Full text of the Court's opinion

On October 31, 2012, the Ohio Supreme Court released its decision in Federal Home Loan Mortgage Corporation v. Schwartzwald, Slip Opinion No. 2012-Ohio 5017. In that decision, the Court resolved a conflict among several Ohio appellate courts and unanimously held that a foreclosing plaintiff that receives assignment of a promissory note and mortgage subsequent to the filing of a foreclosure action but prior to the entry of judgment does not cure a lack of standing to originally file the action. Furthermore, this lack of standing requires dismissal of the foreclosure action without prejudice.

When Federal Home Loan Mortgage Corporation (“FHLMA”) commenced the underlying foreclosure action against Duane and Julie Schwartzwald on April 15, 2009, FHLMA had not yet been assigned the promissory note and mortgage that had been executed by the Schwartzwalds. Rather, it wasn’t until a month after the foreclosure was filed by FHLMA that an assignment of the subject promissory note and mortgage was executed in favor of FHLMA.

Nonetheless, the trial court granted summary judgment in favor of FHLMA, which was affirmed on appeal by the Second District Court of Appeals. Specifically, the Second District held that although FHLMA lacked standing at the time it commenced the foreclosure action, it cured that defect by the assignment of the mortgage and transfer of the note prior to the entry of the judgment.

On appeal to the Ohio Supreme Court, the Court held that “[i]t is fundamental that a party commencing litigation must have standing to sue in order to present a justiciable controversy and invoke the jurisdiction of the common pleas court” and this “lack of standing at the outset of litigation cannot be cured by receipt of an assignment of the claim or by substitution of the real party in interest.” The Court concluded that because FHLMA did not have standing at the time it commenced the foreclosure action, it therefore failed to invoke the jurisdiction of the court of common pleas.

On a final note, the Ohio Supreme Court clarified that while the lack of standing requires dismissal of the lawsuit, the dismissal is without prejudice. Thus, the dismissal is not on the merits and will not preclude the foreclosing plaintiff from filing a new foreclosure action.