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Developing Equity Arguments in Foreclosure Cases

Developing Equity Arguments in Foreclosure Cases. Linda Cook Senior Staff Attorney, Ohio Poverty Law Center Doug Rogers Senior Fellow, Ohio State Legal Services Association. A Short History of the Evolution of Equity and Foreclosure. The common law of mortgages 14 th – 17 th century

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Developing Equity Arguments in Foreclosure Cases

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  1. Developing Equity Arguments in Foreclosure Cases Linda Cook Senior Staff Attorney, Ohio Poverty Law Center Doug Rogers Senior Fellow, Ohio State Legal Services Association

  2. A Short History of the Evolution of Equity and Foreclosure • The common law of mortgages • 14th – 17th century • Mortgagor granted immediate fee title to creditor which was nullified only if paid precisely on “law day” • Mortgages were contracts governed by principles of contract and conveyance law • 17th century chancery courts take control of mortgage law • Created, or recognized, debtors equitable right to redeem collateral by paying the underlying debt

  3. Why Do We, in the 21st Century, Care About Old English Law? • All States’ systems of law (except Louisiana) are based on English common law • Understanding the origins of equity will help us understand • the equitable arguments we can make today • The arguments lenders will make in opposition

  4. Developing Modern Case Law on Equity and Foreclosure in Ohio • Structure of Ohio’s statewide foreclosure project • OPLC organizes an equity symposium • Structure of the workshop • Products of the symposium

  5. Ohio is a judicial foreclosure state Use equity defensively Michigan and West Virginia are non-judicial, by power of sale Use equity affirmatively Judicial vs. Nonjudicial foreclosure

  6. When and How to Raise Equity

  7. EQUITABLE DEFENSES ARE AVAILABLE IN MORTGAGE FORECLOSURE CASES • FORECLOSURE DOES NOT NECESSARILY FOLLOW FROM JUDGMENT ON THE NOTE • Great Northern Savings Co. v. Ingarra, 60 Ohio St.2d 503, 507-508 (1981)--declaratory judgment action on right to accelerate mortgage • Beneficial Mortgage Co. of Ohio v. Leach (Ohio App. 10 Dist.), 2002-Ohio-2237, ¶73 • U.S. Bank, N.A. v. Stewart (Ohio App. 2 Dist.), 2007-Ohio-5669 • Rosselot v. Heimbrock (Ohio App.12 Dist. 1988), 54 Ohio App.3d 103, 106 • Wheatstone Ceramics Corp. v. Turner (Ohio App. 12 Dist. 1986), 32 Ohio App.3d 21, 23 • Equitable Federal Savings & Loan Association v. Hopton (Ohio App. 5 Dist.), 1985WL 7309, *2 • City Loan & Savings Co. v. Howard (Ohio App.2 Dist. 1984), 16 OhioApp.3d 185, 186-187

  8. IF PRACTICAL, GO BEYOND THE GENERAL STATEMENTS ON EQUITY AND TIE GENERAL EQUITABLE PRINCIPLES TO THE FACTS IN THE CASE • Equity abhors a forfeiture • Wheatstone Ceramics Corp. v. Turner (Ohio App. 12 Dist. 1986), 32 Ohio App.3d 21, 23—mortgage foreclosure case • Whitmore v. Meenach(Ohio App. 2 Dist. 1940), 33 N.E.2d 408, 410—99 year lease case • What constitutes a forfeiture? • House purchased with no equity • Month to month lease • Subsidized housing • Investments/equity in house

  9. IF PRACTICAL, GO BEYOND THE GENERAL STATEMENTS ON EQUITY AND TIE GENERAL EQUITABLE PRINCIPLES TO THE FACTS OF THE CASE • One asking for equity must come with clean hands • Deutsche Bank Trust Co. v. Smith (Ohio App. Dist.), 2008-Ohio-2778, ¶35 Mortgage foreclosure case • Christman v. Christman (1960), 171 Ohio St. 152, 154 Suit to set aside sale of realty by administrator of estate WHAT “BAD” ACT(S) HAS PLAINTIFF TAKEN?

  10. An equity court exercises a broad and flexible jurisdiction to grant remedial relief where justice or good conscience requires it. • Discover Bank v. Owens (Clev. Mun.), 2004-Ohio-7333, ¶23 WHAT SPECIFIC RELIEF IS DEFENDANT REQUESTING (E.G. REDUCED PAYMENTS, DEFERRED PAYMENTS…?), AND WILL PLAINTIFF BE UNFAIRLY HARMED BY THE REQUESTED RELIEF?

  11. If Practical, Go Beyond the General Statements on Equity and Tie General Descriptions to the Facts in the Case • Claims for equitable relief typically require the trial court to balance the equities of the parties. • Such balancing of equities involves a weighing of the evidence, which is inappropriate on summary judgment. • Blue View Corp. v. Rhynes (Ohio App. 9 Dist.), 2006-Ohio-3660, ¶14¶22-- While we do not suggest the outcome of the process, the trial court should have weighed the equities to determine whether termination of the lease and the resulting forfeiture withstand equitable scrutiny. Takis, L.L.C. v. C.D. Morelock Properties, Inc. (Ohio App. 10 Dist.) HOW TO PROVE THE COURT DID NOT CONSIDER THE EQUITIES?

  12. Equity is Not a Monolith Estoppel – U.S. Bank, N.A. v. Stewart (Ohio App. 2 Dist.), 2007-Ohio-5669, ¶52 Fault of other parties – Peppe v. Knoepp (10 Dist.), 103 Ohio App.3d 223, 224 (20 year lease) Fiduciary Duty Stone v. Davis (1981), 66 Ohio St.2d 74, ¶2 of syllabus (mortgage insurance) Inequitable actions of plaintiff— Rosselot v. Heimbrock (Ohio App.12 Dist. 1988), 54 Ohio App.3d 103, 106-107 To the extent you can tie to an equitable principle with specific elements of fact to prove, it may be easier to defeat a summary judgment motion

  13. Laches State ex rel. Mallory v. Public Employees Retirement Board, 82 Ohio St.3d 234, 244 Unconscionability U.S. Bank, N.A. v. Stewart (Ohio App. 2 Dist.), 2007-Ohio-5669, ¶51 Beneficial Mortgage Co. v. Leach Waiver – U.S. Bank, N.A. v. Stewart (Ohio App. 2 Dist.), 2007-Ohio-5669, ¶52 Rosselot v. Heimbrock (Ohio App.12 Dist. 1988), 54 Ohio App.3d 103, 106-107 To the extent you can tie to an equitable principle with specific elements of facts to prove, it may be easier to defeat a summary judgment motion

  14. Go Forth and Argue Equity • On an Individual Case by Case Basis • To Argue for Policy Changes • State legislative initiatives • Statewide foreclosure moratorium • Mandatory foreclosure mediation • State court action • Stay of foreclosure proceedings • Local court rules • Federal policy changes • HAMP guidelines • Pressure on participating lender/servicers

  15. Resources • Shanker, M. “Will Mortgage Law Survive?: A commentary and critique on mortgage law’s birth, long life, and current proposals for its demise,” 54 Case W. Res. 69 (2003) • McGovern, W., Jr., “Forfeiture, Inequality of Bargaining Power, and the Availability of Credit: An Historical Perspective,” Northwestern University Law Review 74:141 (1979) • NCLC: “Foreclosures: Defenses, Workouts and Mortgage Servicing”, 2nd ed. • “Equity Defense to Foreclosure,” Ohio Legal Services memorandum, December 2008

  16. Contact Information • Doug Rogers • drogers@oslsa.org 614-221-7201 ext. 101 • Linda Cook • lcook@ohiopovertylaw.org 614-221-7201 ext. 124 www.ohiolegalservices.org

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