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The Old Slice and Dice Ruse
Slade Smith
   

A bank disingenuously sliced and diced Ohio's foreclosure statute to get a second chance at bidding at a foreclosure sale, which it had forgotten to attend the first time around, and the court fell for it, throwing the buyer at the foreclosure sale under the bus in the process.  Would an appeals court see through the bank's deception?

The Milhoans defaulted on their home mortgage held by Freedom Bank, and Freedom bank filed for a foreclosure under Ohio's judicial foreclosure process.  The Milhoans were properly served a summons in the foreclsure case, but did not appear in court or otherwise submit any defense to the foreclosure.  As ordinarily happens when the defendant homeowners fail to show up to challenge a foreclosure complaint against them, the court issued a default judgment in favor of Freedom Bank. 

Preparations were made for the property to be sold.  The property was appraised for $135,000, and a sheriff's sale of the property was scheduled, with the minimum bid set at $90,000, or two thirds of the appraised value.

Freedom Bank intended to submit a bid at the foreclosure sale. But somewhere along the line they dropped the ball, and so they forgot to attend the sale. 

Meanwhile, the Milhoan's neighbors, the Bostons, attended the foreclosure sale.  They had once owned the property and were interested in re-obtaining it for the right price.  The Bostons were the only bidder, and their bid of $90,000-- the minimum bid-- was a winner.  The Bostons complied wth all requirements of the sale, including putting up 10% of the sale price.

But the Bostons did not own the property yet.  In Ohio, a foreclosure sale is not finalized until the court reviews the foreclosure sale, determines that all procedures have been satisfied and issues an order confirming the sale.  It can be more than a month after the sale before the court issues this order.  During this period, the foreclosure sale can be wiped out-- for example, the owner can still redeem the property by putting up the funds to pay off the bank, the court can delay confirming the sale to give the owner more time to redeem, or the owner or the bank or another party can make a legal challenge to the validity of the foreclosure sale.  Only once the sale is confirmed does the buyer get a deed to the property.  Once this happens, the buyer owns the property and are pretty much insulated from further legal challenges to the foreclosure sale.

Several weeks after the foreclosure sale, with the court still not yet having confirmed the foreclosure sale, Freedom Bank realized that it had missed its chance to bid on the property.  To the extent that the property was worth more than the foreclosure sale price, they would miss out on the chance to profit. 

Not wanting that to happen, on New Years' Eve last year, the bank filed a motion with the court to void the foreclosue sale.  In the motion, they basically admitted that they had forgotten to send someone to the foreclosure sale to bid on the property.  But they argued that the foreclosure sale to the Bostons shoulld be cancelled anyway, because they had also forgotten to send a required notice of the foreclosure sale to the Milhoans. 

In their motion, the bank included quotes from Ohio's foreclosure statute that purported to indicate that since this notice was not served on the Milhoans, the foreclosure sale should be wiped out.  According to the bank, Ohio Revised Code, Section 2329.26(A)(1)(a) dictated that a foreclosure sale not occur until "the judgment creditor who seeks the sale of the lands and tenements or the judgment creditor's attorney ... [c]auses a written notice of the date, time, and place of the sale to be served ... upon the judgment debtor."  According to the bank, the following Section, 2329.27, stated that "all sales of lands and tenements taken in execution that are made without compliance with the written notice requirements of division (A)(1)(a) of section  2329.26 of the Revised Code ... shall be set aside, on motion by any interested party, by the court to which the execution is returnable."

Just five days later, on January 4th, with the Bostons barely having had the opportunity to learn of the bank's opposition to the foreclosure sale, much less obtain a lawyer and mount a challenge to it, the court granted the bank's motion to vacate the foreclosure sale and let the bank schedule a new sale.  The Boston's winning bid was wiped out and the bank was set to get a second chance.

The Bostons could not simply oppose the motion, since they were not technically a party in the foreclosure case.  So they filed a motion to intervene in the case, arguing that they should be allowed to oppose the bank's motion because it affected their rights with regard to the property.  In their motion, they pointed out that the bank had blatantly sliced and diced the Ohio statutes in its motion, deceptively leaving out a critical exception that completely undercut the bank's argument.  When the omitted parts of the statutes were included, it was clear that the bank was not required to send notice to the Milhoans, because the Milhoans had never appeared in the case. 

Ohio Revised Code, Section 2329.26 states:

(A) Lands and tenements taken in execution shall not be sold until all of the following occur:

   (1)

      (a) Except as otherwise provided in division (A)(1)(b) of this section, the judgment creditor who seeks the sale of the lands and tenements or the judgment creditor's attorney does both of the following:

         (i) Causes a written notice of the date, time, and place of the sale to be served in accordance with divisions (A) and (B) of Civil Rule 5 upon the judgment debtor and upon each other party to the action in which the judgment giving rise to the execution was rendered;

         (ii) At least seven calendar days prior to the date of the sale, files with the clerk of the court that rendered the judgment giving rise to the execution a copy of the written notice described in division (A)(1)(a)(i) of this section with proof of service endorsed on the copy in the form described in division (D) of Civil Rule 5.

      (b) Service of the written notice described in division (A)(1)(a)(i) of this section is not required to be made upon any party who is in default for failure to appear in the action in which the judgment giving rise to the execution was rendered. 

The bank had entirely snipped out the exception laid out in provision (A)(1)(b) and referenced in (A)(1)(a)-- an exception that obviously applied in this case, because the Milhoans were in default for failing to appear in the case.  When read it its entirety, the bank's entire argument fell apart-- no notice was required to the Milhoans, so the fact that such notice was not sent wasn't a problem.

But the court denied the Boston's motion to intervene, and didn't even consider the bank's obvious dishonesty.  It appeared that the bank was going to get its way: a new foreclosure sale had been scheduled, and the bank would get a second chance to show up and bid. 

Fortunately, the Bostons were able to appeal the denial of their motion to intervene, and the appeals court saw through the bank's disingenuous arguments.  The appeals court wrote that the bank's arguments wholly lacked merit and were based on "incorrect legal arguments and half-citations/partial quotes."  It further ruled that the trial court had acted unreasonably and unconscionably in denying the Boston's intervention in the case.  It sent the case back to the trial court with instructions to actually read and apply the statute this time around, not just take the bank's word for it.  So, the Bostons may actually get to purchase the property for their bid price after all.



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