KENTUCKY CASE LAW UPDATE
United States Bank Nat'l Ass'n v. Kinslow, 2020 Ky. App. Unpub. LEXIS 407, 2020 WL 3124443
Kinslow is an unpublished case in Kentucky, but it is significant because the ruling in the case served to strip a lender of its mortgage on the property. Bill Kinslow and his son Allen Kinslow held title to the property as joint tenants with rights of survivorship. Bill entered into a promissory note that was secured by a mortgage. Allen did not sign the promissory note or mortgage for reasons that were not explained in the case. Bill passed away and the loan went into default. The lender foreclosed on the mortgage that encumbered Bill’s ½ interest in the property. The trial court denied the foreclosure and the Court of Appeals upheld the decision. The Court of Appeals ruled that under Kentucky law regarding joint tenancy with right of survivorship, any rights the lender had in the property because of the mortgage signed by Bill were extinguished at the time of Bill's death. Therefore, the mortgagee was unenforceable – even as to Bill’s ½ interest.
OHIO CASE LAW UPDATE
Christiana Trust v. Berter, 2020-Ohio-727, (12th District 2020)
The borrowers raised a number of issues in this case. The most significant issue was their argument that they should be allowed to contest the signatures that appear on the promissory note indorsements. This could present significant problems, not least of which would involve tracking down the individuals that signed the indorsements. Courts in Ohio have not had the opportunity to address this issue in any detail. The borrowers’ argument was based on ORC 1303.35, which corresponds UCC 3-306 and 3-308. Most states have adopted UCC 3-306 and 3-308 in some version so this issue could arise across the country. The Court of Appeals ruled that ORC/UCC does not provide the borrowers with the right to contest signatures that appear on indorsements as that provision was intended to provide the maker of the promissory note with the opportunity to raise the issue of the maker’s signature being fraudulent or forged. The borrowers attempted to appeal this decision to the Ohio Supreme Court, but that court denied jurisdiction. Contrast this with the George decision below.
OHIO CASE LAW UPDATE
U.S. Bank Nat'l Ass'n v. George, 2020-Ohio-6758, (10th District 2020)
This is the second time the George case has been on appeal since 2015. The issue in George I and George II involved copies of a promissory note submitted to the court that contained different indorsements. It is important to note that Ohio is not an original promissory note state. If it were and the original promissory note was presented as evidence, the issue would not have been raised. In the George II trial the original promissory note was offered as evidence and the lender prevailed. However, in both George I and George II the Court of Appeals implied that ORC 1303.35, which corresponds UCC 3-306 and 3-308 could be used by the borrower to challenge signatures on an indorsement to a promissory note. The 10th District Court of Appeals decision in George II is inconsistent with the 12th District Court of Appeals decision in Christiana Trust v. Berter, 2020-Ohio-727, (12th District 2020), which means the Ohio Supreme Court may accept the issue in the future to resolve the conflict.
OHIO CASE LAW UPDATE
Wilmington Sav. Fund Soc'y FSB as Trust v. Woods, 2020-Ohio-4599, (2nd District 2020)
This case is of particular interest to lenders as it is the first decision in Ohio where a Court of Appeals acknowledged the right of a lender to pursue foreclosure of an equitable mortgage where the borrower is deceased, the mortgage was lost and never recorded and title to the property was transferred. The trial court judge granted a Motion for Summary Judgment filed by the heirs of the deceased borrower and held that under Ohio law, a mortgage becomes operative as to third parties only when it is recorded. Lender’s counsel argued on appeal argued that the case law relied upon by the trial court applied to bona fide purchasers for value and the heirs could not inherit an interest greater than what the decedent held. The Court of Appeals agreed and held that the heirs of a decedent do not inherit a greater interest in the estate's property than the interest held by the decedent. Therefore, the lender is entitled to pursue its foreclosure on the equitable mortgage theory.
INDIANA CASE LAW UPDATE
Blair v. EMC Mortgage, LLC, 139 N.E.3d 705, 2020 Ind. LEXIS 96, 101 U.C.C. Rep. Serv. 2d (Callaghan) 291, 2020 WL 762592
The Indiana Supreme Court addressed the statute of limitations in Blair v. EMC Mortg., LLC. The Superior Court granted the foreclosure but held that EMC was entitled to recover only payments and interest that accrued after July 3, 2006 due to the six-year statute of limitations in Indiana Code section 34-11-2-9. The Indiana Court of Appeals reversed the decision and held that by failing to make demand within a reasonable time, EMC was not entitled to recovery. The Indiana Supreme Court heard the case and rejected the reasonableness standard applied by the Court of Appeals. In addition, the Indiana Supreme Court held that Indiana has two statutes of limitations that would apply to a promissory note and mortgage, Indiana Code section 34-11-2-9 and Indiana Code section 26-1-3.1-118. The two statutes provide for three events that could trigger the statute of limitations. First, a lender can sue for a missed payment within six years of a borrower’s default. Second, a lender can exercise its option to accelerate the promissory note’s maturity date and call the full balance due. In that situation the lender must file their foreclosure case within six years of that acceleration date. Third, a lender can decide not to accelerate upon default and instead sue for the entire amount owed within six years of the note’s date of maturity.