[Cite as Secy. of Veterans Affairs v. Anderson, 2014-Ohio-3493.]
Court of Appeals of Ohio EIGHTH APPELLATE DISTRICT COUNTY OF CUYAHOGA
JOURNAL ENTRY AND OPINION No. 99957
SECRETARY OF VETERANS AFFAIRS PLAINTIFF-APPELLEE
vs.
DONALD L. ANDERSON, ET AL. DEFENDANTS-APPELLANTS
JUDGMENT: AFFIRMED
Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-12-774154
BEFORE: Keough, J., Rocco, P.J., and Kilbane, J.
RELEASED AND JOURNALIZED: August 14, 2014 ATTORNEY FOR APPELLANTS
James R. Douglass James R. Douglass Co., L.P.A. P.O. Box 6031040 Cleveland, Ohio 44103
ATTORNEYS FOR APPELLEE SECRETARY OF VETERANS AFFAIRS
Brett A. Housley Rachel M. Kuhn Reimer, Arnovitz, Chernek & Jeffrey 30455 Solon Road Solon, Ohio 44139
FOR MIDLAND FUNDING L.L.C.
Midland Funding, L.L.C. 8875 Aero Drive, Suite 200 San Diego, California 92123
ATTORNEY FOR STATE OF OHIO DEPARTMENT OF TAXATION
Sherry M. Phillips Assistant Attorney General Collections Enforcement 150 East Gay Street, 21st Floor Columbus, Ohio 43215
ATTORNEY FOR UNITED STATES OF AMERICA
David A. Ruiz Assistant U.S. Attorney 801 West Superior Avenue, Suite 400 Cleveland, Ohio 44113 KATHLEEN ANN KEOUGH, J.:
{¶1} Defendant-appellant Donald L. Anderson appeals from the trial court’s
judgment that adopted a magistrate’s decision in a foreclosure action and granted
plaintiff-appellee the Secretary of Veterans Affairs (“Secretary”) a decree of foreclosure.
Finding no merit to the appeal, we affirm.
I. Factual History and Procedural Background
{¶2} On October 1, 1997, Anderson and his then-wife executed a promissory
note in the amount of $145,850 in favor of Norwest Mortgage, Inc. for their residential
property in Strongsville, Ohio. The note was secured by a mortgage. The note was
subsequently modified two times, resulting in a principal balance of $179,050. The note
and mortgage were assigned to the Secretary.
{¶3} On June 19, 2012, the Secretary filed an amended complaint for foreclosure
against Anderson and other necessary parties relating to the Andersons’ alleged
nonpayment of the note. The amended complaint asserted that the Secretary was the
holder of the note, that the Andersons had defaulted under the terms of the note and
mortgage, and that $179,050 plus interest at 4% per annum from February 1, 2008 was
due and owing on the note. The amended complaint further alleged that the Secretary
had complied with all conditions precedent as set forth in the note, loan modification
agreements, and mortgage before filing its complaint in foreclosure.
{¶4} Anderson filed a two-paragraph answer to the amended complaint in which
he denied the Secretary’s allegations. He did not raise any affirmative defenses in his answer, nor did he assert that the Secretary had not complied with the conditions
precedent to foreclosure.
{¶5} The matter was referred to a magistrate, who subsequently granted default
judgment to the Secretary against all non-answering parties, including Anderson’s
ex-wife. The Secretary then moved for summary judgment. The affidavit of Therese
Pfullmann, an employee of Residential Credit Solution, a loan servicer for the Secretary,
was attached to the motion for summary judgment. Anderson filed a two-paragraph
“answer” to the Secretary’s motion in which he objected to Pfullmann’s affidavit, arguing
that it was “hearsay third-party circumstantial evidence.”
{¶6} The magistrate subsequently issued a decision granting the Secretary’s
motion for summary judgment. Anderson then retained counsel, who filed objections to
the magistrate’s decision. On April 23, 2013, the trial court entered judgment overruling
Anderson’s objections to the magistrate’s decision. Then, on May 3, 2013, the trial court
issued a judgment entry granting foreclosure on the premises. This appeal followed.
II. Analysis
A. Final, Appealable Order
{¶7} In his first assignment of error, Anderson contends that the trial court’s
judgment is not final for appeal or execution because the trial court simply adopted the
magistrate’s decision, instead of entering its own judgment.
{¶8} When the court adopts, rejects, or modifies a magistrate’s decision, it must
also enter a judgment. Civ.R. 53(D)(4)(e). The judgment may not simply incoporate the magistrate’s decision by reference. Flagstar Bank, FSB v. Moore, 8th Dist. Cuyahoga
No. 91145, 2008-Ohio-6163, ¶ 1. “To constitute a final, appealable order, the trial
court’s journal entry must be a separate and distinct instrument from that of the
magistrate’s order and must grant relief on the issues originally submitted to the court.”
Id. “The court’s judgment entry should address all issues submitted to the court for
determination so that the parties may know, by referring to the judgment entry, what their
responsibilities and obligations may be.” In re Elliott, 4th Dist. Ross No. 97 CA 2313,
1998 Ohio App. LEXIS 879 (Mar. 5, 1998). In short, the trial court, “separate and apart
from the magistrate’s decision,” must enter its own judgment containing a clear
pronouncement of the trial court’s judgment and a statement of the relief granted by the
court. Flagstar Bank at ¶ 8; Ameriquest Mtge. Co. v. Stone, 8th Dist. Cuyahoga No.
89899, 2008-Ohio-3984, ¶ 3.
{¶9} The trial court in this case did exactly that. On April 23, 2013, the trial
court issued a journal entry overruling Anderson’s objections to the magistrate’s decision.
Then, on May 3, 2013, the trial court issued a judgment entry in which it adopted the
magistrate’s decision and specifically addressed all the issues submitted to the court: it
granted summary judgment in favor of the Secretary against Anderson; it granted default
judgment in favor of the Secretary against the other named defendants; it granted
judgment in favor of the Secretary against Anderson in the amount of $179,050 plus
interest at the rate of 4% per annum from February 1, 2008; it ordered that unless this sum
plus costs, taxes, and interest was paid within three days of the judgment, the premises were to be sold; and it ordered how the proceeds of the sale were to be distributed.
{¶10} The trial court’s judgment did not merely incorporate the magistrate’s
decision; it was a separate judgment entry that contained a clear pronouncement of the
court’s judgment and a statement of the relief granted by the court. Accordingly, the first
assignment of error is overruled.
B. Conditions Precedent
{¶11} In his second assignment of error, Anderson contends that the trial court
erred in granting summary judgment to the Secretary absent any evidence that the
Secretary had satisfied the conditions precedent to foreclosure. Specifically, Anderson
argues that government-insured loans, such as the note and mortgage at issue in this case,
are subject to federal regulations that establish conditions precedent to initiating a
foreclosure action, and that the affidavit in support of the Secretary’s motion for summary
judgment failed to demonstrate that the Secretary complied with these regulations before
bringing this foreclosure action.
{¶12} The Secretary concedes that the federal regulations set forth in 38 C.F.R. 36
regarding default and acceleration of federally-insured loans were incorporated into the
terms of the note and mortgage at issue in this case. Like Anderson, the Secretary
contends that the regulations establish conditions precedent to foreclosure, but he argues
that Anderson waived any argument regarding the Secretary’s alleged non-compliance
with applicable conditions precedent because Anderson failed to deny performance of the
conditions precedent in his answer to the Secretary’s complaint, as required by Civ.R. 9(C).
{¶13} Before we address the waiver issue, we note that there is disagreement
among Ohio’s appellate districts whether the federal regulations regarding accelerating
the balance of a note and initiating foreclosure proceedings on federally-insured loans
create conditions precedent or provide affirmative defenses. Recently, in Wells Fargo
Bank, N.A. v. Goebel, 2014-Ohio-472, 6 N.E.3d 1220, the Second District addressed the
condition-precedent/affirmative-defense issue and held that a bank’s failure to comply
with federal regulations regarding notice to the mortgagor prior to initiating a foreclosure
action could be raised as an affirmative defense. Shortly after Goebel, however, the
Seventh District held that compliance with federal housing regulations regarding
foreclosure is more properly characterized as a condition precedent in foreclosure
litigation. PNC Mtge. v. Garland, 7th Dist. Mahoning No. 12 MA 222, 2014-Ohio-1173,
¶ 25.
{¶14} Other districts have likewise disagreed as to whether federal regulations
regarding foreclosure are conditions precedent or affirmative defenses to foreclosure.
Compare U.S. Bank v. Detweiler, 191 Ohio App.3d 464, 2010-Ohio-6408, 946 N.E.2d
777 (5th Dist.) (HUD regulations regarding default and acceleration of federally-insured
note and mortgage are conditions precedent); LaSalle Bank, N.A. v. Kelly, 9th Dist.
Medina No. 09CA0067-M, 2010-Ohio-2668, ¶ 13-14 (“[W]here the note or mortgage
instrument requires prior notice, the provision of this notice is a condition precedent that
must be demonstrated by the moving party under Civ.R. 56.”); GMAC Mtge. of Pennsylvania v. Gray, 10th Dist. Franklin No. 91AP-650, 1991 Ohio App. LEXIS 6004
(Dec. 10, 1991) (plaintiff’s failure to comply with HUD regulations could be raised as an
affirmative defense to foreclosure action).
The distinction is important because each carries with it a different burden for pleading and summary judgment practice. For example, if compliance with [federal housing] regulations is a condition precedent, the bank must generally aver in its complaint that it has complied with all conditions precedent, the borrower then has a reciprocal burden to alleged with specificity and particularity how the bank failed to comply. Civ.R. 9(C). In a motion for summary judgment, the bank would then bear the burden of establishing the absence of any issue of material fact on the issue of whether it complied with the specific HUD regulation. * * *
Alternatively, if compliance is deemed an affirmative defense, the bank has no pleading burden in its complaint; the borrower must generally allege non-compliance as an affirmative defense in its answer. And on summary judgment, the bank has no burden to discuss compliance with HUD regulations in its motion, whereas the borrower bears the burden of proving its affirmative defense via the brief in opposition to summary judgment. * * * (Emphasis sic).
Garland at ¶ 23-24.
{¶15} This court has held that a term in a mortgage such as one requiring prior
notice of default or acceleration to the mortgagor is a condition precedent subject to the
requirements of Civ.R. 9(C). See, e.g., Bank of Am., N.A. v. Pate, 8th Dist. Cuyahoga
No. 100157, 2014-Ohio-1078, ¶ 8.; Puzzitiello v. Metro. Savs. Bank, 8th Dist. Cuyahoga
No. 71814, 1997 Ohio App. LEXIS 5105 (Nov. 13, 1997). Because, as the Secretary
concedes, federal regulations regarding default and acceleration of loans guaranteed by
the Department of Veterans’ Affairs were incorporated in the terms of the note and
mortgage at issue in this case, we find that the Secretary’s compliance with the regulations was a condition precedent to foreclosure. We agree with the Secretary,
however, that Anderson did not satisfy the requirements of Civ.R. 9(C) and, therefore,
cannot raise any issue regarding noncompliance.
{¶16} Civ.R. 9(C) provides that “[i]n pleading the performance or occurrence of
conditions precedent, it is sufficient to aver generally that all conditions precedent have
been performed or have occurred. A denial of performance or occurrence shall be made
specifically and with particularity.” Thus, where a cause of action is contingent upon the
satisfaction of some condition precedent, Civ.R. 9(C) requires the plaintiff to plead that
the condition has been satisfied, and permits the plaintiff to aver generally that any
conditions precedent to recovery have been satisfied, rather than requiring the plaintiff to
detail specifically how each condition precedent has been satisfied. Lewis v. Wal-Mart,
Inc., 10th Dist. Franklin No. 93AP-121, 1993 Ohio App. LEXIS 3920, *8 (Aug. 12,
1993). In contrast to the liberal pleading standard for a party alleging the satisfaction of
conditions precedent, a party denying the performance or occurrence of a condition
precedent must do so specifically and with particularity. Id.
{¶17} In paragraph one of his complaint, the Secretary averred that “it has
complied with all conditions precendent as set forth in the note, loan modification
agreements, and mortgage.” In his answer, Anderson generally denied all the allegations
of the complaint, but made no specific reference to the Secretary’s alleged
non-compliance with the federal regulations regarding foreclosure of federally-insured
loans. Thus, Anderson did not comply with Civ.R. 9(C)’s requirement that “[a] denial of performance or occurrence shall be made specifically and with particularity.” “‘The
effect of the failure to deny conditions precedent in the manner provided by Civ.R. 9(C) is
that they are deemed admitted.’” U.S. Bank N.A. v. Stanze, 2d Dist. Montgomery No.
25554, 2013-Ohio-2474, ¶ 13, quoting Lewis at *3.
{¶18} Because Anderson’s answer was insufficient to put the Secretary’s
compliance with the federal regulations regarding foreclosure of federally-insured loans
at issue in the case, the Secretary had no burden in his motion for summary judgment to
establish the absence of a material question of fact regarding his compliance with the
regulations. Accordingly, the trial court did not err in granting summary judgment, and
the second assignment of error is overruled.
C. The Evidence Supporting the Motion for Summary Judgment
{¶19} In his third assignment of error, Anderson contends that the trial court erred
in granting summary judgment because the Secretary failed to demonstrate that he was
entitled to foreclosure. Specifically, Anderson asserts that Pfullmann’s affidavit was not
based upon personal knowledge as required by Civ.R. 56. He also contends that
summary judgment was improperly granted because neither the note nor the mortgage
were attached to Pfullmann’s affidavit for the trial court’s consideration.
{¶20} Civ.R. 56(C) provides that summary judgment is appropriate when (1) there
is no genuine issue of material fact, (2) the moving party is entitled to judgment as a
matter of law, and (3) after construing the evidence most favorably for the party against
whom the motion is made, reasonable minds can only reach a conclusion that is adverse to the nonmoving party. Zivich v. Mentor Soccer Club, Inc., 82 Ohio St.3d 367,
369-370, 1998-Ohio-389, 696 N.E.2d 201; Temple v. Wean United, Inc., 50 Ohio St.2d
317, 327, 364 N.E.2d 267 (1977). We review the trial court’s judgment de novo, using
the same standard that the trial court applies under Civ.R. 56(C). Grafton v. Ohio Edison
Co., 77 Ohio St.3d 102, 105, 1996-Ohio-336, 671 N.E.2d 241. Accordingly, we stand in
the shoes of the trial court and conduct an independent review of the record.
{¶21} In order to properly support a motion for summary judgment in a foreclosure
action, the bank must produce or identify in the record evidentiary-quality material
demonstrating: (1) that it is the holder of the note, which is secured by a mortgage, or that
it is otherwise entitled to enforce the instrument; (2) that the mortgagor is in default; (3)
that all conditions precedent have been met; and (4) the amount of the principal and
interest due. HSBC Bank USA, N.A. v. Surrarrer, 8th Dist. Cuyahoga No. 100039,
2013-Ohio-5594, ¶ 16.
{¶22} Once a moving party satisfies its burden, Civ.R. 56(E) provides that the
non-moving party may not rest upon the mere allegations or denials of the moving party’s
pleadings, but has a reciprocal burden of setting forth specific facts demonstrating that a
“genuine triable issue” exists to be litigated for trial. State ex rel. Zimmerman v.
Tompkins, 75 Ohio St.3d 447, 449, 663 N.E.2d 639 (1996).
{¶23} The Secretary appended to his motion for summary judgment the affidavit of
Pfullmann, who averred that she had personal knowledge of Anderson’s account, and had
reviewed Residential Credit Solution’s records relating to his account, which showed a note executed by Donald and Sharon Anderson secured by a mortgage that was modified
twice. Pfullmann further averred that the Andersons had defaulted under the terms of the
promissory note and mortgage, and the amount due was $179,050 plus interest of 4% per
annum from February 1, 2008. In addition, Pfullmann averred that “true and exact
copies” of the note, loan modification agreement, mortgage, and assignment of mortgage
were attached as exhibits A, B, C, and D to the affidavit. Finally, she averred that
Residential Credit Solution was the servicer for the note and mortgage and was
authorized to act on behalf of the Secretary, who was the holder of the note.
{¶24} In light of Pfullmann’s affidavit, the Secretary satisfied his burden of
showing that there was no genuine issue of material fact in regard to the allegations of the
amended complaint for foreclosure. Anderson’s two-paragraph response to the motion
for summary judgment, in which he merely objected to Pfullmann’s affidavit as hearsay,
failed to meet his reciprocal burden of setting forth specific facts demonstrating that
genuine triable issues remained to be litigated. Therefore, the trial court properly granted
summary judgment in favor of the Secretary.
{¶25} Moreover, Anderson’s assertion that Pfullmann’s affidavit was not based on
personal knowledge for Civ.R. 56(E) purposes is without merit. 1 The affidavit
established that Pfullmann was employed by Residential Credit Solution, a loan servicer
Civ.R. 56(E) sets forth the requirements for affidavits submitted on 1
summary judgment. It provides, in relevant part, that “[s]upporting and opposing 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.” for the Secretary. Pfullmann averred that she was competent to testify to the matters
stated in the affidavit because she had personal knowledge of the business records
retained by Residential Credit Solution for servicing mortgage loans, and that the records
were made at the time of the occurrence of the matters recorded and were kept in the
regular course of business. Pfullmann further averred that she had personally reviewed
the records, which showed that Anderson was in default of the note and mortgage, and the
balance due on the loan was $170,050 plus interest at 4% per annum from February 1,
2008. Employees of servicing agents are competent to testify in foreclosure actions
regarding loans they service. Deutsche Bank Natl. Trust Co. v. Gardner, 8th Dist.
Cuyahoga No. 92916, 2010-Ohio-663, ¶ 10. Furthermore, “[t]here is no requirement that
an affiant explain the basis for his personal knowledge where his personal knowledge can
be reasonably inferred based on the affiant’s position and other facts contained in the
affidavit.” Bank of Am., N.A. v. Pate, 8th Dist. Cuyahoga No. 100157, 2014-Ohio-1078,
¶ 16, citing Nationstar Mtge., L.L.C. v. Perry, 8th Dist. Cuyahoga No. 99497,
2013-Ohio-5024. Here, Pfullmann’s personal knowledge of the facts contained in the
affidavit can be inferred from her position at Residential Credit Solution and the nature of
the facts recited in her affidavit.
{¶26} Similarly, Anderson’s objection that the relevant documents were not
attached to Pfullmann’s affidavit for the trial court’s consideration is without merit. The
affidavit specifically stated that true and exact copies of the note, loan modification
agreement, mortgage, and assignment of mortgage were attached as exhibits A, B, C, and D to the affidavit. Our review of the record demonstrates that the documents were
indeed attached to Pfullmann’s affidavit.
{¶27} The record reflects that the Secretary submitted proper evidentiary materials
to support his motion for summary judgment. Anderson failed to meet his reciprocal
burden to establish any genuine issue of material fact. Accordingly, the trial court
properly granted summary judgment. The third assignment of error is therefore
overruled.
D. The “Double-Dismissal Rule”
{¶28} In his fourth assignment of error, Anderson asserts that the trial court should
have dismissed the complaint as barred by res judicata under the “double-dismissal rule”
stated in Civ.R. 41(A)(1).
{¶29} Civ.R. 41(A)(1) provides that “[u]nless otherwise stated in the notice of
dismissal or stipulation, the dismissal is without prejudice, except that a notice of
dismissal operates as an adjudication upon the merits of any claim that the plaintiff has
once dismissed in any court.” Thus, when the same plaintiff files two unilateral notices
of dismissal under Civ.R. 41(A)(1)(a) regarding the same claim against the same
defendant, the second notice of dismissal functions as an adjudication on the merits of the
claim, and res judicata applies if the plaintiff files a third complaint asserting the same
cause of action. Olynyk v. Scoles, 114 Ohio St.3d 56, 2007-Ohio-2878, 868 N.E.2d 254,
¶ 10. Anderson contends that this is the third foreclosure complaint filed against him
regarding this note and mortgage and, therefore, the action is barred by res judicata. Anderson’s argument fails.
{¶30} First, the affirmative defense of res judicata is waived if not raised in a
responsive pleading. Jim’s Steak House, Inc. v. Cleveland, 81 Ohio St.3d 18, 20-21, 688
N.E.2d 506 (1998). Anderson raised no affirmative defenses in his answer to the
Secretary’s amended complaint and, therefore, waived any argument regarding res
judicata.
{¶31} More importantly, the “double-dismissal rule” does not apply to this action.
The record reflects that there were two prior foreclosure cases against Anderson that were
voluntarily dismissed by the plaintiff. In the first case, Wells Fargo Bank v. Anderson,
Cuyahoga C.P. No. CV-06-582255 (June 28, 2006), Wells Fargo sought recovery of
$138,649.84 in principal, plus interest at 8% per annum from August 1, 2005. In the
second case, Secy. of Veterans Affairs v. Anderson, Cuyahoga C.P. No. CV-08-670154
(June 11, 2010), the Secretary claimed $179,050 in principal owed, plus interest at 4% per
annum from February 1, 2008.
{¶32} The “double-dismissal rule” applies to actions, including foreclosure
actions, when the same plaintiff files a third complaint that asserts the same cause of
action as that dismissed in the first and second complaints. U.S. Bank Natl. Assn. v.
Gullotta, 120 Ohio St.3d 399, 2008-Ohio-6268, 899 N.E.2d 987, ¶ 24-25. Here,
although there were two prior foreclosure cases, the claims in each case were different:
they involved different rates of interest and different amounts of principal owed.
Moreover, the plaintiffs were not the same: the first case was brought by Wells Fargo Bank, the second by the Secretary. Accordingly, the voluntary dismissal by the Secretary
in Case No. CV-08-670154 was not a second dismissal of the same claim under Civ.R.
41(A)(1), and therefore, this action is not barred by res judicata. See Homecomings Fin.
Network, Inc. v. Oliver, 1st Dist. Hamilton No. C-020625, 2003-Ohio-2668, ¶ 7 (second
foreclosure action differed from the first because the claims involved different acts of
default, as well as different rates of interest and different amounts of principal owed).
{¶33} Anderson’s fourth assignment of error is therefore overruled.
{¶34} Judgment affirmed.
It is ordered that appellee recover from appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said 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.
KATHLEEN ANN KEOUGH, JUDGE
KENNETH A. ROCCO, P.J., and MARY EILEEN KILBANE, J., CONCUR