Bank of America v. Jones

2014 Ohio 4985

• Court: Ohio Court of Appeals
• Decided: November 10, 2014
• Docket: 2014-G-3197
• Status: Published

Opinion

[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.”

2 {¶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

3 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:

4 {¶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.

5 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.

6 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

7 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

8 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.

9 {¶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

10 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.

11 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.