supremecourt®fohiotransferred all of its rights in the mortgage loan to hsbc on march 29, 2007....

IN THE SUPREME COURT OF OHIO

HSBC BANK USA, N.A., ASINDENTURE TRUSTEE FOR THEREGISTERED NOTEHOLDERS OFRENAISSANCE HOME EQUITYLOAN TRUST 2007-1,

SUPREME COURT CASE NO.

Plaintiff-Appellant,

V.

JAMIE W. THOMPSON, ET AL.,

Defendants-Appellees.

On Appeal from the Montgomery CountyCourt of Appeals, Second AppellateDistrict

Court of Appeals Case No. 23761

MEMORANDUM IN SUPPORT OF JURISDICTION OF PLAINTIFF-APPELLANTHSBC BANK USA, N.A., AS INDENTURE TRUSTEE FOR THE REGISTEREDNOTEHOLDERS OF RENAISSANCE HOME EQUITY LOAN TRUST 2007-1

Benjamin D. Carnahan (0079737).SHAPIRO, VAN ESS, PHILLIPS &BARRAGATE, L.L.P.4805 Montgomery Road, Suite 320Cincinnati, Ohio 45212(216) 373-3131 (telephone)(847) 627-8805 ( facsimile)

Andrew M. Engel3077 Kettering Blvd., Suite 108Moraine, OH 45439Office: (937) 222-4031Cell: (937) 477-9083Fax: (937) 222-2617

Brian P. Brooks (Pro Hac Vice)Adam Goldstein (Pro Hac Vice)O'MELVENY & MYERS LLP1625 Eye Street, N.W.Washington, D.C. 20006-4001(202) 383-5300 (telephone)(202) 383-5414 (facsimile)

Attomeys for Plaintiff-Appellant

Attorney for Defendants-Appellees

^^L_E_ D_

182010CLERK OF COURT

SUPREMECOURT®FOHIO

TABLE OF CONTENTS

THIS IS A CASE OF PUBLIC AND GREAT GENERAL INTEREST ................................. 1

STATEMENT OF THE CASE AND FACTS ......................................:...........:...........:............. 2

ARGUMENTS IN SUPPORT OF PROPOSITIONS OF LAW .......................:....................... 5

Proposition of Law No. I: Under Ohio law, plaintiffs to foreclosure proceedings mayestablish standing as a real party in interest by presenting an executed assignment ofmortgage, even if the assignment was executed after those proceedings were initiated ............ 5

Proposition of Law No. II: Rule 17(A) of the Ohio Rules of Civil Procedure does notrequire that litigants demonstrate "an understandable mistake" in order to be entitled todemonstrate that they are a real party in interest . ....................:..................:...:.............:............. 8

CONCLUSION .............:..........................:...............:...:.......................:........................................ 9

APPENDIX

Opinion and Judgment Entry

THIS IS A CASE OF PUBLIC AND GREAT GENERAL INTEREST

This case presents an issue that has sharply divided the intermediate appellate courts in

Ohio and that is of the utmost importance to the orderly prosecution of foreclosure proceedings

in this state - specifically, whether an assignment of mortgage executed shortly after

commencement of foreclosure (but long before the commencement of summary judgment

motion practice) is sufficient to establish that a foreclosing plaintiff is a real party in interest with

respect to the foreclosure action. While, at first glance, this issue may seem purely technical, it

affects legions of pending and future foreclosure proceedings in Ohio. The urgency of this

matter is exacerbated by the conflict in authorities now present in the decisions by appellate

courts throughout Ohio. After the decision of the court below, foreclosure plaintiffs in the Fifth,

Seventh, Ninth, and Tenth appellate districts may proceed on the basis of an assignment of

mortgage executed after foreclosure proceedings were initiated,' while plaintiffs in other

appellate districts may not.Z This leads to an untenable situation in which the validity of a

foreclosure action is, in many situations, determined solely on the basis of the county in which

that action was filed.

1 See, e.g., Deutsche Bank Nat'l Trust Co. v. Cassens, 10th Dist. No. 09AP-865, 2010-Ohio-2851, at I 17("[C]ourts have rejected claims that the execution of an assignment subsequent to the filing of a complaintnecessarily precludes a party from prosecuting a foreclosure action as the real party in interest."); CountrywideHome Loan Servicing, L.P. v. Thomas, 10th Dist. No. 09AP-819, 2010-Ohio-3018, at 111 ("[E]ven if [theforeclosure plaintiff] did not formally hold the note ... and mortgage at the time it filed its complaint, because [theassignee] undisputedly estabfished it was the holder of the note and mortgage at the time it filed for summaryjudgment."); Wachovia Bank v. Cipriano, 5th Dist. No. 09CA007, 2009-Ohio-5470, at 136 (where assignment wasdated after foreclosure action commenced, but two months before summary judgment motion was filed, foreclosingbank acted properly because it "was the real party of interest and holder of the note prior to any judgment enteredvia summary judgment. ... Pursuant to Civ. R. 17(A), the real party of interest shall `prosecute' the claim. The ruledoes not state 'file' the claim."); U.S. Bank, N.A. v. Marcino, 7th Dist. No. 08 JE 2, 2009-Ohio-1178, at 152 ("[T]henegotiation of a note operates as an equitable assignment of the mortgage, even though the mortgage is not assignedor delivered."); Bank of New York v. Stuart, 9th Dist. No. 06CA008953, 2007-Ohio-1483, at 112 (where assignmentwas dated five months after foreclosure action commenced, but eight months before summary judgment wasgranted, "filing the assignment with the trial court before judgment was entered was sufficient to alert the court andappellants that appellee was the real party in interest").2

See, e.g., Wells Fargo Bank v. Jordan, 8th Dist. No. 91675, 2009-Ohio-1092, at 9[24 ("[A] bank that wasnot the mortgagee when suit was filed cannot cure its lack of standing by subsequently obtaining an interest in themortgage." (quotations omitted)); Bank of New York v. Gindele, 1st Dist. No. C-090251, 2010-Ohio-542, at 9[9[4-6(accord).

1

More fundamentally, in determining that HSBC Bank USA, N.A., as Indenture Trustee

for the Registered Noteholders of Renaissance Home Equity Loan Trust 2007-1 ("HSBC") could

not establish that it was a real party in interest to the instant proceedings based on an assignment

of mortgage executed days after the foreclosure action was commenced, the Second Appellate

District endorses an interpretation of Rule 17(A) of the Ohio Rules of Civil Procedure that

engrafts a requirement found nowhere in the text of the Rule or in any preexisting case law -

namely, that the commencement of the action in the name of the party that later received an

assignment was an "understandable niistake." HSBC Bank USA, N.A. v. Thompson, 2d Dist. No.

23761, 2010-Ohio-4158, at 185. This new requirement lacks any basis in the text of Rule 17(A),

is inconsistent with this Court's teachings, and has implications far beyond the foreclosure

context if left unreviewed.

STATEMENT OF THE CASE AND FACTS

On January 24, 2007, Howard W. Turner entered into a mortgage loan pursuant to which

he borrowed $85,000 in exchange for granting Fidelity Mortgage, a division of Delta Funding

Corporation, a security interest in property located at 417 Cushing Avenue, Dayton, Ohio

("Property"). Pursuant to the terms of his mortgage loan, Mr. Turner was required to make

monthly payments beginning in March 2007 and agreed that if he failed to make such payments,

the owner of his note could accelerate the balance and initiate foreclosure proceedings. The

mortgage loan was subsequently transferred to Delta Funding Corporation, which, in turn,

transferred all of its rights in the mortgage loan to HSBC on March 29, 2007. HSBC is,

therefore, the legal owner of the mortgage loan in its capacity as trustee, and has been the legal

owner of the mortgage loan since March 29, 2007. After Mr. Turner defaulted on his mortgage

-loan, HSBC initiated the foreclosure proceedings on November 8, 2007. Less than a week later,

on November 14, 2007, HSBC received an assignment of mortgage conveying to HSBC all

2

rights, title and interest in and to the mortgage loan. That assignment was recorded with the

Montgomery County Recorder on November 29, 2007 ("Assignment of Mortgage").

On February 29, 2008 - months after HSBC's Assignment of Mortgage was executed and

recorded - Mr. Turner's estate ("the Estate") filed an amended answer and counterclaim

asserting that HSBC had violated the Fair Debt Collections Practices Act by stating that it was

the owner and/or holder of the disputed mortgage loan and by initiating the instant foreclosure

proceedings prior to obtaining an assignment of the note and mortgage. HSBC filed a motion for

summary judgment on the underlying foreclosure, and also sought summary judgment

dismissing the Estate's counterclaim. On March 25, 2009, the Estate submitted its own motion

for partial summary judgment, arguing, inter alia, that HSBC lacked standing to pursue the

foreclosure because it had not procured the Assignment of Mortgage until after the proceedings

were initiated. In support of its motion for summary judgment, the,Estate submitted a certified

copy of the Assignment of Mortgage demonstrating that all rights, title, and interest to and in the

mortgage loan were assigned to HSBC on November 14, 2007.

On May 15, 2009, Magistrate Judge Robert F. Cowdrey issued a decision granting the

Estate's motion for summary judgment and stating that the foreclosure complaint was to be

dismissed without prejudice because HSBC lacked standing to pursue the foreclosure. HSBC

timely objected to the magistrate's decision. On November 2, 2009, the Court of Common Pleas

entered an order overruling HSBC's objections and adopting that decision in its entirety.

HSBC appealed the Court of Common Pleas's order, in part on the ground that HSBC

had cured any alleged lack of standing present at the initiation of the foreclosure proceedings by

procuring the Assignment of Mortgage just days after the commencement of the foreclosure

action and long before the Estate filed its counterclaim challenging HSBC's ownership of the

3

mortgage loan. Pursuant to Rule 17(A) of the Ohio Rules of Civil Procedure, "no action shall be

dismissed on the ground that it is not prosecuted in the name of the real party in interest until a

reasonable time has been allowed after objection for ratification of commencement of the action

by, or joinder or substitution of, the real party in interest." Civ. R. 17(A). Because HSBC's

status as real party in interest to the instant proceedings had been rendered unequivocal by the

executed Assignment of Mortgage long before the Estate made any challenge to that status, the

Court of Common Pleas erred as a matter of law in dismissing the foreclosure proceedings

without prejudice.

On September 3, 2010, the Court of Appeals for the Second Appellate District denied

each of HSBC's assignments of error. In so ruling, the Court of Appeals held, inter alia, that the

fact that the Assignment of Mortgage was executed and recorded prior to the Estate's challenge

to HSBC's ownership of the mortgage (and prior to HSBC's motion for summary judgment) was

insufficient to cure HSBC's alleged lack of standing under Rule 17(A) of the Ohio Rules of Civil

Procedure and, thus, the fact "that the mortgage was assigned to [HSBC] after the action was

filed" was insufficient to prevent the dismissal of its foreclosure claim.3 Thompson, 2010-Ohio-

4158, at 9[86.

3 After a lengthy discussion of the conflict in authorities concerning a foreclosure plaintiff's right to cure adefect in standing through the introduction of a subsequently-executed assignment of mortgage, the Court ofAppeals stated that it was not required to determine "which approach is correct" because HSBC's Assignment ofMortgage was attached to an affidavit that had been excluded from consideration by the Court of Common Pleas.Thompson, 2010-Ohio-4158, at 186. The Court of Appeals' decision, however, makes clear that it did in fact decidethat issue because "[a]ll that HSBC might have established is that the mortgage was assigned to it after the actionwas filed." Id. In addition, the Court of Appeals was factually incorrect in its assertion that the only sourceauthenticating the Assignment of Mortgage was the affidavit the Court of Common Pleas had rejected. In fact, asnoted in HSBC's briefing to the Court of Appeals, a certified copy of the Assignment of Mortgage was submitted asan exhibit to the Estate's motion for summary judgment and was referenced and relied upon in the MagistrateJudge's decision granting the Estate's motion.

4

ARGUMENTS IN SUPPORT OF PROPOSITIONS OF LAW

Proposition of Law No. I: Under Ohio law, plaintiffs to foreclosure proceedingsmay establish standing as a real party in interest by presenting an executed assignment ofmortgage, even if the assignment was executed after those proceedings were initiated.

In holding that HSBC's foreclosure proceedings were properly dismissed for lack of

standing, the Second Appellate District disregarded this Court's clear holding that defects in

standing can be cured at any time before judgment is entered. State ex rel. Tubbs Jones v. Suster,

(1998), 84 Ohio St.3d 70, 77, 1998-Ohio-275, 701 N.E.2d 1002 ("[S]tanding is not jurisdictional

but may be cured."); Kline v. Mortgage Elec. Sec. Sys., No. 3:08cv408, 2010 U.S. Dist. LEXIS

26666, at *20 (S.D. Ohio Mar. 22, 2010) ("[T]he Ohio Supreme Court has recognized that lack

of standing to initiate a lawsuit can be cured by the substitution of the real party in interest for

the named plaintiff. There is simply no reason to conclude that the Ohio Supreme Court would

reach the opposite result, because the party initiating the lawsuit became the real party in interest,

after the case had been filed."). This Court's longstanding holding that defects in standing can

be cured at any time before judgment is reiterated in Rule 17(A) of the Ohio Rules of Civil

Procedure, which creates strict, mandatory requirements for dismissals based on the ground that

the plaintiff is not the real party in interest:

Every action shall be prosecuted in the name of the real party ininterest .... No action shall be dismissed on the ground that it isnot prosecuted in the name of the real party in interest until areasonable time has been allowed after objection for ratification ofcommencement of the action by, or joinder or substitution of, thereal party in interest. Such ratification, joinder, or substitutionshall have the same effect as if the action had been conunenced inthe name of the real party in interest.

Civ. R. 17(A).

Relying on this Court's holding in Suster and the text of Rule 17(A), numerous Ohio

courts have refused to dismiss foreclosure proceedings when the prosecuting plaintiff

demonstrated an interest in the subject mortgage after the proceedings were initiated. For

instance in, Wachovia Bank v. Cipriano, the Fifth Appellate District held that a bank that had

initiated foreclosure proceedings before the mortgage was assigned to it, and did not produce any

evidence of a valid interest in the subject mortgage until months after the proceedings began, was

nonetheless a real party in interest to the foreclosure proceedings and was, therefore, entitled to

summary judgment granting the foreclosure. 5th Dist. No. 09CA007, 2009-Ohio-5470, at 1135-

36. In so holding, the Fifth Appellate District relied on the plain text of Rule 17(A), noting

specifically that "[p]ursuant to Civ.R. 17(A), the real party of interest shall `prosecute' the claim.

The rule does not state `file' the claim." Id. at 138 (quoting Civ. R. 17(A).) Numerous other

Ohio appellate courts have reached the same result. See, e.g., Deutsche Bank Nat'l Trust Co. v.

Cassens, 10th Dist. No. 09AP-865, 2010-Ohio-2851, at 117 ("[C]ourts have rejected claims that

the execution of an assignment subsequent to the filing of a complaint necessarily precludes a

party from prosecuting a foreclosure action as the real party in interest."); Countrywide Home

Loan Servicing, L.P. v. Thomas, 10th Dist. No. 09AP-819, 2010-Ohio-3018, at 111 ("[E]ven if

[the foreclosure plaintiff] did not formally hold the note ... and mortgage at the time it filed its

complaint, because [the assignee] undisputedly established it was the holder of the note and

mortgage at the time it filed for summary judgment."); Deutsche Bank Nat'l Trust Co. v. Pagani,

5th Dist. No. 09CA000013, 2009-Ohio-5665, at 123 (rejecting argument that foreclosing party

was not the real party in interest although assignment of mortgage was executed after filing of

complaint because party "demonstrate[d] that it was the current holder and owner of the note and

mortgage"); Bank of New York v. Stuart, 9th Dist. No. 06CA008953, 2007-Ohio- 1483, at 112

(where assignment was dated five months after foreclosure action commenced, but eight months

before summary judgment was granted, "filing the assignment with the trial court before

judgment was entered was sufficient to alert the court and appellants that a.ppeflee was the real

party in interest"); U.S. Bank, N.A. v. Champ, No. 2007 CV 8808, slip op. at 2-3 (Ohio Ct.

Common Pleas Feb. 22, 2008) (noting "lack of standing may be cured" in denying motion to

dismiss that relied on the fact that "assignment was filed ... almost two months after the filing of

the complaint").

However, as the Second Appellate District notes in its opinion, some appellate districts

have taken "a more rigid view" concerning whether plaintiffs to foreclosure proceedings can

cure an apparent lack of standing by submitting an assignment of mortgage executed subsequent

to the initiation of the proceedings. Thompson, 2010-Ohio-4158, at 183. For instance, the Court

of Appeals for the Eighth Appellate District has interpreted Rule 17(A) to apply only when the

plaintiff commencing the litigation "is the proper party to bring the case." Wells Fargo Bank,

N.A. v. Jordan, 8th Dist. No. 91675, 2009-Ohio-1092, at 9[9[21, 24 ("[A] bank that was not the

mortgagee when suit was filed cannot cure its lack of standing by subsequently obtaining an

interest in the mortgage." (quotations omitted)). As discussed at length in the Second Appellate

District's decision, the First Appellate District has adopted similar reasoning. See Bank of New

York v. Gindele, 1st Dist. No. C-090251, 2010-Ohio-542, at 9[9[4-6 ("In a foreclosure action,

absent understandable mistake or circumstances where the identity of a party is difficult or

impossible to ascertain, a bank that was not the mortgagee when suit was filed cannot cure its

lack of standing by subsequently obtaining an interest in the mortgage."); Thompson, 2010-Ohio-

4158, at 9[9[84-85.

The standard applied by the First and Eighth Appellate Districts and adopted by the

Second Appellate District in this case is plainly inconsistent with the standard adopted by the

Fifth, Seventh, Ninth, and Tenth Appellate Districts. The result of this conflict is that, in some

7

circumstances, a foreclosure that could be litigated to completion in some counties would be

dismissed outright for lack of standing in others. Mere geography should not be dispositive of

the legal rights of borrowers and lenders in Ohio, and the confusion and uncertainty the decision

of the court below will inject into the broader mortgage market should be resolved by this Court.

This Court should review the Second Appellate District's decision in order to harmonize the

conflicting procedural requirements for the commencement and prosecution of foreclosure

proceedings in Ohio in a manner that is uniform throughout the state and that is consistent with

the dictates of this Court and of Rule 17(A) of the Ohio Rules of Civil Procedure.

Proposition of Law No. II: Rule 17(A) of the Ohio Rules of Civil Procedure does notrequire that litigants demonstrate "an understandable mistake" in order to be entitled todemonstrate that they are a real party in interest.

In reaching its conclusion that HSBC was not the real party in interest and, therefore,

lacked standing to pursue the instant proceedings, the Second Appellate District relied on

language used by the First Appellate District eschewing a "literal interpzetation" of Rule 17(A)

of the Ohio Rules of Civil Procedure and, instead, inserting its own requirement that lack of

standing may only be remedied when it is the result of an "understandable mistake":

"While a literal interpretation of ... Rule 17(A) would make itapplicable to every case in which an inappropriate plaintiff wasnamed, the Advisory Committee's Notes make it clear that thisprovision is intended to prevent forfeiture when determination ofthe proper party to sue is difficult or when an understandablemistake has been made. When deterniination of the correct partyto bring the action was not difficult and when no excusablemistake was made, the last sentence of Rule 17(A) is inapplicableand the action should be dismissed."

Thompson, 2010-Ohio-4158, at 183 (quoting Gindele, 2010-Ohio-42, at 14 (omissions in

original)). That no such requirement can be discemed from the plain text of the rule itself is

made obvious by the express admission by the Second Appellate District that no "literal" reading

of the text could lead to that result. Id. Yet this Court's precedents make clear that "literal

8

readings" are exactly how statutes should be interpreted; "plain language requires no additional

statutory interpretation." State ex rel. Carnail v. McCormick (2010), 126 Ohio St.3d 124, 129,

2010-Ohio-2671, 931 N.E.2d 110, at 9[30 (citing cases). The notion that Rule 17(A) could be

rendered "inapplicable" to possibly broad swaths of litigants whose arguable standing

discrepancies were not deemed "understandable" - particularly when that result is contradicted

by the clear language of the rule - is fundamentally flawed and has implications far beyond this

case. This Court should accept jurisdiction to review the Second Appellate District's

endorsement of this broad exception to the accepted application of Rule 17(A).

CONCLUSION

For the reasons discussed above, this case involves matters of public and great general

interest on a matter that has sharply divided the intermediate appellate courts of this state. HSBC

thus respectfully requests that this Court accept jurisdiction in this case so that the important

issues presented herein will be reviewed on the merits.

Respect£ull

4^-

4 aK^^

Benjamin . an (0079737)SHAPIRG, VAN Ess, PHILLIPS & BARRAGATE, LLP

4805 Montgomery Road, Suite 320Cincinnati, Ohio 45212Phone: (216) 373-3131Fax: (847) 627-8805

Brian P. Brooks (Pro Hac Vice)Adam Goldstein (Pro Hac Vice)O'MELVENY & MYERS LLP1625 Eye Street, N.W.Washington, D.C. 20006-4001(202) 383-5300 (telephone)(202) 383-5414 (facsimile)

Attorneys for Plaintiff-Appellant

9

CERTIFICATE OF SERVICE

I certify that a copy of this Memorandum in Support of Jurisdiction was sent by U.S. mailto counsel for AppelIees-Defendants Jamie W. Thompson, et al., at the following address on this18th day of October, 2010:

Andrew M. Engel, Esq.3077 Kettering Blvd., Suite 108Moraine, Ohio 45439Attomey for Defendants-AppelleesJamie W. Thompson, et al.

Amy K. Kaufman, Esq.150 East Gay Street, 21st FloorCollection EnforcementColumbus, Ohio 43215-3130Attomey for Defendant, State of OhioDepartment of Taxation

Colette S. Carr Esq.301 W. Third StreetDayton, OH 45402Attorney for DefendantMontgomery County Treasure

`o< BENJAMIN D^RNAHAN (0079737)Attorney for Plaintiff-Appellant

APPENDIX

i m

s

GR%GOitv F^2USH.Ci r.{;t^ Cr . ^,T$

hi 7.:3^ jS Cf3.OHI0

IN THE COURT OF APPEALS OF OHIOSECOND APPELLATE DISTRICT

MONTGOMERY COUNTY

HSBC BANK USA, N.A., as lndentureTrustee for the Registered Noteholdersof Renaissance Home Equity LoanTrust 2007-1

Plaintiff-Appellant

Appellate Case No. 23761

Trial Court Case No. 07-CV-9439

(Civil Appeal fromCommon Pleas Court)

V.

JAMIE W. THOMPSON, et al.

Defendants-Appellees

OPINION

Rendered on the 31 day of September, 2010.

BENJAMIN D. CARNAHAN, Atty. Reg. #0079737, Shapiro, Van Ess, Phillips & Barragate,LLP, 4805 Montgomery Road, Norwood, OH 45212andBRIAN P. BROOKS, (pro hac vice), O'Melveny & Myers LLP, 1625 Eye Street, N.W.,Washington, DC 20006-4001

Attorneys for Plaintiff-Appellant, HSBC Bank

AMY KAUFMAN, Atty. Reg. #0073837, 150 East Gay Street, 21' Floor, Columbus, Ohio43215

Attorney for Appellee, Department of Taxation

ANDREW D. NEUHAUSER, Atty. Reg. #0082799, and STANLEY A. HIRTLE, Atty. Reg.#0025205, 525 Jefferson Avenue, Suite 300, Toledo, OH 43604

Attorneys for Amici Curiae, Advocates for Basic Legal Equality, et al.

THE COURT OF APPEALS OF OHIOSECOND APPELLATE DISTRICT

-2-

RICHARD CORDRAY, Atty. Reg. #0038034, by SUSAN A. CHOE, Atty. Reg. #0067032,MARK N. WISEMAN, Atty. Reg. #0059637, and JEFFREY R. LOESER, Atty. Reg.#0082144, Attomey General's Office, 30 E. Broad Street,14`" Floor, Columbus, OH 43215

Attorneys for,4m+cus Curiae, Ohio Attorney General Richard Cordray

ANDREW M. ENGEL, Atty. Reg. #0047371, 3077 Kettering Boulevard, Suite 108, Moraine,Ohio 45439

Attorney for Defendant-Appellee Jamie W. Thompson

COLETTE CARR, Atty. Reg. #00705097, 301 W. Third Street, Fifth Floor, Dayton, OH45422

Attomey.for Appellee, Montgomery County Treasurer

FAIN, J.

Plaintiff-appellant HSBC Bank USA, N.A., as Indenture Trustee for the Registered

Noteholders of Renaissance Home Equity Loan Trust 2007-1 (HSBC), appeals from a

judgment of the trial court, which rendered summary judgment and dismissed HSBC's

complaint for foreclosure, without prejudice. HSBC contends that the trial court improperly

treated the date the assignment of mortgage was executed as dispositive of the claims

before it. HSBC further contends that the trial court's decision is erroneous, because it is

premised on the court's having improperly struck the affidavit of Chomie Neil, and having

failed to consider Neil's restated affidavit.

Two briefs of amicus curiae have been filed in support of the position of defendants-

appellees Jamie W. Thompson, Administratrix of the Estate of the Estate of Howard W.

Tumer, and Jamie W. Thompson (collectively Thompson). One brief was filed by the Ohio

Attorney General Richard Cordray (Cordray). The other brief was filed by the following

groups: 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. (collecfively Legal Advocates). We have considered those briefs, all of which


have been helpful, in deciding this appeal.

We conclude that the trial court did not abuse its discretion in striking Neil's affidavit,

because of defects in the affidavit. We further conclude that the trial court did not abuse

its discretion in failing to consider Neil'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. Finally, we conclude that the trial court did not err in

rendering summaryjudgment against HSBC, and dismissing the foreclosure action for lack

of standing, HSBC failed to establish that it was the holder of a promissory note secured

by a mortgage. Accordingly, the judgment of the trial court is Affirmed.

1 ,

On January 27, 2007, Howard Tumer borrowed $85,000 from Fidelity Mortgage, a

division of Delta Funding Corporation (respectively, Fidelity and Defta). Turner signed a

note promising to repay Fidelity in monthly payments of $786.44 for a period of thirty years.

The loan number on the note is 0103303640, and the property tisted on the note is 417

Cushing Avenue, Dayton, Ohio, 45429.

In order to secure the loan, Turner signed a mortgage agreement, which names

Fidelity as the "Lender," and Mortgage Electronic Registration Systems, Inc. (MERS) as a

nominee for Fidelity and Fidelity's successors and assigns. The mortgage states that

Turner, as borrower, "does hereby mortgage, grant and convey to MERS (solely as

nominee for Lender and Lender's successors and assigns) and to the successors and

assigns of MERS, the following described property in the County of Montgomery, * * *


which currently has the address of 417 Cushing Avenue, Dayton, Ohio 45429." The

mortgage was recorded with the Montgomery County Recorder on February 20, 2007, as

MORT-07-014366.

The entire amount of the loan proceeds was not disbursed. Fidelity placed $5,000

in escrow after closing, until certain repairs (roofing and heating) were made to the house.

The required deposit agreement indicated that Turner had three months to make the

repairs, and that if the items were not satisfactorily cleared, Fidelity had the option of

satisfying the items from the funds held, of extending the time to cure, or of taking any

other steps Fidelity felt necessary to protect the mortgage property, including but not limited

to, paying down the principal of the loan with the deposit.

Turner made timely payments through June 2007. However, he died in late July

2007, and no further payments were made. HSBC filed a foreclosure action on November

8, 2007, alleging that it was the owner and holder of Turner's promissory note and

mortgage deed and that default had occurred. HBSC sued Thompson, as administratrix

of her father's estate, and individually, based on her interest in the estate.

HSBC attached purported copies of the note and mortgage agreement to the

complaint. The note attached to the complaint is also accompanied by two documents that

are each entitled "Allonge." The first allonge states "Pay to the Order of without

recourse," and is signed on behalf of Delta Funding Corporation by Carol Hollman, Vice-

President. The second allonge states "Pay to the Order of Delta Funding Corporation" and

is signed by Darryl King, as "authorized signatory" for Fidelity Mortgage.

In January 2008, Thompson filed an answer, raising, among other defenses, the

fact that the action was not being prosecuted in the name of the real party in interest.

THE COURT OF APPEALS OF OHIOSECOND APPELLATE DISTRtCT

-5-

HSBC subsequently filed a motion for summaryjudgment in February 2007, supported by

the affidavit of an off'icer of Ocwen Loan Servicing, LLC (Ocwen), which was a servicing

agent for HSBC.

Thompson filed a response to the summary judgment motion, pointing out various

deficiencies in the affidavit and documents. Thompson further contended that HSBC was

not the holder of the mortgage and note, and was not the real party in interest. In addition,

Thompson filed an amended answer and counterclaim, contending that HSBC was not the

real party in interest, and that HSBC had made false, deceptive, and misleading

representations in connection with collecting a debt, in violation of Section 1692, Title 15,

U.S. Code (the Fair Debt Collection Practices Act, or FDCPA).

HSBC withdrew its motion for summary judgment in March 2008. In November

2008, the trial court vacated the trial date and referred the matter to a magistrate. HSBC

then filed another motion for summary judgment in January 2009. This motion was

supported by the affidavit of Chomie Neil, who was employed by Ocwen as a manager of

trial preparation and discovery. Neil averred in the aftidavit that 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.

Thompson moved to strike the affidavit, contending that it was filled. with

inadmissible hearsay, contained legal conclusions, and purported to authenticate

documents, when no proper documentation had been offered. Thompson also questioned

when the affidavit was executed, and whether it had been properly acknowledged, due to

the irregularities in execution and acknowledgment. In addition, Thompson responded to


-6-

the summaryjudgment motion, contending that HSBC was notthe real party in interest and

was notthe holder of the note, because HSBC's name was not on the note, and HSBC had

failed to provide evidence that itwas in possession of the note. In responding to the motion

to strike, HSBC contended that the defects in the affidavit were the result of a scrivener's

error. HSBC did not attempt to correct the affidavit.

In late March 2009, Thompson filed a motion for partial summary judgment against

HSBC. The motion was based on the fact that under the allonges, Delta Funding

Corporation was the payee of the note. Thompson also noted that MERS failed to assign

the mortgage note to HSBC before the action was commenced. Thompson contended that

HSBC was not the real party in interest when it filed the lawsuit, and lacked standing to

invoke the court's jurisdiction.

In May 2009; the magistrate granted Thompson's motion to strike the affidavit,

because the affidavit stated that it had been sworn to in New Jersey, and the affiant

declared that the affidavit was executed in Florida. The magistrate also overruled HSBC's

motion for summary judgment, and granted Thompson's partial motion for summary

judgment. The magistrate concluded that HSBC lacked standing because it was not a

mortgagee when the suit was filed and could not cure its lack of standing by subsequently

obtaining an interest in the mortgage. The magistrate further concluded that there was no

evidence properly before the court that would indicate that HSBC was the holder of the

promissory note originally executed by Tumer. Accordingly, the magistrate held that

HSBC's foreclosure claim should be dismissed without prejudice. Due to factual issues

regarding Thompson's FDCPA counterclaim, HSBC's motion forsummaryjudgment on the

counterclaim was denied.

THE COURT OF APPEALS OFOHIOSECOND APPELLATE DISTRICT

HSBC filed objections to the magistrate's decision, and attached the "restated"

affidavit of Neil. 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.

In November 2009, the trial court overruled HSBC's objections to the magistrate's

report. The court concluded that the errors in the affidavit were more than format errors.

The court further noted that the document became an unsworn statement and could not

be used for summary judgment purposes, because the statements were sworn to a notary

in a state outside the notary's jurisdiction. The court also held that, absent Neil's affidavit,

HSBC had failed to provide support for its summary judgment motion. Finally, the court

concluded that HSBC failed to provide evidence that it was in possession of the note prior

to the filing of the lawsuit, because the Neil affidavit had been struck, and a prior affidavit

only verified the mortgage and note as true copies; it did not verify the undated allonges.

Accordingly, the trial court dismissed HSBC's action with prejudice, and entered a Civ. R.

54(B) determination of no just cause for delay.

HSBC appeals from the judgment dismissihg its action without prejudice.

I I

We will address HSBC's assignments of error in reverse order. HSBC's Second

Assignment of Error is as follows:


-8-

"THE LOWER COURTS DECISION IS PREMISED ON IMPROPERLY STRIKING

MR. NEIL'S AFFIDAVIT AND FAILING TO CONSIDER THE RESTATED AFFIDAVIT."

Under this assignment of error, HSBC contends that the errors in Neil's affidavit

were scrivener's errors that have no bearing on the content of the affidavit. HSBC

contends, therefore, that the trial court erred in refusing to consider the affidavit.

The error, as noted, is that Neil averred that he signed the affidavit in Florida, while

the first page and the jurat indicate that the affidavit was executed before a notary public

in New Jersey.

Thompson, Cordray, and Legal Advocates argue that the defect is not merely one

of form, because the errors transform the affidavit into an unsworn statement that cannot

be used to support summary judgment. The trial court agreed with this argument.

Legal Advocates also stresses that HSBC was notified of problems with Neil's

affidavit, but made no attempt to cure the defect until after the magistrate had issued an

unfavorable ruling. In addition, Cordray notes that the integrity of evidence in foreclosure

cases is cri6cal, due to the imbalance between access to legal representation of banks and

homeowners. Thompson; Cordray, and Legal Advocates further contend that even if Neil's

affidavit could be considered, it is replete with inadmissible hearsay and legal conclusions,

and is devoid of evidentiary value.

Concerning the form of affidavits, Civ. R. 56(E) provides that:

"Supporting and opposing affidavits shall be made on personal knowledge, shall set

forth such facts as would be admissible in evidence, and shall show affirmatively that the

affiant is competent to testify to the mafters stated in the affidavit. Sworn or certified copies

of all papers or parts of papers referred to in an affidavit shall be attached to or served with


the affidavit. The court may permit affidavits to be supplemented or opposed by

depositions or by further affidavits. "' "

The Supreme Court of Ohio has held that "An affidavit must appear, on its face, to

have been taken before the proper officer and in compliance with all legal requisites. A

paper purporting to be an affidavit, but not to have been sworn to before an officer, is not

an affidavit " In re Disquatification ofPokomy (1992), 74 Ohio St.3d 1238 (citation omitted).

Accord, Pollock v. Brigano (1998), 130 Ohio App.3d 505, 509.,

The affidavit submitted to the magistrate contains irreconcilable conflicts, because

the affiant, Neil, states that he executed the affidavit in Florida. In contrast, the jurat, as

well as the first page of the affidavit, indicate that the affidavit was signed in New Jersey.

In Stem v. Boarct of Elections of Cuyahoga Cty. (1968), 14 Ohio St.2d 175, the

Supreme Court of Ohio noted that in common use, a jurat "is employed to designate the

certificate of a competent administering officer that a writing was sworn to by the person

who signed it. It is no part of the oath, but is merely evidence of the fact that the oath was

properly taken before the duly authorized officer.". Id. at 181 (citations omitted).

In light of the inconsistencies, Neil's oath could not have been properly taken before

a duly authorized officer. Under New Jersey law, a notary public commissioned in New

Jersey may perform duties only throughout the state of New Jersey. See N.J. Stat. Ann.

52:7-15: Therefore, a New Jersey notary public could not properly have administen:dthe

oath in Florida. A New Jersey notary public also could not properly have certified that the

writing was swom to, when the person signed it in another jurisdiction.

As support for admission of Neil's affidavit, HSBC cites various cases that have

overlooked technical defects in affidavits. See, e.g., State v. Johnson (Oct. 24, 1997),


•ia

Darke App. No. 96CA1427 (holding that a"scrivener's ettor" was inconsequential and did

not invalidate an affidavit), and Chase Manhattan Mtg. Corp, v. Locker, Montgomery App.

No.19904, 2003-Ohio-6665, ¶ 26 (holding that omission of specific date of month on which

affidavit was signed was "scrivener's error" and did not invalidate affidavit, because notary

public did include the month and year).

In Johnson, the error involved a discrepancy between the preamble and the jurat.

The preamble said the site of the oath was in a particular county, but the notary swore in

the jurat that the affidavit had been signed in a different county. The trial court concluded

that this was a typographical error, and we agreed. This is consistent with the fact that in

Ohio, a notary public may administer oaths throughout the state. See R.C. 147.07.

Therefore, even if a discrepancy exists between the location listed in the preamble and the

notary's location, the official status of the affidavit is not affected. In contrast, the affiant

in the case before us stated that he signed the affidavit in a different state, where the

notary did not have the power to administer oaths. The difference is not simply one of

form.

HSBC contends that the trial court should have accepted the "restated" affidavit that

it attached to HSBC's objections to the magistiate's decision. The trial court did not

specifically discuss the restated affidavit when it overruled HSBC's objections. We

assume, therefore, that the court rejected the affidavit. See, e.g., Maguire v. NaH. City

Bank, Montgomery App. No. 23140, 2009-Ohio-4405, ¶ 16, and Takacs v. Baldwin (1995),

106 Ohio App.3d 196, 209 (holding that where a trial court fails to rule on a motion, an

appellate court assumes that the matter was overruled or rejected).


The trial court was not required to consider the restated affidavit, because HSBC

failed to explain why the affidavit could not have been properly produced forthe magistrate.

In this regard, Civ. R. Rule 53(D)(4)(d) provides that:

"If one or more objections to a magistrate's decision are timely filed, the court shall

rule on those objections. In ruling on objections, the court shall undertake an independent

review as to the objected matters to ascertain that the magistrate has properly determined

the factual issues and appropriately applied the law. Before so ruling, the court may hear

addifional evidence but may refuse to do so unless the objecting party demonstrates that

the party could not, with reasonable diligence, have produced that evidence for

consideration by the magistrate."

Well before the magistrate ruled, HSBC was aware that objections had been raised

to the affidavit. HSBC made no attempt to submft a corrected document to the magistrate,

nor did it provide the trial court with an explanation for the cause of the problem.

Accordingly, the trial court did not abuse its discretion in refusing to consider the original

or restated affidavit. See Hiltstreef Fund Itl, L.P. v. Bloom, Montgomery App. No. 23394,

2010-Ohio-2287, ¶ 49 [noting that trial courts have discretion to accept or refuse additionai

evidence under Civ. R. 53(D)(4)(d).]

Because the trial court did not abuse its discretion in rejecting the Neil affidavits, we

need not consider whether the contents of the affidavits are inadmissible.

HSBC's Second Assignment of Error is overruled.

IIJ

HSBC's First Assignment of Error is as follows:


"THE COURT OF COMMON PLEAS IMPROPERLY TREATED THE DATE THE

ASSIGNMENT OF MORTGAGE WAS EXECUTED AS DISPOSITIVE OF THE CLAIMS

BEFORE IT."

Under this assignment of error, HSBC contends that the trial court committed

reversible error by disregarding the ruling in State ex rel. Jones v. Suster, 84 Ohio St.3d

70, 1998-Ohio-275, that defects in standing may be cured at any time before judgment is

entered. According to HSBC, an assignment of mortgage recorded with the Montgomery

County Recorder establishes that HSBC is the current holder of the mortgage interest,

because the interest was transferred about oneweek after the action againstThomson was

filed. HSBC further contends that the trial court improperly disregarded evidence that

HSBC legally owned the note before its complaint was filed.

Before addressing the standing issue, we note that the case before us was resolved

by way of summary judgment. "A trial court may grant a moving party summary judgment

pursuant to Civ. R. 56 if there are no genuine issues of material fact remaining to be

litigated, the moving party is entitled to judgment as a matter of law, and reasonable minds

can come to only one conclusion, and that conclusion is adverse to the nonmoving party,

who is entitled to have the evidence construed most strongly in his favor." Smith v. Five

Rivers MetroParks (1999), 134 Ohio App.3d 754, 760. "We review summary judgment

decisions de novo, which means that we apply the same standards as the trial court."

GNFH, Inc. v. 1N. Am. Ins. Co., 172 Ohio App.3d 127, 2007-Ohio-2722, ¶ 16.

To decide the real-party-in-interest issue, we first tum to Civ. R. Rule 17(A), which

states that:


-13-

"Every action shall be prosecuted in the name of the real party in interest. * * * * No

action shall be dismissed on the ground that it is not prosecuted in the name of the real

party in interest until a reasonable time has been allowed after objection for ratification of

commencement of the action by, or joinder or substitution of, the real party in interest.

Such ratification, joinder, or substitution shall have the same effect as if the action had

been commenced in the name of the real party in interest."

"Standing is a threshold question for the court to decide in order for it to proceed to

adjudicate the action." Suster, 84 Ohio St.3d at 77. The issue of lack of standing

"challenges the capacity of a party to bring an action, not the subject matter jurisdiction of

the court." Id. To decide whether the requirement has been satisfied that an action be

brought by the real party in interest, "courts must iook to the substantive law creating the

right being sued upon to see if the action has been instituted by the party possessing the

substantive right to relief." Sheaty v. Campbell (1985), 20 Ohio St.3d 23, 25.

"In foreclosure actions, the real party in interest is the current holder of the note and

mortgage." Wells Fargo Bank, N.A. v. Sessley, Franklin App. No. 09AP-178,

2010-Ohio-2902, 111 (citation omitted). Promissory notes are negotiable, and may be

transferred to someone otherthan the issuer. That person then becomes the holder of the

instrument. R.C. 1303.21(A). R.C. 1303.21(8) provides, however, that:

"Except for negotiation by a remitter, if an instrument is payable to an identified

person, negotiation requires transfer of possession of the instrument and its indorsement

by the holder. If an instrument is payable to bearer, it may be negotiated by transfer of

possession alone."


-I4-

R.C, 1301.01(T)(1) also states that a holder with regard to a negotiable instrument

means either of the following;

"(a) If the instrument is payable to bearer, a person who is in possession of the

instrument;

"(b) If the instrument is payable to an identified person, the identified person when

in possession of the instrument."

in the case before us, the promissory note identifies Fidelity as the holder. The

note, therefore, could have been negotiated only by Fidelity, through transfer of

possession, and by either endorsing the note to a specific person, or endorsing the note

to "bearer."

HSBC contends that it is the legal holder of the promissory note, and is entitled to

enforce it, because it obtained the note as a bearer. A"bearer" is "the person in

possession of an instrument, document of titte, or certificated security payable to bearer

or endorsed in blank." R.C. 1301.01(E). HSBC's claim that it is the bearer of the note is

based on the "allonges" that were included as part of the exhibits to the complaint.

The rejected affidavits of Neil do not refer to the allonges, nor were any allonges

included with the promissory note that was attached to Neil's affidavit. During oral

argument, HSBC referred frequently to the Jiminez-Reyes affidavit, which was attached to

a February 2008 summary judgment motion filed by HSBC. Jiminez-Reyes identified the

exhibits attached to the complaint, but did not refer to the allonges. HSBC withdrew the

summary judgment motion in March 2008, after Thompson had identified various

deficiencies in the affidavit, including the fact that Jiminez-Reyes had incorrectly identified

Thompson as the account holder. Since the motion was withdrawn, it is questionable


-15-

whether the attached affidavit of Jiminez-Reyes was properly before the trial court. Byers

v. Robinson, Franklin App. No. 08AP-204, 2008-Ohio-4833, ¶ 16 (effect of withdrawing

motion is to leave the record as it stood before the motion was filed).

Nonetheless, shortly after the complaint was filed, and prior to its first summary

judgment motion, HSBC filed an affidavit of Jessica Dybas, who is identified in the affidavit

as an "agent" of HSBC. The exact status of Dybas's agency or connection to HSBC is not

explained in the affidavit.

Dybas states in the affidavit that she has personal knowledge of the history of the

loan, that she is the custodian of records pertaining to the loan and mortgage, and that the

records have been maintained in the ordinary course of business. See "Exhibit A attached

to Plaintiffs Notice of Filing of Loan Status, Military, Minor and Incompetent Affidavit and

Loan History," which was filed with the trial court in February 2008. Dybas's affidavit also

identifies Exhibits A and B of the complaint as true and accurate copies of the originals.

Exhibit A to the complaint includes a copy of the promissory note of the decedent, Howard

Turner, made payable to Fidelity, and a copy of two documents entitled "Allonge," that are

placed at the end of the promissory note. Exhibit B is a copy of the mortgage agreement,

which namesFidelity as the "Lender" and MERS as "nominee" for Fidelity and its assigns.

Dybas's affidavit does not specifically mention the allonges. Like the affidavit of Jiminez-

Reyes, Dybas's affidavit incorrectly identifies Thompson as the borrower on the note.

Thompson was not the borrower; she ls the administratrix of the estate of the borrower,

Howard Turner.

Assuming for the sake of argument that Dybas's affidavit is sufficient, or that the

affidavit of Jiminez-Reyes was properly before the court, we note that Ohio requires


-16-

endorsements to be "on" an instrument, or in papers affixed to the instrument. See R.C.

1303.24(A)(1) and (2), which state that "For the purpose of determining whether a

signature is made on an instrument, a paper affixed to the instrument is a part of the

instrument."

"The use of an allonge to add indorsements to an instrument when there is no room

for them on the instrument itself dates from early common law." Southwestem Resolution

Corp. v. Watson (Tex. 1997), 964 S.W.2d 262, 263. "An allonge is defined as' [a) slip of

paper sometimes attached to a negotiable instrument for the purpose of receiving further

indorsements when the original paper is filled with indorsements.' " Chase Home Finance,

LLC v. Fequiere (2010),119 Conn.App. 570, 577, 989 A.2d 606, quoting from Black's Law

Dictionary (9th Ed: 2009).

In Watson, a note and allonge produced at trial were taped together and had several

staple hoies. The president of the noteholdertestified that when his companyYeceived the

note,'Yhe allonge was stapled to it and may also have been clipped and taped, but that the

note and allonge had been separated and reattached five or six times for photocopying."

964 S.W.2d at 263. The lower courts agreed with a jury that the allonge was not so firmly

afflxed as to be part of the note. But the Supreme Court of Texas disagreed.

The Supreme Court of Texas recounted the history of allonges throughout various

versions of the Uniform Commercial Code (UCC). The court noted that an early provision

had provided that an endorsement must be written on the note or on a. paper attached

thereto. Id., citing Section 31 of the Uniform Negotiable Instruments Law. Under this law,

an allonge could be attached by a staple. Id (citation omitted). The Supreme Court of

Texas also noted that:


17-

"When the UCC changed the requirementfrom'attached thereto'to'sofirmly affixed

thereto as to become a part thereof, ''' the drafters of the new provision specifically

contemplated that an allonge could be attached to a note by staples. American Law

Institute, Comments & Notes to Tentative Draft No. 1-Article 111114 (1946), reprinted in 2

Elizabeth Slusser Kelly, Uniform Commercial Code Drafts 311, 424 (1984) ('The

indorsement must be written on the instrument itself or on an allonge, which, as defined

in Section ,, is a strip of paper so firmly pasted, stapled or otherwise affixed to the

instrument as to become part of it.' )" Id. at 263-64 (citation omitted).

The Supreme Court of Texas further observed that:

"The aftachment requirement has been said to serve two purposes: preventing fraud

and preserving the chain of title to an instrument. Still, the requirement has been

relaxed in the current code from 'firmly affixed' to simply'affixed'. Tex. Bus. & Com.Code

§ 3.204(a). As the Commercial Code Committee of the Section of Business Law of the

State Bar of Texas concluded in recommending adoption of the provision, 'the efficiencies

and benefits achieved by permitting indorsements by allonge outweigh[ ] the possible

problems raised by easily detachable allonges.' "ld. at 264 (citations omitted).

The Supreme Court of Texas, therefore, concluded that a stapled allonge is "firmly

affixed" to an instrument, and that the allonge in the case before it was properly affixed.

In this regard, the court relied on the following evidence:

"In the present case, Southwestern's president testified that the allonge was stapled,

taped, and clipped to the note when Southwestern received it. There was no evidence to

the contrary. The fact that the documents had been detached for photocopying does not

raise a fact issue for the jury about whether the documents were firmly affixed. If it did, the

THE COURT OF APPEALS OFOHtOSECOND APPELLATE DISTR[CT

.18-

validity of an allonge would always be a question of the finder of fact, since no allonge can

be affixed so firmly that it cannot be detached. One simply cannot infer that two

documents were never attached from the fact that they can be, and have been, detached.

Nor could the jury infer from the staple holes in the two papers, as the court of appeals .

suggested, thatthe two documents had not been attached. This would be pure conjecture."

Id. at 264.

Like Texas, Ohio has adopted the pertinent revisions to the UCC. In All American

Finance Co. v: Pugh Shows, Inc. (1987), 30 Ohio St.3d 130, the Supreme Court of Ohio

noted that under UCC 3-302, "a purported indorsement on a mortgage or other separate

paper pinned or clipped to an instrument is not sufficient for negotiation." Id. at 132, n. 3.

At that time, R.C. 1303.23 was the analogous Ohio statute to UCC 3-202, which required

endorsements to be firmly affixed.

Ohio subsequently adopted the revisions to the UCC. R.C. 1303.24(A)(2) now

requires that a paper be affixed to an instrument in order for a signature to be considered

part of the instrument. R.C. 1303.24 is the analogous Ohio statute to UCC. 3-204. The

1990 official comments for UCC 3-204 state that this requirement is "basedon subsection

(2) of former Section 3-202. An indorsement on an allonge is valid even though there is

sufficient space on the instrument for an indorsement " This latter comment addresses the

fact that prior to the 1990 changes to the UCC, the majority view was that allonges could

be used only if the note itself contained insufficient space for further endorsements. See,

e.g., Pribus v. Bush (1981), 118 Cal.App.3d 1003, 1008, 173 Cal.Rptr. 747. See, also, Alf

American Finance, 30 Ohio St.3d at 132, n.3 (indicating that while the court did not need

to reach the issue for purposes of deciding the case, several jurisdictions "hold that

THE COURT OF APPEALS OF OHIOSECOND APPELLATE'DISTRICT

-19-

indorsement by allonge is permitted only where there is no longer room on the instrument

itself due to previous indorsements.")

The current version of the UCC, codified as R.C. 1303.24(A)(2), allows allonges

even where room exists on the note for further endorsements. However, the paper must

be affixed to the instrument in order for the signature to be considered part of the

instrument. As the Supreme Court of Texas noted in Watson, the requirement has

changed from being "firmly affixed" to "affixed." However, even the earlier version, which

specified that the allonge be "attached thereto," was interpreted as requiring that the

allonge be stapled. Watson, 964 S.W.2d at 263.

In contrast to Watson, no evidence was presented in the case before us to indicate

that the al3onges 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.")

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.


•20-

The first allonge is endorsed from Delta to "bfank;" 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 Fidetity.

HSBC contends that the order of the allonges is immaterial, while Thompson claims

that the order is critical. At the oral argument of this appeal, HSBC appeared to be arguing

that the order of allonges would never be material. This is easily refuted by the example

of two allonges, one containing an assignment from the original holder of the note to A; and

the other containing an assignment from the original holder of the note to B. Whichever

allonge was first would determine whether the note had been effectively assigned to A, or

to B.

Thompson contends that because the last-named endorsement is made to Delta,

Delta was the proper holder of the note when this action was filed, since the prior, first-

named endorsement was from an entity other than the current holder of the note. In

Adams v. Madison Realty & Development, Inc. (C.A.3, 1988), 853 F.2d 163, the Third

Circuit Court of Appeals stressed that from the maker's standpoint:

"it becomes essential to establish that the person who demands payment of a

negotiable note, or to whom payment is made, is the duly qualified holder. Otherwise, the

obligor is exposed to the risk of double payment, or at least to the expense of litigation

incurred to prevent duplicative satisfaction of the instrument. These risks provide makers

with a recognizable interest in demanding proof of.the chain of title." Id. At 168.

THE COURT OF APPEALS OF OHIOSECOND APPELLATE'DISTRICT

The Third Circuit Court of Appeals further observed that:

'Financial institutions, noted for insisting on their customers' compliance with

numerous ntualistic formalities, are not sympathetic petitioners in urging relaxation of an

elementary business practice. It is a tenet of commercial law that '[h]oldership and the

potential for becoming holders in due course should only be accorded to transferees that

observe the historic protocol.'" 853 F.2d at 169 (citation omitted).

Consistent with this observation, recent decisions in the State of New York have

noted numerous irregularities in HSBC's mortgage documentation and corporate

relationships with Ocwen, MERS, and Delta. See, e.g:, HSBC Bank USA, N.A. v. Cherry

(2007), 18 Misc.3d 1102(A), 856 N.Y.S.2d 24 (Table), 2007 WL4374284, and HSBC Bank

USA, N.A. v. Yeasmin (2010), 27 Misc.3d 1227(A), 2010 N.Y. Slip Op. 50927(U)(Table),

2010 WL 2080273 (dismissing HSBC's requests for orders of reference in mortgage

foreclosure actions, due to HSBC's failure to provide proper affidavits). See, also, e.g.,

HSBC Bank USA, N.A. v. Charlevagne (2008), 20 Misc.3d 1128(A), 872 N.Y.S.2d 691

(Table), 2008 WL 2954767, and HSBC Bank USA, Nat. Assn. v. Antrobus (2008), 20

Misc.3d 1127(A), 872 N.Y.S.2d 691;(Table), 2008 WL 2928553 (describing "possible

incestuous relationship" between HSBC Bank, Ocwen Loan Servicing, Delta Funding

Corporation, and Mortgage Electronic Registration Systems, Inc., due to the fact that the

entities all share the same office space at 1661 Worthington Road, Suite 100, West Palm

Beach, Florida. HSBC also supplied affidavits in support of foreclosure from individuals

who claimed simultaneousiy to be officers of more than one of these corporations.).

Because the last allonge endorses the note to Delta, and no further endorsement

to HSBC was provided, the trial court did not err in concluding that HSBC was not the


-22-

holder of the note when the litigation was commenced against Thompson.

As an alternative position, HSBC contended at oral argument that it had standing

to prosecute the action, because assignment of the mortgage alone is sufficient. In this

regard, HSBC notes that the mortgage was transferred to HSBC by MERS on November

14, 2007. This was about one week after HSBC commenced the mortgage foreclosure

action.

HSBC did not argue this position in its briefs, and did not provide supporting

authority for its position at oral argument. In fact, HSBC relied in its brief on the contrary

position that HSBC "was the legal holder of the note and, accordingly, entitled to enforce

the mortgage loan regardless of the date the Mortgage was assigned, and under Marcino,

even if the Mortgage had never been separately assigned to HSBC." Brief ofAppeliant

HSBC Bank USA, N.A., pp: 15-16(bokling in original).

The Marcino case referred to by HSBC states as follows:

"For nearly a century, Ohio courts have held that whenever a promissory note is

secured by a mortgage, the note constitutes the evidence of the debt and the mortgage is

a mere incident to the obligation. Edgarv. Haines (1923), 109 Ohio St. 159,164,141 N.E.

837. Therefore, the negotiation of a note operates as an equitabie assignment of the

mortgage, even though the mortgage is not assigned or delivered." U.S. Bank Nati. Assn.

v. Marcino, 181 Ohio App:3d 328, 2009-Ohio-1178, 152.

Even if HSBC had provided support for the proposition that ownership of the note

is not required, the evidence about the assignment is not properly before us. The alleged

mortgage assignment is attached to the rejected affidavits of Neil. Furthermore, even if

we were to consider this "evidence," the mortgage assignment from MERS to HSBC


-23-

indicates that the assignment was prepared by Ocwen for MERS, and that Ocwen is

located atthe same Palm Beach, Florida address mentioned in Charlevagne and Antrobus.

See Exhibit 3 attached to the affidavit of Chomie Neil. In addition, Scott Anderson, who

signed the assignment, as Vice-President of MERS, appears to be the same individual who

claimed to be both Vice-President of MERS and Vice-President of Ocwen. See AntrDbus,

2008 WL 2928553, ' 4, and Char/evagne, 2008 WL 2954767, * 1.

In support of its argument that a subsequent mortgage assignment can confer

standing on a noteholder, HSBC cites some Ohio cases in which "courts have rejected

claims that the execution of an assignment subsequent to the filing of a complaint

necessarily precludes a party from prosecuting a foreclosure action as the real party in

interest." Deutsche BankNatL TrustCo. v. Cassens, Franklin App. No. 09-AP-865, 2010-

Ohio-2851, 117. Accordingly, at least in the view of some districts in Ohio, if the note had

been properly negotiated to HSBC, HSBC may have been able to claim standing, based

on equitable assignment of the mortgage, supplemented by the actual transfer of the

mortgage after the complaint was filed.

In contrast to the Seventh District, other districts take a more rigid view. See Wells

Fargo Bank v. Jordan, Cuyahoga App. No. 91675, 2009-Ohio-1092 (holding that Civ. R.

17(A) does not apply unless a plaintiff has standing in the first place to invoke the

jurisdiction of the court. Accordingly, a bank that is not a mortgagee when suit is filed is

not the real party in interest on the date the complaint is filed, and cannot cure its lack of

standing by subsequently obtaining an interest in the mortgage). Accord Bank oiNew York

v. 6indete, Hamilton App. No. C-090251, 2010-Ohio-542.

THE COURT OF APPEALS OF OH1OSECOND APPELLATE DISTRICT

-z4-

In Gindele, the First District Court of Appeals commented as follows:

"We likewise reject Bank of New York's argument that the real party in interest when

the lawsuit was filed was later joined by the Gindeles. We are convinced that the later

joinder of the real party in interest could not have cured the Bank of New York's lack of

standing when it filed its foreclosure complaint. This narrow reading of Civ.R. 17 comports

with the intent of the rule. As other state and federal courts have noted, Civ.R. 17 generally

allows ratification, joinder, and substitution of parties'to avoid forfeiture and injustice when

an understandable mistake has been made in selecting the parties in whose name the

action should be brought.' "' "'While a literal interpretation of' ** Rule 17(a) would

make ft applicable to every case in which an. inappropriate plaintiff was named, the

Advisory Committee's Notes make it clear that this provision is intended to prevent

forfeiture when determination of the proper party to sue is difficult or when an

understandable mistake has been made. When determination of the correct party to bring

the action was not difficult and when no excusable mistake was made, the last sentence

of Rule 17(a) is inapplicable and the action should be dismissed.' " Id. at ¶ 4 (footnotes

omitted).

We need not decide which approach is correct, because the alleged assignment of

mortgage is attached to Neil's rejected affidavits. Since the trial court's disregard of the

affidavits was not an abuse of discretion, there is currently no evidence of a mortgage

"assignment" to consider. Moreover, we would reject HSBC's position even if we

considered the alleged assignment, because HSBC failed to establish that it was the holder

of the note. Therefore, no "equitable assignmenY' of the mortgage would have arisen. All

that HSBC might have established is that the mortgage was assigned to it after the action


-25-

was filed. However, as we noted, the matters pertaining to that fact were submitted with

an affidavit that the trial court rejected, within its discretion.

Accordingly, the trial court did not err in dismissing the action without prejudice,

based on HSBC's failure to prove that it had standing to sue.

HSBC's First Assignment of Error is overruled.

IV

The final matter to be addressed is Thompson's motion to dismiss the part of

HSBC's appeal which assigns error in the trial court's denial of HSBC's motion for summary

judgment. HSBCfiledamotionforsummaryjudgmentonThompson'scounterclaim,which

alleged violations of the Fair Debt Practices Collection Act. The trial court denied the

motionforsummary judgment, and filed a Civ. R. 54(B) certification regarding the summary

judgment that had been rendered in Thompson's favor.

Thompson contends that denial of summary judgment is not a final appealable

order, and that HSBC's argument regarding the FDCPA should not be considered on

appeal. In response, HSBC maintains that it is not appealing the denial of its motion for

summary judgment. HSBC argues instead, that'rf we reverse the trial court order granting

Thompson's motion to strike the affidavit of Neil, or if we reverse the order dismissing

HSBC's foreclosure complaint, we would then be entitled under App. R. 12(B) to enter a

judgment dismissing the FDCPA claims.

App. R. 12(B) provides that:

"When the court of appeals determines that the trial court committed no error

prejudicial to the appellant in anyofthe particulars assigned and argued in appellant's brief


-26-

and that the appellee is entitled to have the judgment or final order of the trial court

affirmed as a matter of law, the court of appeals shall enter judgment accordingly. When

the court of appeals determines that the trial court committed error prejudicial to the

appellant and that the appellant is entitled to have judgment or final order rendered in his

favor as a matter of law, the court of appeals shall reverse the judgment or final order of

the trial court and render the judgment or final order that the trial court should have

rendered, or remand the cause to the court with instructions to render such judgment or

final order. In all other cases where the court of appeals determines that the judgment or

final order of the trial court should be modified as a matter of law it shall enter its judgment

accordingly."

App. R. 92(B) does not apply, because the trial court did not commit error prejudicial

to HSBC. Furthermore, HSBC admits that it is not appealing the denial of its summary

judgment motion. Accordingly, Thompson's motion to dismiss is without merit and is

overruled.

V

All of HSBC's assignments of error having been overruled, the judgment of the trial

court is Affirmed. Thompson's motion to dismiss part of HSBC's appeal is overruled.

BROGAN and FROELICH, JJ., concur.


Copies mailed to:

Benjamin D. CarnahanBrian P. BrooksAmy KaufmanAndrew D. NeuhauserStanley A. HirtleAndrew M. EngelRichard CordraySusan A. ChoeMark N. WisemanJeffrey R. LoeserColette CarrHon. A. J. Wagner

THE COURT OF APPEALS OF OHIOSECOND APPELLATE DISTRECT

^ ,z ^+?=F ^PPEALSV(Ult

20I0 SEP -3 A'ri 8& 26

RTUt LtRt OR10t:7G ^ ^^ C0 OH10GR: ^ili." E^ S

`IN THE COURT OF APPEALS OF OHIOSECOND APPELLATE DISTRICT

MONTGOMERY COUNTY

D

HSBC BANK USA, N.A., as IndentureTrustee for the Registered Noteholdersof Renaissance Home Equity LoanTrust 2007-I

Plaintiff-Appellant

JAMIE W. THOMPSON, et al:

1177

Appellate Case No. 23761

Trial Court Case No. 07-CV-9439

(Civil Appeal fromCommon Pleas Court)

FINAL ENTRY

Defendant-Appellees

Pursuant to the opinion of this court rendered on the 3rd day

September 2010, the judgment of the trial court is Affirmed:

Costs to be paid as stated in App.R. 24.

BROGAN, Jud

MIKE FAIN, Judge

JEFFW&./VROELICH, Judge


Copies mailed to:

Benjamin D. CamahanShapiro, Van Ess, Phillips & Barragate, LLP4805 Montgomery RoadNorwood, OH 45212

Brian P. BrooksO'Melveny & Myers LLP1625 Eye Street, N.W.Washington, D.C. 20006-4001

Amy Kaufman150 E. Gay Street21" FloorColumbus, OH 43215

Andrew D. NeuhauserStanley A. Hirtle525 Jefferson Avenue, Suite 300Toledo, OH 43604

Andrew M. Engel3077 Kettering Blvd.Suite 108Moraine, OH 45439

Richard CordraySusan A. ChoeMark N. Wiseman I Jeffrey R. LoeserAttorney General's Office30 E. Broad Street, 14'" FloorColumbus, OH 43215

Colette Carr301 W. Third StreetFifth FloorDayton, OH 45422

Hon. A. J. WagnerMontgomery County Common Pleas Court41 N. Perry StreetDayton, OH 45422


supremecourt®fohiotransferred all of its rights in the mortgage loan to hsbc on march 29, 2007....

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