[Cite as BAC Home Loan Serv. v. McFerren,

.]

STATE OF OHIO ) IN THE COURT OF APPEALS )ss: NINTH JUDICIAL DISTRICT COUNTY OF SUMMIT )

BAC HOME LOANS SERVICING, LP fka C.A. No. 26384 COUNTRYWIDE HOME LOANS SERVICING, LP

Appellee

v. APPEAL FROM JUDGMENT ENTERED IN THE GARRICK P. MCFERREN, aka COURT OF COMMON PLEAS GARRICK MCFERREN, et al. COUNTY OF SUMMIT, OHIO CASE No. CV-2011-06-3570 Appellant

DECISION AND JOURNAL ENTRY

Dated: July 24, 2013

BELFANCE, Presiding Judge.

{¶1} Garrick McFerren appeals the decision of the Summit County Court of

Common Pleas awarding summary judgment to Bank of America, N.A. For the reasons

set forth below, we reverse.

I.

{¶2} On February 19, 2008, Mr. McFerren signed a promissory note (“the

Note”) for $211,500.00 with Quicken Loans, Inc. That same day, he also signed a

mortgage (“the Mortgage”) purporting to secure the Note, which named Mortgage

Electronic Registration Systems, Inc. (“MERS”) as “the mortgagee under this Security

Instrument.” Quicken Loans later transferred the Note to Countrywide Bank, FSB, which

subsequently endorsed the Note in blank, thus leaving the space for “payable to” empty.

On March 16, 2011, MERS assigned the mortgage to BAC Home Loan Servicing, LP, and the assignment was recorded on April 19, 2011. BAC initiated foreclosure

proceedings on June 30, 2011.

{¶3} On July 1, 2011, BAC merged with Bank of America, N.A., and Bank of

America was substituted as party plaintiff on August 30, 2011. Bank of America moved

for summary judgment, and Mr. McFerren filed a motion in opposition, albeit untimely.

The trial court never ruled on Mr. McFerren’s motion for leave to file his motion in

opposition, and it awarded summary judgment to Bank of America on March 12, 2012, in

a judgment entry prepared by Bank of America.

{¶4} Mr. McFerren has appealed, raising a single assignment of error for our

review.

II.

ASSIGNMENT OF ERROR

REVIEWING THE APPELLEE’S MOTION FOR SUMMARY JUDGMENT DE NOVO, THE RECORD IS CLEAR AND CONVINCING THAT THE TRIAL COURT ERRED TO THE PREJUDICE OF APPELLANT BY GRANTING APPELLEE’S MOTION FOR SUMMARY JUDGMENT IN FAVOR OF APPELLEE ON THE FORECLOSURE COMPLAINT AND AGAINST APPELLANT ON THE QUIET TITLE COUNTERCLAIMS AND THIRD PARTY COMPLAINT.

{¶5} Mr. McFerren argues that the trial court erred in awarding summary

judgment to Bank of America because BAC lacked standing to initiate the action. We

agree that, given the record before us, we cannot conclude that BAC had standing to

initiate the action.

{¶6} Bank of America argues that we should not reach the question of standing

because Mr. McFerren failed to properly raise it in the trial court; however, it is well-

established that “the issue of standing, inasmuch as it is jurisdictional in nature, may be raised at any time during the pendency of the proceedings.” New Boston Coke Corp. v.

Tyler,

(1987), paragraph two of the syllabus. See also Fed. Home

Loan Mtge. Corp. v. Schwartzwald,

,

(citing

Tyler with approval).

{¶7} In Schwartzwald, the Ohio Supreme Court determined that a plaintiff in a

foreclosure action must have standing at the time it files the complaint in order to invoke

the jurisdiction of the court.

. “It is an elementary concept of

law that a party lacks standing to invoke the jurisdiction of the court unless he has, in an

individual or representative capacity, some real interest in the subject matter of the

action.” (Internal quotations and citations omitted.) Id. at ¶ 22. Standing to sue is

jurisdictional in nature as it concerns a party’s capacity to invoke the jurisdiction of the

court, and, therefore, whether a party has standing is evaluated at the time of the filing of

the complaint. Id. at ¶ 24. Moreover, the lack of standing cannot be cured by a

subsequent assignment of the note and mortgage subsequent to filing the complaint. Id.

at ¶38 (“Standing is required to invoke the jurisdiction of the common pleas court.

Pursuant to Civ.R. 82, the Rules of Civil Procedure do not extend the jurisdiction of the

courts of this state, and a common pleas court cannot substitute a real party in interest for

another party if no party with standing has invoked its jurisdiction in the first instance.”).

In Schwartzwald, the record did not establish that the plaintiff/bank was the holder of the

note or mortgage when it filed the complaint. As such, it “concede[d] that there [wa]s no

evidence that it had suffered any injury at the time it commenced th[e] foreclosure

action.” Id. at ¶ 28. “Thus, because it failed to establish an interest in the note or mortgage at the time it filed suit, it had no standing to invoke the jurisdiction of the

common pleas court.” Id.

{¶8} Prior to Schwartzwald, this Court also held that in order to have a real

interest in a foreclosure action, a party must be the owner and holder of the note and the

mortgage at the time it commences the action. See U.S. Bank, N.A. v. Richards,

,

, ¶ 13 (9th Dist.), quoting Everhome Mtge. Co. v.

Rowland, 10 Dist. Franklin No. 07AP-615,

(“‘In foreclosure

actions, the real party in interest is the current holder of the note and mortgage.’”). BAC

filed the complaint at issue in this case. Bank of America was substituted as the plaintiff

and then moved for summary judgment. Relative to the mortgage, Bank of America

submitted copies of the Mortgage naming MERS as mortgagee and the assignment of the

Mortgage from MERS to BAC.1 With respect to the Note, Bank of America attached a

copy of the Note payable to Quicken Loans. The note contained an endorsement from

Quicken Loans to Countrywide Bank, FSB, which at some point Countrywide Bank

endorsed in blank. Bank of America also submitted the affidavit of Linda Geidel. In her

affidavit, Ms. Geidel averred that she is an officer of Bank of America, that Bank of

America was successor by merger to BAC, and the Bank of America had possession of

the Note. However, Ms. Geidel did not aver that BAC had possession of the Note at the

time that it filed the complaint.2

1 Attached to the complaint was a certificate from the Texas Secretary of State that indicated that BAC had formerly been known as Countrywide Home Loan Services, Inc. 2 To illustrate the path both the Note and the Mortgage have taken, we have created the chart that is attached as Appendix A at the end of this opinion. {¶9} Accordingly, none of the evidence in the record demonstrates that BAC

had possession of the Note at the time that it filed the complaint. The copy of the Note

attached to the complaint does not show anything beyond the fact that BAC had access to

a copy of the Note. The Note itself is payable to bearer by virtue of Countrywide Bank’s

blank endorsement, meaning that nothing on the Note itself indicates when, or if, BAC

became its owner through possession of the note. Further, the fact that Bank of America

had possession of the Note at the time it moved for summary judgment does not

demonstrate that BAC had obtained possession of the Note when it filed the complaint.

See Rowland at ¶ 15 (“[Bank of America] does not specify how or when [it] became the

holder of the note and mortgage. Without evidence demonstrating the circumstances

under which it received an interest in the note and mortgage, [it] cannot establish itself as

the holder.”). Nor is there evidence that Countrywide Bank, FSB, ever delivered the

endorsed Note to BAC or its predecessors.

{¶10} Nevertheless, Bank of America maintains that the record establishes that

BAC had standing because the mortgage assignment was dated and recorded prior to the

complaint being filed. It reasons that the assignment of the mortgage alone conferred

standing. Specifically, it refers to that portion of Schwartzwald where the Supreme Court

stated that Federal Home Loans did not have standing because “it failed to establish an

interest in the note or mortgage at the time it filed suit,” Schwartzwald,

,

, and points to Citimortgage, Inc. v. Patterson, 8th Dist.

Cuyahoga No. 98360,

, to support its interpretation. In Patterson, the

court noted that Schwartzwald had held “that Federal Home Loans did not have standing

because * * * ‘it failed to establish an interest in the note or mortgage at the time it filed suit.’” (Emphasis sic.) Id. at ¶ 21, quoting

. The Patterson court

concluded that the use of “or” marked a departure from its previous holdings that a party

needed “‘the note and mortgage when the complaint was filed[]’” in order to have

standing. (Emphasis sic.) Patterson at ¶ 21, quoting Wells Fargo Bank, N.A. v. Jordan,

8th Dist. Cuyahoga No. 91675,

. Thus, the court held that, in light

of Schwartzwald, a party may establish its standing by showing that it is the assignee of

the mortgage or is the holder of the note. Patterson at ¶ 21.

{¶11} We do not find the Eighth District’s rationale persuasive. It is apparent

that the Ohio Supreme Court did not consider this precise issue in Schwartzwald given

that the bank had conceded that it was not the holder of the note or mortgage. See, e.g.,

(noting that Federal Home Loans conceded there was no evidence

that it had either). Thus, the language must be read in the context of the entire opinion.

Like the Eighth District, this Court has previously held that a party must have the note

and the mortgage in order to demonstrate standing. See, e.g., Richards,

,

, at ¶ 13. Other districts have made similar holdings. See, e.g.,

Losantiville Holdings L.L.C. v. Kashanian, 1st Dist. Hamilton No. C-110865, 2012-Ohio-

3435, ¶ 17; Arch Bay Holdings, L.L.C. v. Brown, 2d Dist. Montgomery No. 25073, 2012-

Ohio-4966, ¶ 16; U.S. Bank Natl. Assn. v. Marcino,

, 2009-Ohio-

1178, ¶ 32 (7th Dist.); Rowland,

. It is unlikely that the Supreme

Court intended to overturn the holdings of all of the appellate courts on the issue,

especially since the issue was not directly before it.

{¶12} Moreover, as explained in Schwartzwald, the fundamental requirement of

standing is that the party bringing the action is actually the party who has suffered the injury. See Schwartzwald,

,

. A party who

only has the mortgage but no note has not suffered any injury given that bare possession

of the mortgage does not endow its possessor with any enforceable right absent

possession of the note. See Restatement of the Law 3d, Property, Mortgages, Section

5.4(e), at 385 (1996) (“[I]n general a mortgage is unenforceable if it is held by one who

has no right to enforce the secured obligation.”). In other words, possession of the

mortgage is of no import unless there is possession of the note. While it is possible to

assign a mortgage and retain possession of the note, “[t]he practical effect of such a

transaction is to make it impossible to foreclose the mortgage, unless the transferee is

also made an agent or trustee of the transferor * * *.” Restatement, Section 5.4(c), at

384. See also

(noting that UCC 3-203 likely requires courts to disregard a mortgage

assignment when the negotiable note is not also delivered); Christopher L. Peterson, Two

Faces: Demystifying the Mortgage Electronic Registration System’s Land Title Theory,

53 Wm. & Mary L.Rev. 111, 119 (2011), fn. 34 (compiling cases from many jurisdictions

finding that the note and the mortgage are inseparable and that the assignment of a

mortgage alone is a nullity). This would further support the conclusion that the Supreme

Court did not intend to imply that simply possessing the mortgage is sufficient to

establish standing given that a party who simply holds the mortgage suffers no injury.

See Schwartzwald, at ¶ 28.

{¶13} Thus, we conclude that Schwartzwald did not overturn long-standing

property and foreclosure principles and, therefore, BAC had to be holder of the Note and

the Mortgage at the time it initiated this action order to have standing.

It follows that, if BAC did not have standing at the time it filed the complaint, then Bank of America

likewise did not have standing upon merging with BAC.

{¶14} Mr. McFerren has set forth arguments concerning the legal effect of

splitting the Note and Mortgage from the inception of the transaction.3 Bank of America

argues that Mr. McFerren has no standing to assert defenses which relate to the legal

effect of the prior assignments of the note or mortgage.4 However, we need not address

3 As noted above, at the inception of the transaction, the Mortgage named MERS as the mortgagee and contains language that indicates that MERS is the nominee of Quicken Loans. This Court has not squarely addressed the legal effect of splitting a note and mortgage at its inception. See generally Peterson, 53 Wm. & Mary L.Rev. 111 (discussing analysis of various jurisdictions relating to legal effect of splitting note and the mortgage and the significant departure by MERS from the traditional land registration system and the public policies undermined by the corporation’s methods). See, e.g., Peterson, 53 Wm. & Mary L.Rev. 144 (noting the problematic manner in which MERS transfers its mortgages because “MERS has a web page in which mortgage servicers and law firms can enter names of their own employees to automatically produce a boilerplate corporate resolution that purports to designate the servicers’ and law firms’ employees as certifying officers of MERS with the job title of assistant secretary, vice president, or both.”). In Deutsche Bank Natl. Trust Co. v. Traxler, 9th Dist. Lorain No. 09CA009739,

, this Court discussed in dicta the limited argument that MERS lacked authority as nominee to assign a mortgage to the foreclosing bank. Id. at ¶ 19. The argument was premised upon the contention in its status as “nominee” MERS was only permitted to enforce the mortgage, but not to assign it. Id. As such, it was argued that the right to assign the mortgage was retained by the original lender who possessed the note. Id. However, Traxler did not ultimately answer this question but did refer to cases suggesting that MERS had authority to assign a mortgage when designated as both a nominee and mortgagee. Id. at ¶ 19-21. However, the cases cited in Traxler concerning that issue were decided without evidence in the record as to the method by which MERS operated. See id. at ¶ 19 (compiling cases from other districts that “recognized MERS’ authority to assign a mortgage when designated as both a nominee and mortgagee”). 4 We note that it is unclear why a foreclosure defendant would lack “standing” to raise issues concerning the legal effect of prior assignments or other transactions in defending the foreclosure action. In that context, the defendant may raise legally relevant defenses as such would relate to the character of the obligation (i.e. secured or not secured) and to whom the obligation is actually owed (in cases of multiple assignments, to avoid the risk that multiple parties claim the right to collect). Bank of America relies upon Livonia Props. Holdings, LLC v. 12840-12976 Farmington Rd. Holdings, LLC,

(6th Cir. 2010), and Bridge v. Aames Capital Corp., N.D.Ohio No. 1:09 CV 2947,

(Sept. 29, 2010), in support. However, the procedural posture those arguments, as the record before us does not allow us to conclude that BAC was the

owner of the Note when it initiated the action.

{¶15} Mr. McFerren’s assignment of error is sustained.

III.

{¶16} In light of the foregoing, the judgment of the Summit County Court of

Common Pleas is reversed, and the matter is remanded for further proceedings consistent

with this opinion.

Judgment reversed, and cause remanded.

There were reasonable grounds for this appeal.

We order that a special mandate issue out of this Court, directing the Court of

Common Pleas, County of Summit, State of Ohio, to carry this judgment into execution.

A certified copy of this journal entry shall constitute the mandate, pursuant to App.R. 27.

Immediately upon the filing hereof, this document shall constitute the journal

entry of judgment, and it shall be file stamped by the Clerk of the Court of Appeals at

which time the period for review shall begin to run. App.R. 22(C). The Clerk of the

Court of Appeals is instructed to mail a notice of entry of this judgment to the parties and

to make a notation of the mailing in the docket, pursuant to App.R. 30.

and substantive issues addressed in those cases are distinct from the instant matter and those cases do not stand for the blanket proposition that in all contexts an obligor may not raise defenses concerning the assignment of the obligation. Bridge is readily distinguishable because the mortgagor was a plaintiff seeking a declaratory judgment and the court addressed standing in the context of Ohio’s declaratory judgment statute. Livonia addressed the question of the meaning of “record chain of title” under Michigan’s foreclosure by advertisement statute. See id. at 99. Costs taxed to Appellee.

EVE V. BELFANCE FOR THE COURT

HENSAL, J. CONCURS.

CARR, J. DISSENTING.

{¶17} I agree with the majority’s conclusion that “none of the evidence in the

record demonstrates that BAC had possession of the Note at the time that it filed the

complaint,” but I would not remand this matter for further proceedings. Instead, I would

hold that BAC’s failure to demonstrate standing at the commencement of this foreclosure

action requires dismissal of the complaint pursuant to the Supreme Court of Ohio’s

decision in Fed. Home Loan Mtge. Corp. v. Schwartzwald,

, 2012-

Ohio-5017, ¶ 40; see also Wells Fargo Bank NA v . Horn, 9th Dist. No. 12CA010230,

.

APPEARANCES:

DAVID N. PATTERSON, Attorney at Law, for Appellant.

STACY L. HART and CARSON A. ROTHFUSS, Attorneys at Law, for Appellee.

_____________________

Appendix A

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