On May 28, 2013, the Supreme Court of Ohio held in Countrywide Home Loans Servicing, L.P. v. Nichpor, Slip Opinion No. 2013-Ohio-2083 (May 28, 2013), that a foreclosing lender could not voluntarily dismiss its foreclosure action after the entry of a default judgment of foreclosure against the borrowers. As a result of this decision, lenders in Ohio should make certain that all aspects of the foreclosure – including the parties named as defendants, the amount due, and the amount the lender is willing to accept from a sheriff’s sale – are in proper order prior to seeking the entry of a default judgment of foreclosure.

In Nichpor, the lender obtained a default judgment of foreclosure against the borrower and a sheriff’s sale was held where the property was sold to a third party. However, prior to obtaining an order confirming the sale, the lender filed a notice of voluntary dismissal pursuant to Ohio Rule of Civil Procedure 41(A)(1)(a). Ohio Rule of Civil Procedure 41(A)(1)(a) allows a plaintiff the one-time opportunity to dismiss its claims against a defendant without a court order by “filing a notice of dismissal at any time before the commencement of trial . . . .” Four days after filing its notice of voluntary dismissal, the lender re-filed its foreclosure action. Shortly thereafter, the trial court dismissed the original foreclosure action because of the lender’s notice of voluntary dismissal. The lender proceeded with its re-filed foreclosure action and obtained summary judgment. The borrowers contested the subsequent foreclosure and argued that it was barred by res judicata.

In holding that the lender could not voluntarily dismiss its original foreclosure action after the entry of the default judgment of foreclosure, the Supreme Court of Ohio relied on prior case law that held that the entry of a default judgment means that trial has commenced and that the matter has proceeded to verdict and final judgment. Voluntary dismissal “before the commencement of trial . . .” under Ohio Rule of Civil Procedure 41(A)(1)(a) was thus unavailable to the lender. That the default judgment occurred in the context of a foreclosure proceeding and prior to the entry of the order confirming sale did not make the default judgment of foreclosure “any less final.” The Supreme Court of Ohio further stated that “to grant a lender the right to dismiss an action after a trial court has issued what it has indicated was a final judgment, would lead to the untenable result that an unhappy lender could simply wait until after the sheriff’s sale has occurred, decide that the sale price was too low, and then dismiss the case in order to get a second bite at the apple.”

The Supreme Court of Ohio did not discuss the circumstances that caused the lender in Nichpor to voluntarily dismiss its original foreclosure action. However, after Nichpor, lenders foreclosing in Ohio should review their files prior to obtaining a default judgment of foreclosure because the lender will not have the ability to voluntarily dismiss the action after that point if an irregularity in the foreclosure is later discovered.