The downturned economy and after-effects of the mortgage crisis have taken a toll on Cincinnati. Drive through a West-side neighborhood and you will see countless foreclosures and blighted properties. Due to irresponsible lending practices, many Ohio homeowners were forced into bankruptcy and lost their homes to foreclosure. What’s worse, the banks then refused to take responsibility for the foreclosed properties, leading to vandalism and blight of Cincinnati neighborhoods.
Recently I had a case where my clients were the victims of just this scenario. They had been owners of several rental properties, fell upon hard financial times, and had to file bankruptcy. One of the banks filed a foreclosure action on its mortgage, but then dismissed it, seemingly because it didn’t want to be a property owner or it didn’t think it’d be able to sell the house to re-coop its loan. Later, the house sold at a tax foreclosure sale. Because the house was worth more than the taxes owed, there was actually money left over and being held by the court.
The clients hired me to help them obtain the excess funds. The concern was that under Ohio law, they had to give notice to the bank that they were applying to have the funds distributed to them, and that the bank would try to intercede to satisfy its mortgage.
Luckily, I was able to successfully argue several points. First, under Ohio law, the filing of an Entry of Confirmation of Sale frees the real estate of all liens and encumbrances, including mortgages, so that the new buyer takes title free and clear. Second, the bank had failed to appear and assert its interest in the tax foreclosure. The Ohio Supreme Court has held that a bank’s failure to appear, answer, establish, or defend a claim forever bars it from asserting a claim. Galt Alloys, Inc. v. KeyBank Natl. Assn., 1999-Ohio-383, 85 Ohio St.3d 353, 708 N.E.2d 701 (Ohio 1999). Third, the bank failed to respond to the notice of distribution, which acts as a waiver to participate in the distribution. And finally, the bank’s failure to pursue its own foreclosure, or participate in the tax foreclosure, is a violation of public policy because they fail to follow through on taking title to homes, leaving the houses susceptible to break-ins, vandalism, and blight.
The judge ordered the excess funds to be distributed to my clients. Score one for the little guy.