sampson & Rothfuss, Post Office Box 5480, Cincinnati, Ohio 45201 Attorneys for Plaintiff-Appellee

GARY J. LEPPLA, Atty. Reg. #0017172, and PHILIP J. LEPPLA, Atty. Reg. #0089075, Leppla Associates, Ltd., 2100 South Patterson Boulevard, Dayton, Ohio 45409 Attorneys for Defendant-Appellant

.............

HALL, J.,

{¶ 1} Melanie Zimmerman and William Cox appeal from the trial court’s entry of 2

summary judgment against them on plaintiff-appellee PHH Mortgage Corporation’s complaint

for foreclosure on a mortgage.

{¶ 2} Zimmerman and William Cox advance two assignments of error on appeal. First,

they contend the trial court erred in entering summary judgment where PHH Mortgage lacked

standing to pursue foreclosure because no valid assignment of a mortgage securing a loan ever

had occurred. Second, they claim the trial court erred in finding no genuine issue of material fact

as to whether assignment of the mortgage to PHH Mortgage was fraudulent.

{¶ 3} The record reflects that Delores Cox borrowed $184,000 from First Financial

Bank in 2004 to purchase a home. The loan was secured by a mortgage. The mortgage was

assigned from First Financial Bank to PHH Mortgage in May 2007. The assignment was

file-stamped, notarized, and recorded that same month. Some three-and-a-half years later,

Delores Cox died on January 22, 2011. Thus, prior to filing suit in this case, PHH Mortgage held

both the note, which had been endorsed in blank, and the mortgage for about four years. As heirs

of Delores Cox, Zimmerman and William Cox made the loan payments until March 2011. PHH

Mortgage then filed its complaint for foreclosure in May 2011.

{¶ 4} Following procedural issues not relevant here, including vacation of a default

judgment, PHH Mortgage moved for summary judgment. Zimmerman and William Cox opposed

the motion, raising one issue. Specifically, they challenged the validity of the mortgage

assignment from First Financial Bank to PHH Mortgage. They noted that the assignment was

signed by a “D.M. Wileman,” who claimed to be a vice-president of First Financial Bank.

Zimmerman and William Cox provided an affidavit calling into question whether Wileman

actually was a vice-president of First Financial Bank or was employed by that bank at all. They 3

also supplied information that Wileman was an employee of a mortgage-servicing company in

Texas. Therefore, they argued that Wileman lacked authority to assign First Financial Bank’s

mortgage to PHH Mortgage. Based on an allegation that the assignment was not valid and was

“fraudulent,” Zimmerman and William Cox alleged that PHH Mortgage lacked standing to

proceed with foreclosure. At a minimum, Zimmerman and William Cox claimed questions about

Wileman’s status were sufficient to avoid summary judgment.

{¶ 5} The trial court found the foregoing argument unpersuasive and entered summary

judgment in favor of PHH Mortgage. (Doc. #72). In so doing, the trial court found that

Zimmerman and William Cox themselves lacked standing to challenge the validity of the

assignment from First Financial Bank to PHH Mortgage. It reasoned:

It is important to point out that regardless of whether First Financial Bank

or Plaintiff [PHH Mortgage] is the real party in interest, Defendants’ obligation

is unchanging. The underlying contract, the Note and Mortgage, was signed by

Ms. [Delores] Cox and given to First Financial Bank. This bound her to pay an

amount certain every month under the terms and conditions of that agreement.

After Ms. Cox deceased, Defendants, as Ms. Cox’s heirs, became obligated under

the underlying contract according to the same terms and conditions. And it is

undisputed by the parties that Defendants have failed to abide by that agreement,

causing a default on the Note and Mortgage. As a result, Defendants are exposed

to foreclosure and the holder of the Note and Mortgage would be entitled to

foreclose. Whether the holder is First Financial Bank or Plaintiff [PHH Mortgage],

it does not matter. 4

Furthermore, the Court finds that the assignment is a contact, separate and

apart from the underlying contract, between First Financial Bank and Plaintiff.

The assignment was recorded, putting First Financial Bank on constructive notice

of the transfer, whether it was fraudulent or not. The only other party to this

contact, Plaintiff, is the only other party which may be harmed by the assignment

if it is fraudulent. However, Plaintiff is not challenging the validity of the

assignment, and they have accepted and continue to accept the rights and

obligations which correspond with the assignment. This includes collecting on the

Note and Mortgage, to their detriment. In this acceptance, Plaintiff has ratified or

affirmed any deficiency in assignment.

Thus, Defendants are the only remaining individuals challenging the

validity of the transfer; however, neither Ms. Cox nor Defendants were a party to

the assignment contract. The assignment, clearly, is not intended to benefit

Defendants as a third party; it does not change the terms or conditions of the

underlying contract, neither does the Note or Mortgage have a provision which

would have prohibited First Financial Bank from assigning its interests. Based

upon these facts, Defendants do not have an interest in the assignment contract

and do not have the standing required to challenge the assignment. Therefore, the

court finds that the Plaintiff is the real party in interest to the Note and Mortgage,

and is the proper party to assert both in this foreclosure proceeding. The Court

further finds that there are no further genuine issues of fact which would prevent

summary judgment. 5

(Doc. #72 at 5-6).

{¶ 6} As set forth above, Zimmerman and William Cox continue to insist that a

genuine issue of material fact exists as to whether the assignment of the mortgage from First

Financial Bank to PHH Mortgage in 2007 was “fraudulent.” If so, they argue that PHH Mortgage

had not validly acquired the mortgage when it filed suit and, therefore, lacked standing to

foreclose. We find these arguments unpersuasive.

{¶ 7} Even assuming, arguendo, that there was fraud in the assignment of the

mortgage, PHH mortgage indisputably held the note secured by the mortgage at issue when it

filed its complaint. PHH Mortgage was not required to have the mortgage formally assigned by

First Financial Bank.1 Ohio courts have recognized that in such cases the mortgage automatically

follows the note it secures. See, e.g., Bank of New York Mellon v. Loudermilk, 5th Dist. Fairfield

No. 2012-CA-30,

(citing cases); Deutsche Bank Natl. Trust Co. v. Najar,

8th Dist. Cuyahoga No. 98502,

(“Even if the assignment of mortgage from

Argent to Deutsche Bank was invalid, Deutsche Bank would still be entitled to enforce the

1 A copy of the note is attached to PHH Mortgage’s affidavit in support of summary judgment. (Doc. #57). The last page of the note contains a blank endorsement. It reads, “Pay to the Order of _____ without recourse,” and it is signed by a representative of First Financial Bank. The note, therefore, properly was negotiated to PHH Mortgage by mere transfer of possession alone, making PHH Mortgage the holder of the note and entitling PHH Mortgage to enforce the note. See Bank of New York Mellon v. Baird, 2d Dist. Clark No. 2012-CA-28,

. Therefore, the present case is readily distinguishable from H & S Financial, Inc. v. Davidson, 2d Dist. Montgomery No. 24291,

, which is cited by Zimmerman and William Cox in their reply brief. In that case, this court found a genuine issue of material fact as to whether a promissory note had been assigned to H & S Financial, giving that entity standing to enforce it. H & S Financial did not provide any documentation establishing its ownership of the note, and the record contained no evidence of an assignment. The note also lacked a blank endorsement of the type existing in the present case. Under such circumstances, this court held that H & S Financial had not established standing to proceed on the note. Unlike H & S Financial, PHH Mortgage provided an affidavit identifying itself as holder of the note. This claim was supported by the blank endorsement, the legal effect of which was to make the instrument negotiable by mere transfer of possession to PHH Mortgage, which had occurred. See Baird at ¶18. Therefore, unlike the plaintiff in H & S Financial, PHH Mortgage did have standing to proceed under the note. 6

mortgage because under Ohio law, the mortgage ‘follows the note’ it secures. * * * The physical

transfer of the note endorsed in blank, which the mortgage secures, constitutes an equitable

assignment of the mortgage, regardless of whether the mortgage is actually (or validly) assigned

or delivered.”); U.S. Bank Natl. Assn. v. Gray, 10th Dist. Franklin No. 12AP-953,

, ¶31-34 (recognizing that the transfer of a note automatically results in equitable

assignment of a mortgage securing the note).

{¶ 8} Finally, nothing in Fed. Home Loan Mortg. Corp. v. Schwartzwald,

,

,

, is contrary to our analysis herein. Although

Zimmerman and William Cox insist that Schwartzwald compels a judgment in their favor, we

believe their reliance on it is misplaced. In Schwartzwald, the plaintiff commenced a foreclosure

action before obtaining an assignment of a promissory note and mortgage. Under these

circumstances, the Ohio Supreme Court held that the plaintiff lacked standing to file a

foreclosure action. The Schwartzwald court further held that the lack of standing could not be

cured by the plaintiff obtaining an assignment after commencing the action. Unlike

Schwartzwald, PHH Mortgage obtained the promissory note and, at a minimum, an equitable

assignment of the mortgage years before filing its foreclosure action. Therefore, Schwartzwald is

distinguishable.

{¶ 9} Based on the reasoning set forth above, we overrule both assignments of error

and affirm the judgment of the Montgomery County Common Pleas Court.

.............

FAIN, P.J., and WELBAUM, J., concur. 7

Copies mailed to:

Elizabeth S. Fuller Jennifer Schaeffer Stacy L. Hart Gary J. Leppla Philip J. Leppla Hon. Gregory F. Singer