On May 26, 2016, House Bill 390 was passed into law by the Ohio legislature. With House Bill 390’s passage, it brought several major reforms to Ohio’s foreclosure process. Many of these changes were proposed by the Ohio State Bar Association in order to improve and streamline the foreclosure process, which will ultimately bring more fairness to lienholders and homeowners. The reforms to Ohio’s foreclosure process went into effect on September 28, 2016, and some of the more important changes are expanded upon below.
ORC 2308: Expedited Foreclosure on Vacant and Abandoned Residential Properties
Section 2308.02 of the Ohio Revised Code provides mortgagees the ability to expedite a foreclosure action on residential property if the property is deemed vacant and abandoned by the Court. A motion to proceed in an expedited matter can take place no sooner than twenty-one (21) days after the last answer period has expired.
Pursuant to section 2308.02(C), the court shall deem a residential property to be vacant and abandoned if the following six (6) requirements apply:
- The residential mortgage loan is in monetary default.
- The mortgagee is a person entitled to enforce the instrument secured by the mortgage or a person with the right to enforce the obligation secured by the mortgage pursuant to law.
- The court finds by clear and convincing evidence that at least three (3) of the following factors are true:
(a) Gas, electric, sewer, or water utility services to the property have been disconnected.
(b) Windows or entrances to the property are boarded up or closed off, or multiple window panes are broken and unrepaired.
(c) Doors on the property are smashed through, broken off, unhinged, or continuously unlocked.
(d) Junk, litter, trash, debris, or hazardous, noxious, or unhealthy substances or materials have accumulated on the property.
(e) Furnishings, window treatments, or personal items are absent from the structure on the land.
(f) The property is the object of vandalism, loitering, or criminal conduct, or there has been physical destruction or deterioration of the property.
(g) A mortgagor has made a written statement expressing the intention of all mortgagors to abandon the property.
(h) Neither an owner nor a tenant appears to be residing in the property at the time of an inspection of the property by the appropriate official of a county, municipal corporation, or township in which the property is located or by the mortgagee.
(i) The appropriate official of a county, municipal corporation, or township in which the property is located provides a written statement or statements indicating that the structure on the land is vacant and abandoned.
(j) The property is sealed because, immediately prior to being sealed, it was considered by the appropriate official of a county, municipal corporation, or township in which the property is located to be open, vacant, or vandalized.
(k) Other reasonable indicia of abandonment exist.
- No mortgagor or other defendant has filed an answer or objection setting forth a defense or objection that would preclude final judgment and decree of foreclosure.
- No mortgagor or other defendant has filed a written statement with the court indicating that the property is not vacant and abandoned.
- If the Court finds by clear and convincing evidence that the property is vacant and abandoned, but a government official has not verified that the residential property is vacant and abandoned, then the court shall order the appropriate official to verify the property is vacant and abandoned.
Once all six factors are met, and the court determines that the residential property is vacant and abandoned, the mortgagee who filed the motion is entitled to judgment, and the court shall enter an order that the residential property be sold. The property shall be offered for sale not later than seventy-five (75) days after the issuance of the order of sale.
Protection of Foreclosed-Upon Property
O.R.C. section 2308.03 allows a mortgagee to enter a vacant and abandoned residential property to secure it and protect it from damage, once the court makes that determination. Additionally, mortgagees may enter and secure the property if the mortgage contract or other documents provide for such an entry.
In addition to the above security, pursuant to O.R.C. section 2308.04, mortgagees are granted further protection thanks to criminal penalties for persons who damage mortgaged property. Under the new reforms, a person is guilty of criminal mischief if that person “knowingly and with purpose to diminish the value or enjoyment of the residential real property moves, defaces, damages, destroys, or otherwise improperly tampers with the person’s own residential real property.” Also, if the residence is subject to a mortgage and the owner has been served with a summons and complaint in a pending residential mortgage loan foreclosure action relating to that residential real property, a person can be found criminally liable for damaging the residence.
Private Selling Officers
Judgment creditors may now file a motion with the court for an order authorizing a specified private selling officer to sell real estate at a public auction. A “private selling officer” must be a resident of the State of Ohio, and licensed as both an auctioneer and real estate broker or salesperson.
O.R.C. section 2329.152(E) provides that a private selling officer may conduct the following activities when selling real property:
(a) Market the real estate and conduct the public auction of the real estate online or at any physical location in the county in which the real estate is situated. If the auction occurs online, the auction shall be open for bidding for a minimum of seven days.
(b) Hire a title insurance agent licensed under Chapter 3953. of the Revised Code or title insurance company authorized to do business under that chapter to assist the private selling officer in performing administrative services:
(c) Execute to the purchaser, or to the purchaser’s legal representatives, a deed of conveyance of the real estate sold:
(d) Record on behalf of the purchaser the deed conveying title to the real estate sold, notwithstanding that the deed may not actually have been delivered to the purchaser prior to its recording.
The fees for a private selling officer may not exceed five percent (5%) of the sale price of the property, and any fee greater than seven hundred fifty dollars ($750.00) must be authorized by a court order.
O.R.C. section 2329.153 sets a timeline for the creation of a single statewide online system for public sheriff sales. The system is meant for use by all county sheriffs in accordance with the statute. The website will be for the sale of residential and commercial properties. However, pursuant to O.R.C. section 2329.153 (E)(1)(a), after five years from September 28, 2016, all sales of residential property “shall be conducted on the official public sheriff sale website.” Commercial property will not be required to be sold via the public sheriff sale web site.
O.R.C. section 2329.154 requires each bidder in an online auction to register with the web site in order to bid on a property. O.R.C. section 2329.152 allows for private selling officers to utilize their own online sale system in order to auction the foreclosure property.
Reduction of Two-Thirds Value Requirement
Previously, Ohio’s foreclosure statutes required that land be sold for at least two-thirds of the appraised value. Pursuant to O.R.C. section 2329.52(B) residential property that fails to sell at a physical location (NOT online), must hold a second auction where the property will be sold to the highest bidder without regard to the minimum two-thirds bid requirement.
However, the second auction is still subject to the restrictions of O.R.C. section 2329.21, which requires that a purchaser, “in addition to the amount of the purchaser’s bid,” pay to cover the costs, allowances and taxes which the court has determined prior to the sale of the property.
Finally, pursuant to O.R.C section 2329.52(B), “(a) residential property that remains unsold after two auctions may be subsequently offered for sale without regard to the minimum bid requirement * * * or disposed of in any other manner pursuant to this chapter or any other provision of the Revised Code.”
If a property is sold without a minimum bid as described above, O.R.C. section 2329.311 provides that “the judgment creditor and the first lienholder each have the right to redeem the property within fourteen days after the sale by paying the purchase price.” Such election by the judgment creditor or first lienholder results in the party being considered the successful purchaser at sale.
Action on Lost Note
Under the reformed version of O.R.C. 1303.38, the Ohio legislature corrected confusion regarding the enforceability of lost, destroyed or stolen security instruments. Previously, some Ohio courts would prevent an assignee of a lost security instrument from bringing an action to enforce it. Under O.R.C. section 1303.38, a person may enforce a lost security instrument if a certain set of circumstances are met:
- A) A person not in possession of an instrument is entitled to enforce the instrument if all of the following apply:
(1) The person seeking to enforce the instrument was entitled to enforce the instrument when loss of possession occurred or has directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred.
(2) The loss of possession was not the result of a transfer by the person or a lawful seizure.
(3) The person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process.
Furthermore, “a person seeking enforcement of an instrument…must prove the terms of the instrument and the person’s right to enforce the instrument.” Such proof allows a person to proceed as if the person had produced the security instrument.
Payment of Liens through Proceeds of Sale
Under O.R.C. section 323.47(B)(1), “if real estate is sold at judicial sale, the court shall order that the total of the following amounts shall be discharged out of the proceeds of the sale:”
(a) Taxes, assessments, interest, and penalties, the lien for which attaches before the date of sale but that are not yet determined, assessed, and levied for the year that includes the date of sale, apportioned pro rata to the part of that year that precedes the date of sale:
(b) All other taxes, assessments, penalties, and interest the lien for which attached for a prior tax year but that have not been paid on or before the date of sale.
O.R.C. 2329.31 Confirmation and Order for Deed
Prior to the reforms made to O.R.C. section 2329.31, the purchaser of a property at judicial sale had no recourse if the sheriff’s deed was not timely filed by the county sheriff. The additions drafted into this section allow the purchaser to “file a motion with the court to proceed with the transfer of title” if the deed is not prepared and recorded with the required fourteen (14) day period.
Pursuant to O.R.C. section 2329.31(C)(2)(a), “(i)f the court finds that a proper sale was made, it shall enter an order transferring the title of the lands and tenements to the purchaser, ordering the plaintiff to present a certified copy of the order to the county recorder for recording, and ordering the county recorder to record the order in the record of deeds.”
The above mentioned order from the court “shall have the same effect as a deed” once it has been recorder with the county recorder’s office.
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