Foreclosure action void if filed before becoming actual party in interest

A Columbus Dispatch article hailed the Ohio Supreme Court's decision in Fed. Home Loan Mtge. Corp. v. Schwartzwald, last Wednesday, an important safeguard for homeowners.

In the unanimous ruling, the justices said that a foreclosure action is invalid unless the lender actually holding the promissory note and assignment of mortgage is a party to the case when it is first filed in court. That reversed a Second District Court of Appeals decision in Greene County that, in turn, conflicted with rulings from two other districts on the need for the "real party of interest" to be part of foreclosure filings -- Wells Fargo Bank, N.A. v. Byrd, 178 Ohio App.3d 285, 2008-Ohio-4603, 897 N.E.2d 722 (1st Dist.), ¶ 15-16; Bank of New York v. Gindele, 1st Dist. No. C 090251, 2010-Ohio-542, ¶ 3-4; and Wells Fargo Bank, N.A. v. Jordan, 8th Dist. No. 91675, 2009-Ohio-1092, ¶ 21 -- cases holding that a lack of standing cannot be cured by substituting the real party in interest for an original party pursuant to Civ.R. 17(A).

The Court's news service wrote that in writing for the unanimous court, Justice Terrence O'Donnell "explained that in order to invoke the jurisdiction of a trial court, a party initiating a lawsuit must have 'in an individual or representative capacity, some real interest in the subject matter of the action.'"

"'We recognized that standing is a 'jurisdictional requirement' in State ex rel. Dallman v. Franklin Cty. Court of Common Pleas, (1973)," Justice O’Donnell wrote, "and stated: 'It is an elementary concept of law that a party lacks standing to invoke the jurisdiction of the court unless he has, in an individual or representative capacity, some real interest in the subject matter of the action.' ... And recently, in Kincaid v. Erie Ins. Co., (2010), we affirmed the dismissal of a complaint for lack of standing when it had been filed before the claimant had suffered any injury."

"Citing the U.S. Supreme Court's 1992 holding in Lujan v. Defenders of Wildlife that 'standing is to be determined as of the commencement of suit,' and state court decisions supporting that same conclusion from Oklahoma, Vermont, Maine, Connecticut, Florida, Mississippi, and Nebraska, Justice O’Donnell pointed out that in this case 'Federal Home Loan concedes that there is no evidence that it had suffered any injury at the time it commenced this foreclosure action. Thus, because it failed to establish an interest in the note or mortgage at the time it filed suit, it had no standing to invoke the jurisdiction of the common pleas court.'"

In its specific reference, Justice O’Donnell wrote that "Ohio Civil Rule 17(A) allows an authorized representative of a real party in interest, such as the executor or administrator of an estate, the trustee of a trust, or a party with a shared contractual interest in disputed property to initiate a lawsuit on behalf of the real party in interest, but does not 'allow a party with no personal stake in a controversy to file a claim on behalf of a third party, obtain the cause of action by assignment, and then have the assignment relate back to commencement of the action.'"