Changes to Ohio Foreclosure Law Under House Bill 390
A number of substantive changes to Ohio foreclosure law took effect on September 28, 2016. House Bill 390, passed on May 25, 2016, contains new statutory provisions for: (1) expedited foreclosures of vacant and abandoned residential property; (2) private selling officers and remote bidding; and (3) online auctions. There are many other changes to the foreclosure statutes, but these provisions are all-new and have the potential to reshape foreclosure practice in Ohio. This article will first describe a few of the all-new statutory provisions, followed by a discussion of some substantive changes to the existing statutes. The bulk of changes made under House Bill 390 concern foreclosures of residential property, not commercial; however, there are a few provisions of note with respect to commercial property foreclosures.
New Chapter 2308—Expedited Foreclosure & Criminal Law
The first group of provisions are found in the newly enacted Chapter 2308 (R.C. §§ 2308.01–2308.04), which authorizes an expedited foreclosure process for vacant and abandoned properties, permits mortgagees to enter and secure vacant and abandoned properties, and criminalizes the destruction of residential real property by a homeowner from the point in time after they have been served with a summons and complaint for foreclosure. This criminal provision has also been added to R.C. § 2909.07(A)(1).
When the expedited foreclosure process is applicable, the court “shall decide” a motion to proceed in an expedited manner within 21 days (or the time consistent with local rules) “after the last answer period has expired” or after the motion is filed, if the motion is not filed before the last answer period has expired. R.C. § 2308.02(B). If the mortgagee is successful in proving all the statutory requirements at an oral hearing then the court shall enter a final judgment and decree of foreclosure and order the property to be offered for sale within 75 days after the issuance of an order of sale. R.C. § 2308.02(D), (E).
The expedited foreclosure process only applies to “residential property,” which is defined as “land and a structure on that land containing four or fewer dwelling units, each of which is intended for occupancy by a separate household.” R.C. § 2308.01(E). This specifically includes a residential condominium unit, but does not include a manufactured or mobile home unless it is taxed as real property. R.C. § 2308.01(E). Another limitation is that only a “mortgagee who files a foreclosure action” can initiate this expedited process. R.C. § 2308.02(A). The mortgagee has to establish three things: (1) that the residential mortgage loan is in monetary default;
(2) that the mortgagee is “a person entitled to enforce” the note secured by the mortgage under R.C. § 1303.31(A)(1) or (2);
and (3) by “clear and convincing evidence” that at least three of eleven factors listed in the statute are true, such that the property is deemed to be “vacant and abandoned.” R.C. § 2308.02(C)(1), (C)(2), (C)(3)(a)–(k). However, if one of the factors established is not a verification by a government official, then the court “shall order the appropriate official” in which the property is located to verify the property is “vacant and abandoned.” R.C. § 2308.02(C)(6)(a).
The expedited foreclosure process cannot be used if the mortgagor or any other defendant “has filed an answer or objection setting forth a defense or objection that, if proven, would preclude the entry of a final judgment and decree of foreclosure.” R.C. § 2308.02(C)(4). In addition, a property cannot be foreclosed on an expedited basis if a “mortgagor or other defendant has filed a written statement with the court indicating that the property is not vacant and abandoned.” R.C. § 2308.02(C)(5).
New R.C. § 2329.152—Private Selling Officers & Remote Bidding
In conjunction with an amendment to R.C. § 2329.151 that no longer requires public auctions of lands to be conducted by an officer of the court or by a licensed auctioneer, all-new R.C. § 2329.152 authorizes such sales by a “private selling officer.” This new term is defined as “a resident of this state licensed as both an auctioneer under Chapter 4707 of the Revised Code and as a real estate broker or real estate salesperson under Chapter 4735 of the Revised Code.” R.C. § 2329.01(B)(2). Under the new provision a judgment creditor (not just a mortgagee) can file a motion to request that a specified private selling officer (“PSO”) be authorized to sell the real estate. R.C. § 2329.152(A). The sheriff will still obtain the appraisal, but once that is done, the PSO shall advertise and sell the real estate. R.C. § 2329.152(A)(2). The provisions authorizing the use of PSOs instead of sheriffs to conduct judicial sales apply equally to both residential and commercial property foreclosures.
A PSO may market and auction the real estate, either online or at any physical location in the county in which the real estate is located. R.C. § 2329.152(E)(1)(a). He or she may hire a title insurance agent or company to assist them in performing administrative services. R.C. § 2329.152(E)(1)(b). But is required to hire a title insurance agent “to perform title, escrow, and closing services[.]” R.C. § 2329.152(E)(3). The fee charged by a PSO, and the costs incurred by a PSO (other than appraisal and advertisement costs) “shall be taxed as costs in the case up to an amount equal to one and one-half per cent of the sale price of the real estate.” R.C. § 2329.152(D)(1)(c). If those fees and costs exceed 1 1/2%, then they are not included in the redemption amount, are not part of any deficiency judgment, and shall be paid by the judgment creditor or from its portion of the sale proceeds. R.C. § 2329.152(D)(1)(c).
Another significant addition by this statute is the authorization of remote bids by judgment creditors and lienholders. R.C. § 2329.152(B)(2). Such bids can be submitted “by facsimile, electronic mail, or overnight delivery or courier.” R.C. § 2329.152(B)(1)(b). But the remote bid must be delivered to the sheriff or PSO by 4:30 p.m. “on the business day immediately preceding the date of the sale.” R.C. § 2329.152(B)(2). Before the sale, the sheriff or PSO is required to confirm receipt of the bid by facsimile or email. R.C. § 2329.152(B)(3). The sheriff or PSO is then required to place the remote bid. And by the close of business on the day of the sale, the sheriff or PSO shall provide notice of the results to all remote bidders. R.C. § 2329.152(B)(3). If a remote bid is not placed, then the sale shall be vacated upon a motion filed within 10 business days after the sale. R.C. § 2329.152(B)(4).
New R.C. §§ 2329.153 and 2329.154—Online Auctions
House Bill 390 requires the establishment of an “official public sheriff sale web site and an integrated auction management system.” R.C. § 2329.153(A). It shall be “a single statewide system for use by all county sheriffs” and must comply with the minimum requirements set forth in the statute. R.C. § 2329.153(A). Not later than September 28, 2017, commercial and residential property may be sold by sheriff on the web site. For residential property, however, after “a five-year period beginning on the date the online system is fully operational” sales by sheriff shall be conducted on the web site. R.C. § 2329.153(E)(1)(a), (E)(1)(b). All online sales shall be open for bidding for at least 7 days. All persons seeking to bid in an online auction must register in compliance with the requirements of R.C. § 2329.154, which aim to permit the sheriff or PSO to verify the identity of and to contact the bidder, and to complete the sale.
New R.C. §§ 2329.071—Right of Prosecutor to Move for Sale
Another all-new provision permits county prosecuting attorneys to take over and push forward with foreclosure sales. See
R.C. § 2329.071. This only applies to residential real property, and only twelve months after a decree of foreclosure has been entered. In the event that “the property has not been sold or a sale of the property is not underway,” then a local political subdivision can request the county prosecuting attorney to move the court to sell the property “in the same manner as if the prosecuting attorney were the attorney for the party in whose favor the decree of foreclosure and order of sale was entered.” R.C. § 2329.071(A)(1), (A)(2). This new right, however, comes with a right of redemption for the judgment creditor, who may “redeem the property within fourteen days after the sale by paying the purchase price.” R.C. § 2329.071(C).
Changes to Real Estate Taxes
The way in which real estate taxes will be paid from the proceeds of judicial sales has changed under R.C. § 323.47. Taxes up to the date of sale, as opposed to the date of confirmation of the sale, will now be paid from the proceeds. R.C. § 323.47(B)(1)(a). Further, if the plaintiff is the purchaser, then “the taxes, assessments, interest, and penalties, the lien for which attaches before the date of sale but that are not yet determined, assessed, and levied” shall not be deducted from the proceeds of sale, unless such deduction is approved by the purchaser. R.C. § 323.47(B)(2). Instead, such amount shall be certified to the county treasurer and will be payable on “the next succeeding date prescribed for payment of taxes” under R.C. § 323.11. R.C. § 323.47(B)(2).
Changes to Lost Note Statute
Under House Bill 390, Ohio has adopted the 2002 updates by the Uniform Law Commission to Uniform Commercial Code (“UCC”) § 3-309. See
R.C. § 1303.38. The 1990 version of this provision precluded enforcement of a note, and therefore foreclosure, if the person seeking to enforce the note was not entitled to enforce the note (was not in possession of the note) when it was lost. See, e.g.
, Fannie Mae v. Hicks
, 2015-Ohio-1955, 35 N.E.3d 37 (8th Dist.). The 2002 amendment to UCC § 3-309 expressly rejected this outcome. Now a person not in possession of a note will be entitled to enforce it in Ohio if either: (a) the person was entitled to enforce it when lost; or (b) the person “directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred.” R.C. § 1303.38(A)(1).
Changes to Appraisal Process
The “disinterested freeholders” who must appraise the land to be sold now must be both residents and “real property owners” in that county. R.C. § 2329.17(A). With respect to residential property, the appraisal shall be returned to the sheriff within 21 days of the issuance of the order of appraisal by the clerk of court. R.C. § 2329.17(B). If this deadline is not met, then the appraised value “shall be the fair market value of the property as shown on the records of the county auditor, unless, for good cause shown, the court authorizes a separate appraisal of the property.” R.C. § 2329.17(C)(2). With respect to commercial property, the appraisal shall be returned “in accordance with the timing or other requirements, if any, that may be established for the sale.” R.C. § 2329.17(D). “Commercial property” is now defined, for purposes of R.C. §§ 2329.02 to 2329.61, as “any property that is not residential property.” R.C. § 2329.01(B)(1). “Residential property,” in turn, is given the meaning now contained in R.C. § 2308.01(E), which is four or fewer dwelling units, each of which is intended for occupancy by a separate household.
Changes to Sale Deposits
With respect to residential property, if the judgment creditor is the purchaser, they shall not be required to make a sale deposit. R.C. § 2329.211(A). All other purchasers must deposit $5,000.00 if the property is valued at $10,000 to $200,000, and $10,000 if the property is valued at more than $200,000. R.C. § 2329.211(A)(2), (A)(3). With respect to commercial property, the purchaser “shall make a deposit pursuant to the requirements, if any, established for the sale,” giving the court discretion to fashion the requirements on a case-by-case basis. R.C. § 2329.211(B).
Changes to Sale Deed
The officer making a judicial sale, either the sheriff or the PSO, shall record the deed within 14 days “after the confirmation of sale and payment of the balance due.” R.C. § 2329.31(C)(1). If the deed is not prepared or recorded within this period the purchase may file a motion to proceed with the transfer of title by order. R.C. § 2329.31(C)(2)(a). Under this new procedure, the plaintiff will be ordered to present a certified copy of the order to the county recorder, “and ordering the county recorder to record the order in the record of deeds.” R.C. § 2329.31(C)(2)(a). In addition, the clerk of court shall issue a copy of the order to the county auditor to transfer record ownership of the property for the purpose of real estate taxes. R.C. § 2329.31(C)(2)(c).
Changes to Second Auction Minimum Bid
For residential property ordered to be sold at a physical location, not online, that is not sold at the first auction, “a second auction shall be held and the property shall be sold to the highest bidder without regard to the minimum bid requirement in section 2329.20 of the Revised Code[.]” R.C. § 2329.52(B). The second auction shall be held 7 to 30 days after the first auction. In conjunction, however, judgment creditors and the first lienholder will each have the right to redeem within 14 days by paying the purchase price. R.C. § 2329.311.
This article highlights some of the most notable changes to Ohio foreclosure law under House Bill 390. This is the most comprehensive overhaul of Ohio’s foreclosure statutes in quite some time, at least since 2008. The all-new provisions on expedited foreclosures, private selling officers and remote bidding, and online auctions, along with numerous other changes to the existing statutes (not all of which are mentioned in this article), will likely reshape foreclosure practice in Ohio.
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This must be proven by a preponderance of the evidence.
This also must be proven by a preponderance of the evidence, and can also be established if the mortgagee is “a person with the right to enforce the obligation secured by the mortgage pursuant to law outside of Chapter 1303 of the Revised Code.” R.C. § 2308.02(C)(2).