Ohio Appeals Court Boots Promissory Note-Lacking Lender As State AG, Six Non-Profits Jump Into (Apparently) High-Stakes Fray In Support Of Homeowner

A recent decision ruling by an Ohio Court of Appeals affirmed a lower court's ruling:

• striking the affidavit of an employee of a loan servicer (identified as a manager of trial preparation and discovery for Ocwen Loan Servicing) acting as servicing agent of the purported lender (HSBC Bank, as Trustee for ..., etc., etc.) that brought a foreclosure action because of defects in the affidavit;

• refusing to consider the Ocwen employee's restated affidavit, in the course of deciding objections to the magistrate's decision, because HSBC failed to indicate why it could not have properly submitted the evidence, with reasonable diligence, before the magistrate had rendered a decision in the matter; and

• rendering summary judgment against HSBC, and dismissing the foreclosure action for lack of standing because HSBC failed to establish that it was (a) the real party in interest to bring the suit, and (b) the holder of the promissory note secured by the mortgage being foreclosed.

The stakes in this case, which by all appearances involved nothing more than your standard, run-of-the-mill "lack of standing" and "real party in interest" claims, were apparently somehow ratcheted up significantly along the way as it attracted enough interest from the Ohio Attorney General's office to cause it to jump into the fray and file a "friend of the court" brief supporting the homeowner's position.

Further, a second amicus brief, also supporting the homeowner's position, was filed on behalf of six Ohio non-profit legal and consumer advocates, who apparently also wanted to get in on the action.(1)(2)

Among the points the appeals court had problems with, and that sunk the lender in this case were:

• In the original affidavit filed on behalf of HSBC, the Ocwen employee averred "[t]hat he had executed it in Palm Beach, Florida. However, the notation at the top of the first page of the affidavit and the jurat both state that the affidavit was sworn to and subscribed to in New Jersey, before a notary public." (see paragraph 11 of the ruling);

• With respect to the restated affidavit, "The affidavit was identical to what was previously submitted, except that the first page indicated that the affidavit was being signed in Palm Beach County, Florida. The jurat is signed by a notary who appears to be from Florida, although the notary seals on the original and copy that were submitted are not very clear. HSBC did not offer any explanation for the mistake in the original affidavit." (see paragraph 15 of the ruling);

• Regarding copies of a pair of purported, undated "allonges" submitted as loose papers to the court by the servicer accompanying a purported copy of the promissory note, there was no evidence that the allonges were ever affixed to the note as required under Ohio law; and further, the order in which the purported allonges were submitted did not support HSBC's claim that it was the holder of the promissory note.(3)

For the entire ruling, see HSBC Bank USA v. Thompson, 2010 Ohio 4158 (2nd App. Dist., Montgomery County, September 3, 2010).

(1) The Ohio non-profit heavyweights who chimed in with their support of the homeowner's position were:

• Advocates for Basic Legal Equality;
• Equal Justice Foundation;
• Legal Aid Society of Southwest Ohio;
• Northeast Ohio Legal Aid Services;
• Ohio Poverty Law Center; and
• Pro Seniors, Inc.

(2) Not to be outdone, in addition to being represented by local counsel, the foreclosing lender also called in the Washington, D.C. office of some national, big-shot, white shoe law firm for additional artillery (apparently to no avail).

(3) In this regard, the appellate court stated (at pargraphs 67-70):

• {¶ 67} In contrast to Watson, no evidence was presented in the case before us to indicate that the allonges were ever attached or affixed to the promissory note. Instead, the allonges have been presented as separate, loose sheets of paper, with no explanation as to how they may have been attached. Compare In re Weisband, (Bkrtcy. D. Ariz., 2010), 427 B.R. 13, 19 (concluding that GMAC was not a "holder" and did not have ability to enforce a note, where GMAC failed to demonstrate that an allonge endorsement to GMAC was affixed to a note. The bankruptcy court noted that the endorsement in question "is on a separate sheet of paper; there was no evidence that it was stapled or otherwise attached to the rest of the Note.")

• {¶ 68} It is possible that the allonges in the case before us were stapled to the note at one time and were separated for photocopying. But unlike the alleged creditor in Watson, HSBC offered no evidence to that effect. Furthermore, assuming for the sake of argument that the allonges were properly "affixed," the order of the allonges does not permit HSBC to claim that it is the possessor of a note made payable to bearer or endorsed in blank.

• {¶ 69} The first allonge is endorsed from Delta to "blank," and the second allonge is endorsed from Fidelity to Delta. If the endorsement in blank were intended to be effective, the endorsement from Fidelity to Delta should have preceded the endorsement from Delta to "blank," because the original promissory note is made payable to Fidelity, not to Delta. Delta would have had no power to endorse the note before receiving the note and an endorsement from Fidelity.

• {¶ 70} HSBC contends that the order of the allonges is immaterial, while Thompson claims that the order is critical.