The first basic element which mortgage company must prove in order to gain a foreclosure order in Ohio is that is the party entitled to enforce the instrument evidencing the debt; that is the promissory note. This is required in order to protect the debtor from being subject to having to pay on the same obligation twice, a concept which is analogous to the principle of double jeopardy in a criminal matter. Until private loan securitization was legalized in 1999 with the repeal of the Glass Steagall Act, standing was always a "gimme" in the sense that no one ever even thought to question the bank's right to foreclose since that bank was almost always the bank who originated the loan. Of course, everything changed with the advent of securitization, the process whereby mortgages are passed along from the original lender through a number of players before ending up in a pool or trust bundled with thousands of other mortgages only to be sold to Wall Street investors as a stock certificate. Now there are legitimate reasons to question the foreclosing parties' right to bring the action. Over the years however, the bar of proof for standing has been steadily lowered by the courts, almost to the point where it didn't exist at all.
RIGHTS UNDER THE NOTE AND MORTGAGE
It is age old law in Ohio that a foreclosure case was essentially a two part proceeding. The first part required a determination of whether or not the plaintiff had the right to proceed on the promissory note and if so, only after that determination was made would the analysis proceed onto a consideration of whether the plaintiff had rights under the mortgage. Over the years, many courts seemed to blur the distinction between the two part analysis, almost to the point where it seemed that proof of rights under either the note or mortgage rather than both, would suffice to allow the bank to gain foreclosure.
THE GEORGE DECISION
Several months ago the Franklin County Court of Appeals, based in Columbus, rendered what could become a seminal decision in this area of the law. The George case involved a situation where the bank had presented two materially different copies of the promissory note at various stages of the foreclosure proceeding, without offering any credible explanation for the differences. One argument presented by U.S. Bank in seeking foreclosure was that regardless of the problems with the promissory note in establishing its right to foreclose, it had an assignment of mortgage in its favor and that, it claimed, saved the day for it. The George Court disagreed. In reversing the trial court's grant of summary judgment in the bank's favor, it cited time tested law under the Uniform Commercial Code requiring a foreclosing bank prove it was entitled to enforce the note before there could be any consideration of its rights under the mortgage. Without explaining the differences between the two promissory notes, the Court found that the plaintiff failed to meet its initial burden.
ADDITIONAL STANDING IMPLCATIONS
The George Court did not rest its analysis on the issue of the differing notes however. It went on and dealt with two other issues which are reoccurring in standing determinations. The first concerns whether the plaintiff had physical possession of the original note at the time the foreclosure action was filed. On this point, the Court found U.S. Bank's proof vague and confusing as what the condition of the note was and where it was when the case was brought. In addition, the Court questioned the bank's right to introduce the document it claimed was the original note under the "Business Records Exception" to the hearsay rule. Using the Exception as a backdoor method of getting courts to believe it has possession of the original note has been the favored by foreclosing banks to meet their burden of proving standing. Thus, the George decision stripped away several all too common means banks use to circumvent the standing requirement, and reset the bar of proof on them to its rightful place.