OHIO APPELLATE COURT FINDS STATUTE OF LIMITATIONS BARRED FORECLOSURE OF TAX LIEN

Last month, the Second Appellate District of Ohio affirmed the dismissal, with prejudice, of a foreclosure complaint filed by tax certificate holder, FIG as Custodian for FIG OH18, L.L.C. (FIG), despite the fact FIG timely filed its notice of intent to foreclose its lien, timely filed its foreclosure complaint and successfully obtained a foreclosure judgment. FIG as Custodian for FIG OH18, L.L.C. v. Jones, 2024-Ohio-5116, ¶¶2-4, 5.

By way of history, FIG purchased two tax certificates on real property owned by Dorian Jones.ⁱ Both tax certificates were purchased in November, one in 2019 and one in 2020, and both expired three years from the date of purchase. In July 2021 FIG obtained a final judgment foreclosing the 2019 tax certificate lien.ⁱⁱ Problems arose after FIG obtained an order of saleⁱⁱⁱ and the clerk scheduled a sheriff’s sale for October 6, 2023.

About a month before the sale the property owner, Jones, moved for relief from the 2021 judgment claiming he was never served with the complaint because FIG served the wrong Dorian Jones in June 2021. Jones explained he learned of the foreclosure through a family member who saw Jones’ home on a list of sheriff’s sales. FIG acknowledged it served the wrong Dorian Jones and the court vacated the judgment and cancelled the sale.

FIG then served Jones with the complaint on October 23, 2023, and Jones moved to dismiss the foreclosure in December 2023.^iv Jones argued that dismissal with prejudice was required because FIG failed to serve him within one year of filing the complaint, pursuant to Civ.R. 3(A); thereby failing to “commence” the foreclosure, pursuant to R.C. 5721.37(C)2, within 120 days from filing of the notice of intent.^v FIG argued that the one year time period for service was “tolled” once FIG obtained the 2021 judgment, but the court disagreed and dismissed the action with prejudice.

FIG appealed the dismissal order to Ohio’s Second District claiming that “the Ohio savings statute^vi permitted it to refile its action within one year of dismissal.”^vii The appellate court disagreed. The Court first explained that FIG, as the holder of tax certificates, was subject to two deadlines: (1) it had to foreclose within three years of the date it purchased its tax certificates^viii; and (2) it had to “commence” its foreclosure action within 120 days from filing its notice of intent pursuant to R.C. 5721.37(C)2.

FIG failed to comply with both deadlines. Firstly, FIG’s notice of intent applied only to the first tax certificate, so FIG was required to “seek foreclosure” by November 19, 2022. Although FIG filed suit within the 3-year deadline, FIG was also required to effect service of its complaint within 120 days from its notice of intent, or by July 20, 2021. As the Court noted, Civ.R. 3(A) defines the commencement of a suit as the filing of a complaint and service “within one year from such filing upon a named defendant.” Although FIG filed suit in March 2021, it failed to effect service until October 2023, well outside its 120-day deadline for “commencing” its foreclosure.

The Court noted the fact FIG mistakenly served the wrong person and obtained a judgment based on invalid process was of no import because “the serving party’s attorney is responsible for determining if service has been made.”^ix Like the trial court, the appellate court rejected FIG’s argument that the one year service requirement was tolled once the judgment was entered noting there was no case law that supported FIG’s position.^x Unfortunately for FIG, by the time Jones moved to dismiss the complaint (seeking foreclosure of the 2019 tax certificate) FIG’s 2020 tax certificate had also expired.

The Court also rejected FIG’s arguments that it was permitted to refile its claim under Ohio’s savings statute.^xi Although the statute provides an exception to the “general bar” to filing due to expiration of the statute of limitations, the savings statute cannot be relied upon unless the prior action was dismissed “other than on the merits.”^xii FIG argued its prior claim was not dismissed on the merits, but on failure of service or process.^xiii The Court disagreed explaining that Jones’ motion to dismiss was based on FIG’s claims being time-barred, “an argument addressing the merits of FIG’s action.” The Court affirmed the dismissal with prejudice.