Bank of America v. Jones , 2014 Ohio 4985 ( 2014 )

[Cite as Bank of America v. Jones, 2014-Ohio-4985.]
IN THE COURT OF APPEALS
ELEVENTH APPELLATE DISTRICT
GEAUGA COUNTY, OHIO
BANK OF AMERICA, N.A., SUCCESSOR : OPINION
BY MERGER TO BAC HOME LOANS
SERVICING, L.P., fka, COUNTRYWIDE :
HOME LOANS SERVICING, L.P., CASE NO. 2014-G-3197
:
Plaintiff-Appellee,
:
- vs -
:
JACK M. JONES, et al.,
:
Defendants-Appellants.
:
Civil Appeal from the Geauga County Court of Common Pleas, Case No. 11 F 001287.
Judgment: Affirmed.
Candice L. Musiek and Barbara F. Yaksic, McGlinchey Stafford, PLLC, 25550 Chagrin
Boulevard, Suite 406, Cleveland, OH 44122 (For Plaintiff-Appellee).
David N. Patterson, 33579 Euclid Avenue, Willoughby, OH 44094 (For Defendants-
Appellants).
DIANE V. GRENDELL, J.
{¶1} Defendants-appellants, Jack M. and Dina F. Jones, appeal the decree of
foreclosure entered in favor of plaintiff-appellee, Bank of America, N.A. The issues
before this court are whether the assignment of mortgage with the note is valid and
whether a mortgagee may demonstrate its entitlement to foreclose a mortgage based
on the affidavit of its employee. For the following reasons, we affirm the decision of the
court below.
{¶2} On December 8, 2011, Bank of America filed a Complaint for foreclosure
against the Joneses and Zaremba Management Co. in the Geauga County Court of
Common Pleas. Bank of America alleged that it was “in possession of and the holder of
a certain promissory note,” which was in default with an unpaid balance of $321,500.92,
plus interest and late charges. Bank of America further alleged that it was “the holder of
a certain mortgage deed, securing payment of said promissory note,” the conditions of
which had been broken by reason of default on the note. Bank of America sought the
foreclosure of the Joneses’ equity of redemption in the property located at 12360 Falcon
Ridge Road, Chesterland, and judgment in the amount of $321,500.92, plus interest
and late charges.
{¶3} On February 14, 2012, the Joneses filed an Answer, Counterclaim, and
Third Party Complaint, against third-party defendants, Mortgage Electronic Registration
Systems, Inc. (“MERS”), American Midwest Mortgage Corporation, and BAC Home
Loans Servicing, LP. The Joneses sought “a declaration that the title to and interest in
the subject Property, as applicable, is vested in Defendants Jones alone and that
Plaintiff and each applicable Third Party Defendant be declared to have no estate, right,
title, security interest, lien or other interest in the subject Property and that Plaintiff and
each such Third Party Defendant, be forever enjoined from asserting any estate, right,
title, security interest, lien or other interest in the subject Property adverse to
Defendants Jones herein.”
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{¶4} On March 20, 2012, Bank of America, MERS, and BAC Home Loans
Servicing filed a Notice of Merger and Name Change, advising the court “that effective
July 1, 2011, BAC Home Loans Servicing, L.P. was merged into Bank of America, N.A.”
{¶5} On April 16, 2012, Bank of America filed its Reply to Counterclaim and
MERS filed its Answer to Third Party Complaint.
{¶6} On April 30, 2012, American Midwest Mortgage Corporation filed its
Answer and disclaimed any interest in the subject property.
{¶7} On October 3, 2012, Bank of America and MERS filed a Joint Motion for
Summary Judgment. The affidavit of Alejandra Silva, Vice-President and Senior
Operations Manager for Bank of America, was attached in support. Silva testified, in
relevant part, as follows:
2. BANA, as successor by merger to BAC Home Loans
Servicing L.P. fka Countrywide Home Loans Servicing L.P.
(“BANA”) has been in physical possession of the original
Promissory Note, signed by Defendants Jack and Dina Jones (the
“Defendants”), on September 28, 2006, in the principal amount of
$333,000.00 (the “Note”), since before December 8, 2011, when
this litigation commenced.
3. My duties include having access to and reviewing BANA’s
business records, reports and data compilation of acts and events
made at or near the time by, or from information transmitted by, a
person with knowledge, and kept in the ordinary course of BANA’s
regularly conducted business activity, including those records that
relate to the Loan made to Defendants by American Midwest
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Mortgage Corporation (“American”), which consists of the Note and
Mortgage (the “Loan”).
***
9. Based upon a review of the relevant business records that
are kept and maintained in the ordinary course of business, true
and accurate copies of which are attached as Exhibits, the unpaid
principal balance on the Note of $321,500.92 is due and owing,
plus interest, plus any amounts advanced for real estate taxes,
hazard insurance premiums and property protection, and interest
on such advances, plus late charges.
{¶8} On October 4, 2012, the Joneses filed their Brief in Opposition to
Summary Judgment.
{¶9} On February 14, 2013, Bank of America filed a Motion for Default
Judgment against Zaremba Management Co.
{¶10} On March 5, 2013, the trial court granted Bank of America’s Motion for
Default Judgment against Zaremba Management and “declare[d] that its interest in the
subject real property * * * is hereby terminated.”
{¶11} On the same date, the trial court issued a Judgment Entry and Decree in
Foreclosure, granting the Joint Motion for Summary Judgment. The court found that the
Joneses owe Bank of America the sum of $321,500.92 plus interest and late charges on
the promissory note. The court also ordered the foreclosure and sale of the subject
premises.
{¶12} On March 31, 2013, the Joneses filed their Notice of Appeal. On appeal,
they raise the following assignment of error:
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{¶13} “[1.] Reviewing the Appellees’ Motion for Summary Judgment de novo, the
Record is clear and convincing that the trial court erred to the prejudice of Appellants by
granting Appellees’ Motion for Summary Judgment in favor of Appellee on the
foreclosure Complaint.”
{¶14} Pursuant to Civil Rule 56(C):
Summary judgment shall be rendered forthwith if the pleadings,
depositions, answers to interrogatories, written admissions,
affidavits, transcripts of evidence, and written stipulations of fact, if
any, timely filed in the action, show that there is no genuine issue
as to any material fact and that the moving party is entitled to
judgment as a matter of law. * * * A summary judgment shall not
be rendered unless it appears from the evidence or stipulation, and
only from the evidence or stipulation, that reasonable minds can
come to but one conclusion and that conclusion is adverse to the
party against whom the motion for summary judgment is made, that
party being entitled to have the evidence or stipulation construed
most strongly in the party’s favor.
{¶15} “[T]he determination of whether the trial court properly granted summary
judgment below involves only questions of law and is considered on a de novo basis.”
Grafton v. Ohio Edison Co., 77 Ohio St. 3d 102, 105, 671 N.E.2d 241 (1996).
{¶16} The Joneses’ first argument is that Bank of America “failed to show that it
is in fact the legal and proper ‘holder’ of the Note and Mortgage as well as the real party
in interest or that it has standing in the instant matter.” Appellants’ brief at 7. The
Joneses rely on the Ohio Supreme Court’s decision in Fed. Home Loan Mtge. Corp. v.
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Schwartzwald, 134 Ohio St. 3d 13, 2012-Ohio-5017, 979 N.E.2d 1214, which held that
“[t]he lack of standing at the commencement of a foreclosure action requires dismissal
of the complaint.” Id. at ¶ 40.
{¶17} A party entitled to enforce a promissory note secured by a mortgage has
standing to bring a foreclosure action. Wells Fargo Bank, N.A. v. Byers, 10th Dist.
Franklin No. 13AP-767, 2014-Ohio-3303, ¶ 12; Fed. Home Loan Mtge. Corp. v. Koch,
11th Dist. Geauga No. 2012-G-3084, 2013-Ohio-4423, ¶ 24; but see SRMOF 2009-1
Trust v. Lewis, 12th Dist. Butler Nos. CA2012-11-239 and CA2013-05-068, 2014-Ohio-
71, ¶ 15-16 (cases cited).1
{¶18} In the present case, Bank of America presented uncontradicted evidence
of an interest in both the note and the mortgage at the time the Complaint was filed on
December 8, 2011.
{¶19} With respect to the note, Silva’s affidavit attested that Bank of America
had physical possession of the note when litigation commenced “as successor by
merger to BAC Home Loans Servicing, L.P. fka Countrywide Home Loans Servicing,
L.P.” The copy of the note attached to the affidavit carries the following undated
indorsements: from the original lender, American Midwest Mortgage Corp., to
Countrywide Bank, N.A.; from Countrywide Bank, N.A. to Countrywide Home Loans,
Inc.; and a blank indorsement “without recourse” from Countrywide Home Loans, Inc.
{¶20} As the possessor of a negotiable instrument payable to bearer by virtue of
being indorsed in blank, Bank of America was a holder of the note, entitled to enforce it,
and, so, had standing to bring suit. R.C. 1303.31(A)(1) (“[t]he holder of the instrument”
1. We note a conflict of authority as to whether standing to sue requires the plaintiff to have an interest in
either the note or the mortgage or both the note and the mortgage. The issue has been certified to the
Ohio Supreme Court for resolution. SRMOF 2009-1 Trust v. Lewis, 138 Ohio St. 3d 1492, 2014-Ohio-
2021, 8 N.E.3d 962. Resolution of this issue is not material to the disposition of the present appeal.
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is a “‘[p]erson entitled to enforce’ an instrument”); R.C. 1301.201(B)(21)(a) (“‘holder’
means * * * [t]he person in possession of a negotiable instrument that is payable either
to bearer or to an identified person that is the person in possession”); R.C. 1303.25(B)
(“[w]hen an instrument is indorsed in blank, the instrument becomes payable to bearer
and may be negotiated by transfer of possession alone until specially indorsed”).
{¶21} With respect to the mortgage, the copy attached to Silva’s affidavit
contained the following assignments: from American Midwest Mortgage Corporation to
MERS on September 28, 2006, duly recorded in Geauga County on September 29,
2006; and from MERS to “BAC Home Loans Servicing, LP fka Countrywide Home
Loans Servicing, LP” on May 3, 2010, duly recorded in Geauga County on May 10,
2010. As noted above, Bank of America is a successor-in-interest to BAC Home Loans
Servicing by merger.
{¶22} It is well-established that a mortgage-assignee has standing to initiate a
foreclosure action. Bank of Am. v. Lynch, 8th Dist. Cuyahoga No. 100457, 2014-Ohio-
3586, ¶ 32; Deutsche Bank Natl. Trust Co. v. Santisi, 11th Dist. Trumbull No. 2013-T-
0048, 2013-Ohio-5848, ¶ 27; HSBC Bank USA, Natl. Assocs. v. Sherman, 1st Dist.
Hamilton No. C-120302, 2013-Ohio-4220, ¶ 15.
{¶23} The Joneses maintain, however, that, in this case, “the note was severed
from the mortgage at origination, which had the effect of rendering the mortgage
unenforceable because MERS was involved and subsequently assigned its alleged
interest.” The Joneses rely on the United States Supreme Court’s decision in Carpenter
v. Longan, 83 U.S. 271, 274, 21 L. Ed. 313 (1873), for the proposition that “[t]he note
and mortgage are inseparable; the former as essential, the latter as an incident,” so that
“[a]n assignment of the note carries the mortgage with it, while an assignment of the
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latter alone is a nullity.” Id. at 274. Since the assignment of the mortgage to MERS did
not include the note, the Joneses contend the assignment was invalid.
{¶24} The Joneses’ reliance on Carpenter is misplaced. As an initial matter, the
United States Supreme Court was not interpreting or applying Ohio law in Carpenter.
Thus, it is not controlling. Secondly, the Joneses improperly construe the use of the
word “nullity” with respect to the assignment of a mortgage without the note as meaning
the assignment itself was invalid or void.
{¶25} The practical effect of assigning the mortgage without the note is to render
the mortgage unenforceable, rather than the assignment invalid. “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 * * *.’” BAC Home Loans Servicing v.
McFerren, 2013-Ohio-3228, 6 N.E.2d 51, ¶ 12 (9th Dist.), citing Restatement of the Law
3d, Property, Mortgages, Section 5.4(c), at 384 (1996); compare Landmark Natl. Bank
v. Kesler, 216 P.3d 158, 166-167 (Kan.2009) (“in the event that a mortgage loan
somehow separates interests of the note and the deed of trust, with the deed of trust
lying with some independent entity, the mortgage may become unenforceable”). Thus,
the failure to indorse or otherwise transfer the note to MERS with the mortgage did not
prevent MERS from receiving the assignment and subsequently reassigning the
mortgage to BAC Home Loans Servicing/Bank of America, the ultimate holder of the
note.
{¶26} Assuming, arguendo, that the assignment of the mortgage to MERS was
devoid of any legal effect, Bank of America nevertheless had standing to foreclose by
virtue of being holder of the note. If the assignment of the mortgage to MERS was
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invalid, then the mortgage remained with the original lender, American Midwest
Mortgage Corporation, which indorsed the note to Countrywide Bank and ultimately to
Bank of America. In this respect, the Carpenter decision is in agreement with Ohio law
that “the note carries the mortgage with it.” “Under Ohio common law, where a
promissory note is secured by a mortgage, the note is evidence of the debt and the
mortgage is a mere incident of the debt.” U.S. Bank Natl. Assn. v. Gray, 10th Dist.
Franklin No. 12AP-953, 2013-Ohio-3340, ¶ 32. Thus, “the negotiation of a note
operates as an equitable assignment of the mortgage, even though the mortgage is not
assigned or delivered.” U.S. Bank Natl. Assn. v. Marcino, 181 Ohio App. 3d 328, 2009-
Ohio-1178, 908 N.E.2d 1032, ¶ 52 (7th Dist.); Edgar v. Haines, 109 Ohio St. 159, 164,
141 N.E. 837 (1923) (“a mortgage is not property separate and distinct from the note
which it secures, but * * * the mortgage security is an incident of the debt which it is
given to secure, and, in the absence of a specific agreement to the contrary, passes to
the assignee or transferee of such debt”). “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.” Deutsche Bank Natl. Trust Co. v. Najar, 8th Dist. Cuyahoga No. 98502,
2013-Ohio-1657, ¶ 65; R.C. 1309.203(G) (“[t]he attachment of a security interest in a
right to payment or performance secured by a security interest or other lien on personal
or real property is also attachment of a security interest in the security interest,
mortgage, or other lien”).
{¶27} In sum, Bank of America’s standing to foreclose was established by the
negotiation of the note and the assignment of the mortgage, or, alternatively, by the
negotiation of the note and the equitable assignment of the mortgage.
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{¶28} The Joneses further contend Bank of America is prevented from
foreclosing the mortgage because it never made a presentment of the note, as set forth
in R.C. 1303.61.
{¶29} Under the terms of the note, the Joneses “waive[d] the rights of
presentment and notice of dishonor,” meaning “the right to require the Note Holder to
demand payment of amounts due.” Bank of America was under no obligation to make a
presentment of the note prior to foreclosing the mortgage. Bank of Am., NA v. Barber,
11th Dist. Lake No. 2013-L-014, 2013-Ohio-4103, ¶ 23.
{¶30} The Joneses further claim that, according to Bank of America’s
documentation, “the Note and Mortgage * * * was [sic] sold to a trust, known as the
CWABS Asset-Backed Certificates Trust 2007-1.” Thus securitized, “the purported loan
* * * forever lost its security component, if anything.” Appellants’ brief at 3, 12.
{¶31} Nothing in the evidentiary record before this court indicates that the note
or the mortgage was sold to a trust or otherwise securitized. The Joneses’ claim is
summarily rejected.
{¶32} Finally, the Joneses argue that Silva’s statement that her affidavit was
based on “personal knowledge” was insufficient to authenticate the loan documents
under Civil Rule 56(E) or qualify them as business records under Evidence Rule 803(6).
{¶33} Civil Rule 56(E) mandates that “affidavits shall be made on personal
knowledge, shall set forth such facts as would be admissible in evidence, and shall
show affirmatively that the affiant is competent to testify to the matters stated in the
affidavit,” and that “[s]worn or certified copies of all papers or parts of papers referred to
in an affidavit shall be attached to or served with the affidavit.” The Ohio Supreme
Court has stated that “[t]he specific allegation in [an] affidavit that it was made upon
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personal knowledge is sufficient to meet this requirement of Civ.R. 56(E) and, if the
adverse party contends otherwise, an opposing affidavit setting forth the appropriate
facts must be submitted.” State ex rel. Corrigan v. Seminatore, 66 Ohio St. 2d 459, 467,
423 N.E.2d 105 (1981). Moreover, “[t]he requirement of Civ.R. 56(E) that sworn or
certified copies of all papers referred to in the affidavit be attached is satisfied by
attaching the papers to the affidavit, coupled with a statement therein that such copies
are true copies and reproductions.” Id.
{¶34} Evidence Rule 803(6) provides that records of regularly conducted
business activity are admissible, as an exception to the rules of hearsay, if shown to be
such “by the testimony of the custodian or other qualified witness.” This court has held
that to qualify documents as business records, the witness must be “sufficiently familiar
with the operation of the business and with the circumstances of the record’s
preparation, maintenance and retrieval, that he can reasonably testify on the basis of
this knowledge that the record is what it purports to be, and that it was made in the
ordinary course of business.” (Citation omitted.) U.S. Bank Natl. Assn. v. Martz, 11th
Dist. Portage No. 2013-P-0028, 2013-Ohio-4555, ¶ 25.
{¶35} In the present case, Silva’s affidavit stated that, in addition to being based
on personal knowledge, her duties as “Vice-President, Sr. Operations Manager”
included “having access to and reviewing [Bank of America’s] business records, reports
and data compilation * * * kept in the ordinary course of [its] regularly conducted
business activity.” She further stated that she “personally reviewed” the Joneses’ loan
and related documents, “true and correct copies of which are attached hereto.”
{¶36} Under this court’s precedents, Silva’s affidavit was sufficient to
authenticate the documents attached thereto and qualify them as business records. Id.
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at ¶ 27; CitiMortgage, Inc. v. Hijjawi, 11th Dist. Lake No. 2013-L-105, 2014-Ohio-2886, ¶
14; Bank of New York Mellon v. Veccia, 11th Dist. Trumbull No. 2013-T-0101, 2014-
Ohio-2711, ¶ 24.
{¶37} Contrary to the Ohio Supreme Court’s comments in Seminatore, the
Joneses’ opposition to summary judgment did not include an affidavit, or any evidence
sanctioned by Civil Rule 56(E), contradicting the statements made in Silva’s affidavit.
The cases relied upon by the Joneses are factually distinguishable and have no bearing
on the facts of the present case. LaSalle Bank, N.A. v. Fulk, 5th Dist. Stark No. 2010-
CA-00294, 2011-Ohio-3319, ¶ 31 (mortgage assignment was not authenticated by
affidavit); TPI Asset Mgt., LLC v. Conrad-Eiford, 193 Ohio App. 3d 38, 2011-Ohio-1405,
¶ 24-25 (2nd Dist.) (affiant only demonstrated “hearsay knowledge” of the business
records and made “no specific reference to those documents”).
{¶38} The sole assignment of error is without merit.
{¶39} For the foregoing reasons, the decree of foreclosure/summary judgment
entered in favor of Bank of America is affirmed. Costs to be taxed against appellants.
TIMOTHY P. CANNON, P.J., concurs,
COLLEEN MARY O’TOOLE, J., concurs in judgment only.
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