Fannie Mae v. Hicks

2016 Ohio 7483, 65 N.E.3d 782

• Court: Ohio Court of Appeals
• Decided: October 27, 2016
• Docket: 103804
• Status: Published

Opinion

[Cite as Fannie Mae v. Hicks, 2016-Ohio-7483.]

Court of Appeals of Ohio EIGHTH APPELLATE DISTRICT COUNTY OF CUYAHOGA

JOURNAL ENTRY AND OPINION No. 103804

FANNIE MAE PLAINTIFF-APPELLANT

vs.

LYNDA L. HICKS, ET AL. DEFENDANTS-APPELLEES

JUDGMENT: REVERSED AND REMANDED

Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-11-746293

BEFORE: Stewart, J., Keough, P.J., and Boyle, J.

RELEASED AND JOURNALIZED: October 27, 2016 ATTORNEYS FOR APPELLANT

John E. Codrea David B. Bokor Matthew P. Curry Matthew J. Richardson Justin M. Ritch Manley, Deas & Kochalski, L.L.C. P.O. Box 165028 Columbus, OH 43216

ATTORNEYS FOR APPELLEE

John Wood 281 Corning Drive Bratenahl, OH 44108

Stephen D. Williger Thompson & Hine, L.L.P. 3900 Key Center 127 Public Square Cleveland, OH 44114

Also Listed:

Unknown spouse of Lynda L. Hicks, pro se 1244 Adams Street Fairborn, OH 45324 MELODY J. STEWART, J.:

{¶1} Plaintiff-appellant Federal National Mortgage Association (“Fannie Mae”)

appeals a trial court order that simultaneously denied its Civ.R. 60(B)(4) motion to vacate

a foreclosure sale while requiring that it pay $110,000 in restitution to defendant-appellee

Lynda Hicks pursuant to R.C. 2329.45. For the reasons that follow, we reverse the

decision of the trial court.

{¶2} The facts of this case involve a prior appeal, Fannie Mae v. Hicks,

2015-Ohio-1955, 35 N.E.3d 37 (8th Dist.). In that case, Hicks executed loan documents

(a note and mortgage) with All American Home Lending, Inc. in 2004 to finance the

purchase of a home in the city of Shaker Heights. All American later assigned the

mortgage to Chase Manhattan Mortgage Corporation. When Hicks failed to make

payments on the note, Chase Manhattan accelerated the loan and assigned the mortgage to

Fannie Mae.

{¶3} Fannie Mae brought a foreclosure action against Hicks. In the complaint,

Fannie Mae alleged that it was assigned the subject mortgage and was a “person entitled

to enforce the note.” Fannie Mae attached copies of the note and mortgage to the

complaint, along with an allonge containing a special endorsement of the note from Chase

Manhattan to Fannie Mae. During the course of litigation, Fannie Mae amended its

complaint twice to reflect the fact that the original note executed by Hicks in favor of All

American was lost by Chase Manhattan before it was purchased by Fannie Mae. Despite this irregularity, Fannie Mae moved for summary judgment in the foreclosure action. In

its motion for summary judgment, Fannie Mae conceded that it was not entitled to enforce

the lost note under R.C. 1308.38, but nevertheless argued that it was entitled to foreclose

on the property by virtue of the mortgage assignment alone. Hicks filed a motion for

summary judgment arguing that she was entitled to judgment as a matter of law because

Fannie Mae conceded it could not enforce the note and the ability to enforce the note is a

prerequisite to establishing one’s right to foreclose. The trial court granted Fannie Mae’s

motion and denied Hicks’s motion. Hicks appealed.

{¶4} On appeal, this court concluded that the assignment of the mortgage alone

was insufficient to sustain an action in foreclosure and that Fannie Mae must also be a

person entitled to enforce the note in order to foreclose on the property.1 The panel of

this court further concluded that Chase Manhattan retained authority to enforce the note

as the last party in possession of the note before it was lost. The grant of summary

judgment in favor of Fannie Mae was reversed and the case remanded to the trial court

with instructions to enter summary judgment in favor of Hicks.

{¶5} While the resolution of the appeal was pending in this court, the trial court

proceeded with the foreclosure sale. In December 2014, Fannie Mae purchased the

property for a $110,000 credit bid2 and the sale was confirmed. Hicks neither requested

The Ohio Supreme Court recently affirmed this point of law in Deutsche Bank Natl. Trust 1

Co. v. Holden, Slip Opinion No. 2016-Ohio-4603, ¶ 27.

A credit bid allows a secured judgment creditor to bid on property up to the amount of the 2

debt owed, in lieu of making a cash bid. See, e.g., Benchmark Bank v. Weaver, Franklin C.P. No. a stay of the confirmation proceedings nor appealed the confirmation order to this court.

However, Hicks did move the trial court for a stay of the distribution of the sale proceeds

pending our decision on the foreclosure action. The court denied the motion, and Hicks

did not seek any further stays. This court issued its decision in May 2015. One week

after the decision, Fannie Mae was issued the deed to the property. The deed was

recorded on June 12, 2015.

{¶6} Following the release of this court’s decision, Hicks filed a proposed

judgment entry with the trial court that sought to have the court order Fannie Mae to pay

her restitution in the amount of $110,000, the foreclosure purchase price of the property,

pursuant to R.C. 2329.45, and dismiss the foreclosure action with prejudice. Fannie Mae

opposed the proposed order and asked the court to vacate the confirmation of sale and

deed pursuant to Civ.R. 60(B)(4), which allows a court to vacate a judgment when “the

judgment has been satisfied, released or discharged, or a prior judgment upon which it is

based has been reversed or otherwise vacated, or it is no longer equitable that the

judgment should have prospective application.” In its Civ.R. 60(B) motion for relief

from judgment, Fannie Mae emphasized that the balance of equities required the court to

vacate the confirmation of sale so that Fannie Mae can return title of the property to

Hicks, rather than order restitution in the amount of the purchase price, because the latter

remedy would result in a windfall to Hicks. Additionally, Fannie Mae argued that an

13 CV 011809 (June 2, 2014); see In Re Philadelphia Newspapers, L.L.C., 599 F.3d 298 (3d Cir.2010). order of restitution was improper under R.C. 2329.45 because Hicks failed to meet the

requirements of the statute that, according to Fannie Mae, requires that the property be

unrecoverable and that Hicks had previously obtained a stay of the distribution of

proceeds.

{¶7} Hicks opposed Fannie Mae’s motion for relief from judgment. Her

opposition brief argued that the plain language of R.C. 2325.03 and 2329.45 prevents

Fannie Mae from returning title, and that the correct remedy in situations where property

is sold pending appeal and the judgment is reversed is to order restitution.

{¶8} After considering both sides of the argument, the trial court issued an order

denying Fannie Mae’s Civ.R. 60(B)(4) motion and further ordered that Fannie Mae pay

Hicks $110,000 in restitution in accordance with R.C. 2329.45.

{¶9} In the appeal now before us, Fannie Mae raises two assignments of error: 1)

that the court erred by denying its Civ.R. 60(B)(4) motion to vacate the confirmation of

sale and deed; and 2) that the court erred as a matter of law, or in the alternative, abused

its discretion by ordering Fannie Mae to pay $110,000 in restitution to Hicks. We find

merit to Fannie Mae’s position, but for reasons different than those it argues. Because

the assignments of error are interrelated, we address them together.

{¶10} R.C. 2325.03 states that:

The title to property, which title is the subject of a final judgment or order

sought to be vacated, modified, or set aside by any type of proceeding or

attack and which title has, by, in consequence of, or in reliance upon the final judgment or order, passed to a purchaser in good faith, shall not be

affected by the proceeding or attack; nor shall the title to property that is

sold before judgment under an attachment be affected by the proceeding or

attack. “Purchaser in good faith,” as used in this section, includes a

purchaser at a duly confirmed judicial sale.

This section does not apply if in the proceeding resulting in the judgment or

order sought to be vacated, modified, or set aside, the person then holding

the title in question was not lawfully served with process or notice, as

required by the law or Civil Rules applicable to the proceeding.

{¶11} R.C. 2329.45 states:

If a judgment in satisfaction of which lands or tenements are sold is reversed on appeal, such reversal shall not defeat or affect the title of the purchaser. In such case restitution in an amount equal to the money for which such lands or tenements were sold, with interest from the day of sale, must be made by the judgment creditor. In ordering restitution, the court shall take into consideration all persons who lost an interest in the property by reason of the judgment and sale and the order of the priority of those interests.

{¶12} R.C. 2325.03 and 2329.45 evidence a general predisposition to favor and

protect purchasers who have obtained title to property through judicial foreclosure sales.

Pursuant to R.C. 2325.03, title to property remains with a good faith purchaser despite

attempts after final judgment, to set aside, vacate or modify a judgment under which the

property was purchased. 3 Moor v. Parsons, 98 Ohio St. 233, 120 N.E. 305 (1918)

The R.C. Chapter 2325 is titled “relief after judgment.” Although now repealed, former 3

section R.C. 2325.01 set forth a list of grounds for vacation of a voidable judgment. Civ.R. (explaining former analogous statute G.C. 11633); see also Civ.R. 60(B) (staff notes

contained in the commentary). Similarly, R.C. 2329.45 protects purchasers from losing

title, or from title otherwise being affected, by the reversal of a foreclosure judgment on

appeal, while also providing a remedy in the form of restitution to the former, aggrieved

title holder. By their nature, the statutes are shields, not swords. Their intent is to

safeguard a purchaser’s title from legal attack so that potential purchasers are not

dissuaded from investing in foreclosed properties for fear of losing their investment.

See, e.g., Moor at 244-245.

{¶13} Hicks argues that R.C. 2325.03 specifically prohibits title from being set

aside or affected by an attack on a final order conferring title and therefore contends that

Fannie Mae cannot convey title back to her through a Civ.R. 60(B) motion to vacate the

confirmation order. Accordingly, Hicks maintains that her only remedy is restitution

under R.C. 2329.45. Although a plain reading of the statutes seemingly supports

Hicks’s interpretation, this case is distinguishable from most cases discussing the

protections and remedies of R.C. 2325.03 and 2329.45 because Fannie Mae is both the

foreclosing plaintiff and the purchaser of the property. As such, neither statute applies in

this instance.

60(B)(commentary). Courts had formerly interpreted R.C. 2325.03 as a limitation on a party’s right to proceed under R.C. 2325.01. See Stewart v. Kellough, 104 Ohio St. 347 (1922), at syllabus (interpreting former analogous statute). Civ.R. 60(B) now provides the process and grounds for seeking relief after judgment. Accordingly, it follows that R.C. 2325.03 serves as a limit on motions to vacate judgments under Civ.R. 60(B). {¶14} In Cent. Natl. Bank v. Great Lakes Distilleries, Inc., 8th Dist. Cuyahoga

No. 16905, 1939 Ohio Misc. LEXIS 1169 (Jan. 20, 1939), this court concluded that G.C.

11702, the former analogous statute with identical relevant language to R.C. 2329.45,

“has no application whatsoever” when the plaintiff in a foreclosure action purchases the

property at judicial sale, because the plaintiff “does not stand in the position of a

stranger.” Id. at 5, citing Hubbell v. Admrs., etc., of Broadwell, 8 Ohio St. 120 (1837);

McBain v. McBain, 15 Ohio St. 337 (1864); Ins. Co. v. Sampson, 38 Ohio St. 672

(1883). This court further stated,

The statutory provision [(G.C. 11702, former R.C. 2329.45)] is not effective under the facts in this case to preculde [sic] a reversal of the judgment entered in the trial court from operating to set aside, vacate and nullify everything done under and in pursuance of said judgment; we therefore conclude that the sale made under the first decree of foreclosure was vacated when the judgment, upon the authority of which the sale was made, was reversed by the Court of Appeals, which judgment of the Court of Appeals was not thereafter reversed or modified by the Supreme Court.

Id.

{¶15} Consequently, Great Lakes Distilleries sets forth three conclusions relevant

to the present appeal. First, that the former R.C. 2329.45 operates to protect the title of a

third-party purchaser, not a plaintiff purchaser, where the judicial sale occurs prior to the

reversal of a foreclosure order. Second, that the former R.C. 2329.45 does not operate

to provide restitution to the defendant-debtor when the purchaser is not a third party.

And finally, that reversal of a foreclosure order in such instances operates, as a matter of

law, to set aside, vacate, and nullify the sale of the property. {¶16} Great Lakes Distilleries is still the law in this district.4 It has not been

overruled by the Ohio Supreme Court nor has any subsequent legislative action clarified

the terms of R.C. 2329.45 to require an alternate interpretation. Accordingly, the holding

in Great Lakes Distilleries that R.C. 2329.45 applies only to third-party purchasers,

controls the outcome of this case.

{¶17} The court erred as a matter of law by not vacating the foreclosure sale and

by ordering Fannie Mae to pay Hicks $110,000 in restitution. This court’s reversal of the

foreclosure order served to nullify the foreclosure sale and confirmation order. See

Great Lakes Distilleries, 8th Dist. Cuyahoga No. 16905, 1939 Ohio Misc. LEXIS 1169, at

5. Accordingly, we reverse the trial court’s order of restitution and the denial of Fannie

Mae’s Civ.R. 60(B) motion. On remand, the trial court is instructed to vacate the

confirmation of sale, order title to the property be returned to Hicks, and enter judgment

in favor of Hicks on the foreclosure action, pursuant to this court’s order in Hicks,

2015-Ohio-1955, 35 N.E.3d 37 (8th Dist.)

{¶18} Judgment reversed and remanded to the trial court for further proceedings

consistent with this opinion.

It is ordered that appellant recover of appellee the costs herein taxed.

The court finds there were reasonable grounds for this appeal.

More recent decisions from other districts have also interpreted R.C. 2329.45 as protecting 4

the title of a third-party purchaser. See, e.g., Bankers Trust Co. of Cal., N.A. v. Tutin, 9th Dist. Summit No. 24329, 2009-Ohio-1333, ¶ 15. It is ordered that a special mandate issue out of this court directing the common

pleas court to carry this judgment into execution.

A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of

the Rules of Appellate Procedure.

______________________________________________ MELODY J. STEWART, JUDGE

KATHLEEN ANN KEOUGH, P.J., and MARY J. BOYLE, J., CONCUR