New Developments in Ohio Foreclosure Law

By LeAnn E. Covey, Clunk, Paisley, Hoose Co.

The Ohio Senate passed House Bill 390 into law on June 28, 2016 and became effective law on September 28, 2016.  This changed and added several sections of the Ohio Revised Code (“ORC”) affecting the foreclosure process in Ohio.  This article highlights some of the changes that are of interest to servicers.

Borrowers and tenants are now subject to criminal mischief if they knowingly damage a property that is currently in a foreclosure action (ORC 2308.04). For the first time in Ohio, there is criminal liability attached with damage to the home prior to an actual foreclosure sale taking place.

The ORC now confirms with the latest UCC revisions regarding lost notes (ORC 1303.38) and states that a person has the right to enforce the note if they “directly or indirectly required ownership from a person who was entitled to enforce the instrument when loss of possession occurred.”  Previously, the UCC (and ORC) only allowed the party that actually lost the note to enforce it.

More flexible service options are now available in Ohio (ORC 2303.26).  The county clerks cannot restrict ability to issue multiple forms of service at the same time.  Prior to the enactment of the bill, some counties did restrict access by only allowing for one form of service at time, requiring a failure of service by one means before trying another means of service.  This should decrease timelines by speeding up the process of service.

A fast-track option has now been added for vacant and abandoned properties. The property must be a four unit or less dwelling that is secured by a residential mortgage loan.  A motion to expedite is required to be filed (ORC 2308.02) indicating the property is vacant and abandoned.  The fast-track requirements include a list of eleven criteria, three of which must be met through clear and convincing evidence.  The criteria are as follows:

1. Utility services are disconnected
2. The property is boarded up or multiple windows are broken
3. Doors are smashed through, broken off, unhinged, or continuously unlocked
4. Trash or hazardous substances have accumulated on the property
5. Furnishings and other personal items are absent
6. The property is an object of vandalism, loitering, criminal conduct, or the property has had physical destruction and/or deterioration
7. Mortgagor has made a written statement expressing the intention to abandon the property
8. An inspection by a government official shows that no one appears to be residing at the property
9. A government official provides a written statement that the property is abandoned
10. The property is sealed because immediately prior to being sealed, a government official considered the property to be open, vacant, and vandalized.
11. Other reasonable indicia of abandonment exists

If the criteria are met, an official from the county must still verify the property is vacant and abandoned and this inspection will be added to the case as a court cost.  In addition to meeting the criteria, no answer can have been filed by the mortgagor or by another other defendant in objection to the foreclosure action.  This means that if an heir, spouse, or lien holder files a response in opposition, the property cannot be fast-tracked.   The court may then require an oral hearing to determine that the property is vacant and abandoned and that plaintiff is entitled to judgment.

It has been discussed at length by Ohio foreclosure attorneys that the fast-track requirements are onerous and may not be worth the effort and cost for the result.  The benefit to having the property on the fast-track is that Judgment shall be decided within twenty-one days after the answer period has expired and the sale is required to be held no later than seventy-five days after the issuance of the order of sale.  This may shorten timelines, however, the argument is that no time will really be saved as a creditor and their counsel must gather evidence to prove that the property is vacant and abandoned.  Creditors continue to be at the mercy of the local government officials that will schedule and conduct inspections, and there is no time limit indicated in the new law to ensure inspections are done promptly.  Any time that may be gained by being on the fast-track may be completely negated by slow local government processing. The order sale can also be later undone upon motion for a defendant in the case and will not stop mediation if later requested by the defendant, which means wasted time, effort, and cost in trying to get the property on the fast-track.

The entire sheriff’s sale process has been changed with the addition of private selling officers (ORC 2327.01 through 2327.04).  It will be the creditor’s option to use the private selling officer versus the sheriff’s office to sell the property. The appraisals will continue to be done through the sheriff’s office and all appraisals must be completed within 21 days of the receipt of the praecipe from the creditor.  The private selling officer will 180 days to hold a sale and has the authority to cancel, post-pone and reschedule at the creditor’s instruction without a court order in the 180 day period.  The private selling officer will utilize on-line bidding. On-line bidding must be open for a minimum of seven days.  The private selling officer will have the opportunity to execute deeds and hire title companies to assist in the post-sale process.  The benefits to the private selling officer are numerous.  Creditors will have control over how long to post-pone a sale due to loss mitigation activity.  It will reduce overall time-lines in the event a sale needs to be rescheduled. Private selling officers will have access to on-line bidding which may open up a whole new set of potential buyers for the properties.  The private selling officer can execute the deed, so the Creditor is not at the mercy of the sheriff’s office.  On-line bidding is not yet available in Ohio, but will be soon.  According to the Ohio Department of Administrative Services, Office of State Procurement, it is estimated that the website will be available sometime in February 2017.  The State of Ohio is currently in the inquiry period regarding retaining a vendor to implement the website for on-line bidding.

Taxes will now be prorated to the date of the sale (ORC 323.47).  Any additional taxes that are due after the time of sale are to be certified and payable at the next pay period or next transfer.  This should simplify the now complicated process of requesting and receiving the tax bill from the county in order to have the correct amount in the confirmation entry.  Instead of a moving target, it will now be fixed as of the time of sale and will reduce the timeframe for confirmation and deed.

Some other key changes regarding sales are as follows:

• Creditor can now bid remotely and is not required to bid in person at the sale (ORC 2329.071)
• The Judgment Creditor is no longer required to have a sales deposit (ORC 2329.211)
• If the property does not sell due to lack of bidders, a second sale will be held with no minimum bid between seven and thirty days after the first sale (ORC 2329.52)
• If the sheriff does not record the deed within the statutory time-frame of 14 days, confirmation can be used to transfer the property (ORC 2329.31)

With all these changes, I end the article with an important change that needs to be emphasized.  Servicers and Creditors needs to understand that the Creditor no longer has complete control over the sale process.  If the sale is not ordered and one year has passed since judgment was granted, the county can file a motion to sell the property with the clerk.  Creditor has the right to redeem the property for the sale price within 14 days after the sale date (ORC 2329.52).  Therefore, if a creditor does not want a property to go to sale, it is important to vacate the judgment or the county may step in and end up taking the property to sale with no minimum bid.

 

LeAnn Covey is the managing attorney of the Bankruptcy Department and Loss Mitigation Department at Clunk, Paisley, Hoose Co., LPA which assists lenders and servicers in Ohio and Kentucky. Contact her at [email protected].