REQUIRED READING: In 2009, Servicing Management reported on a procedure created by a trial judge in Darke County, a rural county in western Ohio, whereby the judge was routinely ordering properties with pending foreclosures to be conveyed by a commissioner's deed directly to the mortgage holders, without judicial sales, despite the mortgage holders' objections. On Jan. 14, 2011, the Court of Appeals issued a decision overturning that procedure.
In Wells Fargo Bank v. Young, the plaintiff filed a foreclosure, and when the borrower failed to file an answer, the plaintiff filed a motion for default judgment. Instead of granting the motion and ordering the usual sheriff's sale as requested by the plaintiff, the trial judge issued a notice to all parties to appear and show cause as to why the property should not simply be conveyed to the plaintiff without a judicial sale.
Over the objection of the plaintiff, and despite testimony from a real estate law expert and a representative of a national title insurance company that such a conveyance by commissioner's deed could result in a clouded title and title insurance claims, the trial judge ordered the conveyance by commissioner's deed to the plaintiff, and the plaintiff appealed.
In its decision, the Court of Appeals reviewed the historical background of mortgages and foreclosures, as well as the statutory procedures currently in effect for foreclosures in Ohio. The Court of Appeals decided that although a foreclosure is generally recognized as an equitable proceeding, and although Ohio has a statute authorizing a sale by a master commissioner in limited circumstances, those circumstances were not present in this case, and therefore, the trial court did not have the authority to circumvent a judicial sale of the foreclosed property.
The Court of Appeals stated that it was not unsympathetic to the concerns of the trial court in trying to provide a quicker and less-costly approach to foreclosure issues, but that the only issue was whether the remedy attempted by the trial court was authorized by existing law.
Quoting a prior decision, the Court of Appeals stated, "It is this rule of law that creates, protects and guarantees the continued existence of a civilized society. When established law is contorted to fix individual situations, rather than being applied firmly and consistently, what then remains is the will of an autocrat which changes from day to day and place to place. In equitable matters, a court has considerable discretion in attempting to fashion a fair and just remedy. But this discretion cannot flout or override specific statutory mandates. The wisdom and efficacy of existing constitutional laws is a matter for the legislature."
Many problems – including robosigning, bank walkaways and foreclosures – cry out for solutions. However, although the decision in the Wells Fargo case is only binding within the six-county district in Ohio, it would be appropriate for all courts to accept the sound reasoning of the case and refrain from "fixing" such problems by contorting established law.
Larry Rothenberg is the partner in charge of the Cleveland real estate and foreclosure department of Weltman, Weinberg & Reis Co. LPA. He can be reached at (216) 685-1135 or lrothenberg@weltman.com.
