OHIO COURT OF APPEALS ACKNOWLEDGES PRECEDENT & REVERSES FORECLOSURE JUDGMENT FOR FAILURE OF CONDITIONS PRECEDENT

Earlier this month Ohio’s First District appellate court reversed a summary judgment of foreclosure finding the bank failed to comply with conditions precedent. U.S. Bank National Association, As Tr. For RMAC Tr., Series 2016-Ctt V. Kenneth E. Tye, 2024-Ohio-2922. In Tye, the foreclosing bank, US Bank, did not send out its own demand letter; instead, it relied on a demand letter sent by its predecessor-in-interest.[i]

The borrower argued, based on two appellate rulings out of the Second District[ii], that US Bank failed to satisfy conditions precedent because it failed to send out its own demand letter. US Bank rebutted that its predecessor’s notice of default “should inure” to the assignee. The First District disagreed with US Bank siding instead with the borrower and noting the Second District cases relied upon by the borrower contained sound analysis and at least one of them, if not both, were binding precedent.

In both Second District cases (Young and Clarke), a predecessor-in-interest of a foreclosing plaintiff sent out a demand letter, initiated its own (unsuccessful) foreclosure proceeding, dismissed its foreclosure, and then assigned the loan to a successor bank. The successor bank in both cases then initiated its own foreclosure without first redemanding, choosing instead to rely on the notice of default sent by its predecessor-in-interest.

The Second District concluded that a new notice of default must be sent after the dismissal of an unsuccessful foreclosure regardless of whether the same mortgagee files another foreclosure or its successor-in-interest initiates the subsequent foreclosure.[iii] The Court held: “Following Young and Clarke,…U.S. Bank cannot rely on the notice of default sent by Nationstar after Nationstar first commenced, then dismissed, its own foreclosure action.”[iv]

The Court reversed the foreclosure judgment and remanded for further proceedings. This ruling obviously exposes US Bank to prevailing party attorneys’ fees since US Bank cannot satisfy conditions precedent retroactively. The bank will be required to dismiss its case, send a new demand letter, and then file a new foreclosure action upon expiration of the demand. Although a harsh result, the holding in Tye sets a clear precedent with which lenders can easily comply.

[i] Tye, at ¶¶19-21. Future references and quotations to this case are to this citation until indicated otherwise.

[ii] Tye, at ¶21 (citing U.S. Home Ownership, LLC v. Young, 2018-Ohio-1059, 109 N.E.3d 681 (2d Dist.); U.S. Bank Natl. Assn. v. Clarke, 2024-Ohio-278, 234 N.E.3d 1156 (2d Dist.)). Future references and quotations to Tye, are to this citation until indicated otherwise.

[iii] Tye, at ¶21 and ¶25.

[iv] Tye, at ¶25.