Taking a Stand on Standing: The Real Party in Interest Conflict in Ohio Foreclosure Actions

• Author: John B. Leach
• Position: J.D., Capital University Law School, May 2012
• Pages: 1099-1128

TAKING A STAND ON STANDING: THE REAL PARTY IN

INTEREST CONFLICT IN OHIO FORECLOSURE ACTIONS

JOHN B. LEACH*

I. INTRODUCTION

In February of 2005, Gloria, a sixty-six year old former minister from

Ohio, obtained a $56,100 mortgage from WMC Mortgage Corporation

(WMC).1 Less than seven months later, Gloria defaulted on her mortgage

for non-payment.2 It seemed as if Gloria would soon be left without a

home after a foreclosure action commenced. As it turns out, Gloria

remained in her home for three more years.3

At this point, one might be wondering how someone managed to live

in a home without making a mortgage payment for close to three years.4 In

Gloria’s case, as often happens, after originating her mortgage loan, WMC

conveyed the loan elsewhere on the secondary mortgage market.5 Gloria’s

loan was subsequently pooled with other similar loans and placed in a

securitized trust for investment purposes.6 Because Gloria’s loan could

have passed through many different hands on the secondary market, Gloria

could delay the foreclosure proceedings by simply alleging that the entity

suing on behalf of the trust would not be able to prove that it owned her

Copyright © 2012, John B. Leach.

* John B. Leach, M.A., J.D., Capital University Law School, May 2012. I would like to

thank my wife Courtney for all of her support and encouragement.

1 Magistrate’s Decision at 1, Wells Fargo Bank v. Byrd, No. A0700643 (Hamilton

Cnty. Ct. C.P. July 23, 2007). See also State Hopes Ruling Can Slow Pace of Foreclosures,

COLUMBUS DISPATCH, Dec. 10, 2007, at B3.

2 Complaint in Foreclosure, Wells Fargo Bank v. Byrd, No. A0700643 (Hamilton Cnty.

Ct. C.P. Jan. 23, 2007) (noting that October 1, 2006 was the date of default).

3 See Wells Fargo Bank v. Byrd, 897 N.E.2d 722 (Ohio Ct. App. 2008) (affirming the

trial court’s decision three years after the case was initiated).

4 See Complaint in Foreclosure, Wells Fargo Bank v. Byrd, No. A0911166 (Hamilton

Cnty. Ct. C.P. Nov. 24, 2009). Wells Fargo was forced to file a subsequent action on the

same default. Id.

5 See Complaint in Foreclosure, supra note 2. Wells Fargo attempted to foreclose on

behalf of the Certificate holders of Morgan Stanley ABS Capital, Inc. Trust 2005-WMC5

Mortgage Pass-Through Certificates, Series 2005-WMC5, which is a securitize d trust. Id.

6 See id.

1100 CAPITAL UNIVERSITY LAW REVIEW [40:1099

loan at the time it filed the foreclosure action.7 That is exactly what she

did.8

Gloria’s case typifies one of the most highly contested issues in Ohio

foreclosure litigation: Homeowners contesting foreclosures by alleging that

that the plaintiff is not the proper party with standing to bring the action.9

Although identifying the party entitled to bring a residential foreclosure

action seems straightforward, in today’s complex world of mortgage

securitization,10 this determination has become a daunting task for both

judges and lawyers alike.11

7 See State Hopes Ruling Can Slow Pace of Foreclosures, supra note 1.

8 Magistrate’s Decision, supra note 1.

9 Wells Fargo Bank v. Sessley, 935 N.E.2d 70, 76 (Ohio Ct. App. 2010) (“Appellate

courts are often presented with real-party-in-interest issues in foreclosure act ions.”). See

also Bank of N.Y. v. Stuart, No. 06CA008953, 2007 WL 936706, at *1 (Ohio Ct. App.

Mar. 30, 2007); Deutsche Bank Nat’l Trust Co. v. Pagani, No. 09CA000013, 2009 WL

3440028, at *1 (Ohio Ct. App. Oct. 23, 2009); DLJ Mortg. Capital v. Parsons, No. 07-MA-

17, 2008 WL 697400, at *1 (Ohio Ct. App. Mar. 13, 2008); Kramer v. Millott, No. E-94-5,

1994 WL 518173, at *1 (Ohio Ct. App. Sept. 23, 1994); Mid-State Trust IX v. Davis, No.

07-CA-31, 2008 WL 1838350, at *1 (Ohio Ct. App. Apt. 25, 2008); Nat’l Bank v. Hufford,

767 N.E.2d 1206, 1207 (Ohio Ct. App. 2001); U.S. Bank v. Marcino, 908 N.E.2d 1032,

1032 (Ohio Ct. App. 2009); Wash. Mut. Bank v. Green, 806 N.E.2d 604, 605 (Ohio Ct.

App. 2004); Wash. Mut. Bank v. Novak, No. 88121, 2007 WL 701081, at *1 (Ohio Ct.

App. Mar. 8, 2007); Wells Fargo Bank v. Byrd, 897 N.E.2d 722, 722 (Ohio Ct. App. 2008);

Wells Fargo Bank v. Jordan, No. 91675, 2009 WL 625560, at *3 (Ohio Ct. App. Mar. 12,

2009); Wells Fargo Bank v. Stovall, No. 91802, 2010 WL 320487, at *1 (Ohio Ct. App.

Jan. 28, 2010).

10 See Ku rt Eggert, Held Up in Due Course: Predatory Lending, Securitization, and

the Holder in Due Course Doctrine, 35 CREIGHTON L. REV. 503, 538–39 (2002). Eggert

noted:

A typical securitization of a loan secured by a residen ce might proceed

as follows. The borrower negotiates with a mortgage broker for the

terms of the loan. Mortgage brokers may originate the loans in their

own names in three ways: (1) by using “table funding” provided by the

pre-arranged buyer of the loan; (2) by access to a warehouse line of

credit; or (3) by supplying the broker’s own funds. Alternatively, the

mortgage broker may close the loan in the name of the lender providing

the money. Whether the broker closes the loan in his or her own name

or in the name of the lender, the bro ker typically almost immediately

transfers the loan to a lender. This lender quickly sells the loan to a

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