[Cite as Fannie Mae v. Hicks , 2016-Ohio-7483.] 

# Court of Appeals of Ohio

EIGHTH APPELLATE DISTRICT COUNTY OF CUYAHOGA

JOURNAL ENTRY AND OPINION No. 103804



## FANNIE MAE

PLAINTIFF-APPELLANT

vs. 

## LYNDA L. HICKS, ET AL.

DEFENDANTS-APPELLEES



### JUDGMENT: REVERSED AND REMANDED

Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-11-746293

BEFORE: Stewart, J., Keough, P.J., and Boyle, J.

RELEASED AND JOURNALIZED: October 27, 2016ATTORNEYS FOR APPELLANT

John E. Codrea David B. Bokor Matthew P. Curry Matthew J. Richardson Justin M. Ritch Manley, Deas & Kochalski, L.L.C. P.O. Box 165028 Columbus, OH 43216

ATTORNEYS FOR APPELLEE

John Wood 281 Corning Drive Bratenahl, OH 44108 Stephen D. Williger Thompson & Hine, L.L.P. 3900 Key Center 127 Public Square Cleveland, OH 44114

Also Listed: Unknown spouse of Lynda L. Hicks, pro se 1244 Adams Street Fairborn, OH 45324MELODY J. STEWART, J.: {¶1} Plaintiff-appellant Federal National Mortgage Association (“Fannie Mae”) appeals a trial court order that simultaneously denied its Civ.R. 60(B)(4) motion to vacate a foreclosure sale while requiring that it pay $110,000 in restitution to defendant-appellee Lynda Hicks pursuant to R.C. 2329.45. For the reasons that follow, we reverse the

decision of the trial court. {¶2} The facts of this case involve a prior appeal, Fannie Mae v. Hicks, 2015-Ohio-1955, 35 N.E.3d 37 (8th Dist.). In that case, Hicks executed loan documents (a note and mortgage) with All American Home Lending, Inc. in 2004 to finance the purchase of a home in the city of Shaker Heights. All American later assigned the mortgage to Chase Manhattan Mortgage Corporation. When Hicks failed to make payments on the note, Chase Manhattan accelerated the loan and assigned the mortgage to

Fannie Mae. {¶3} Fannie Mae brought a foreclosure action against Hicks. In the complaint, Fannie Mae alleged that it was assigned the subject mortgage and was a “person entitled to enforce the note.” Fannie Mae attached copies of the note and mortgage to the complaint, along with an allonge containing a special endorsement of the note from Chase Manhattan to Fannie Mae. During the course of litigation, Fannie Mae amended its complaint twice to reflect the fact that the original note executed by Hicks in favor of All American was lost by Chase Manhattan before it was purchased by Fannie Mae. Despitethis irregularity, Fannie Mae moved for summary judgment in the foreclosure action. In its motion for summary judgment, Fannie Mae conceded that it was not entitled to enforce the lost note under R.C. 1308.38, but nevertheless argued that it was entitled to foreclose on the property by virtue of the mortgage assignment alone. Hicks filed a motion for summary judgment arguing that she was entitled to judgment as a matter of law because Fannie Mae conceded it could not enforce the note and the ability to enforce the note is a prerequisite to establishing one’s right to foreclose. The trial court granted Fannie Mae’s motion and denied Hicks’s motion. Hicks appealed. {¶4} On appeal, this court concluded that the assignment of the mortgage alone

was insufficient to sustain an action in foreclosure and that Fannie Mae must also be a person entitled to enforce the note in order to foreclose on the property. 1 The panel of this court further concluded that Chase Manhattan retained authority to enforce the note as the last party in possession of the note before it was lost. The grant of summary judgment in favor of Fannie Mae was reversed and the case remanded to the trial court with instructions to enter summary judgment in favor of Hicks. {¶5} While the resolution of the appeal was pending in this court, the trial court proceeded with the foreclosure sale. In December 2014, Fannie Mae purchased the property for a $110,000 credit bid 2 and the sale was confirmed. Hicks neither requested

1 The Ohio Supreme Court recently affirmed this point of law in Deutsche Bank Natl. Trust Co. v. Holden , Slip Opinion No. 2016-Ohio-4603, ¶ 27.

2 A credit bid allows a secured judgment creditor to bid on property up to the amount of the debt owed, in lieu of making a cash bid. See, e.g. , Benchmark Bank v. Weaver , Franklin C.P. No.a stay of the confirmation proceedings nor appealed the confirmation order to this court. However, Hicks did move the trial court for a stay of the distribution of the sale proceeds pending our decision on the foreclosure action. The court denied the motion, and Hicks did not seek any further stays. This court issued its decision in May 2015. One week after the decision, Fannie Mae was issued the deed to the property. The deed was recorded on June 12, 2015. {¶6} Following the release of this court’s decision, Hicks filed a proposed judgment entry with the trial court that sought to have the court order Fannie Mae to pay her restitution in the amount of $110,000, the foreclosure purchase price of the property, pursuant to R.C. 2329.45, and dismiss the foreclosure action with prejudice. Fannie Mae opposed the proposed order and asked the court to vacate the confirmation of sale and deed pursuant to Civ.R. 60(B)(4), which allows a court to vacate a judgment when “the judgment has been satisfied, released or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application.” In its Civ.R. 60(B) motion for relief from judgment, Fannie Mae emphasized that the balance of equities required the court to vacate the confirmation of sale so that Fannie Mae can return title of the property to Hicks, rather than order restitution in the amount of the purchase price, because the latter remedy would result in a windfall to Hicks. Additionally, Fannie Mae argued that an

13 CV 011809 (June 2, 2014); see In Re Philadelphia Newspapers, L.L.C. , 599 F.3d 298 (3d Cir.2010).order of restitution was improper under R.C. 2329.45 because Hicks failed to meet the requirements of the statute that, according to Fannie Mae, requires that the property be unrecoverable and that Hicks had previously obtained a stay of the distribution of proceeds. {¶7} Hicks opposed Fannie Mae’s motion for relief from judgment. Her opposition brief argued that the plain language of R.C. 2325.03 and 2329.45 prevents Fannie Mae from returning title, and that the correct remedy in situations where property is sold pending appeal and the judgment is reversed is to order restitution. {¶8} After considering both sides of the argument, the trial court issued an order denying Fannie Mae’s Civ.R. 60(B)(4) motion and further ordered that Fannie Mae pay Hicks $110,000 in restitution in accordance with R.C. 2329.45. {¶9} In the appeal now before us, Fannie Mae raises two assignments of error: 1) that the court erred by denying its Civ.R. 60(B)(4) motion to vacate the confirmation of sale and deed; and 2) that the court erred as a matter of law, or in the alternative, abused its discretion by ordering Fannie Mae to pay $110,000 in restitution to Hicks. We find merit to Fannie Mae’s position, but for reasons different than those it argues. Because the assignments of error are interrelated, we address them together. {¶10} R.C. 2325.03 states that: The title to property, which title is the subject of a final judgment or order sought to be vacated, modified, or set aside by any type of proceeding or attack and which title has, by, in consequence of, or in reliance upon thefinal judgment or order, passed to a purchaser in good faith, shall not be affected by the proceeding or attack; nor shall the title to property that is sold before judgment under an attachment be affected by the proceeding or attack. “Purchaser in good faith,” as used in this section, includes a purchaser at a duly confirmed judicial sale. This section does not apply if in the proceeding resulting in the judgment or order sought to be vacated, modified, or set aside, the person then holding the title in question was not lawfully served with process or notice, as required by the law or Civil Rules applicable to the proceeding. {¶11} R.C. 2329.45 states: If a judgment in satisfaction of which lands or tenements are sold is reversed on appeal, such reversal shall not defeat or affect the title of the purchaser. In such case restitution in an amount equal to the money for which such lands or tenements were sold, with interest from the day of sale, must be made by the judgment creditor. In ordering restitution, the court shall take into consideration all persons who lost an interest in the property by reason of the judgment and sale and the order of the priority of those interests. {¶12} R.C. 2325.03 and 2329.45 evidence a general predisposition to favor and protect purchasers who have obtained title to property through judicial foreclosure sales. Pursuant to R.C. 2325.03, title to property remains with a good faith purchaser despite attempts after final judgment, to set aside, vacate or modify a judgment under which the property was purchased. 3 Moor v. Parsons , 98 Ohio St. 233, 120 N.E. 305 (1918)

3 The R.C. Chapter 2325 is titled “ relief after judgment. ” Although now repealed, former section R.C. 2325.01 set forth a list of grounds for vacation of a voidable judgment. Civ.R.(explaining former analogous statute G.C. 11633); see also Civ.R. 60(B) (staff notes contained in the commentary). Similarly, R.C. 2329.45 protects purchasers from losing title, or from title otherwise being affected, by the reversal of a foreclosure judgment on appeal, while also providing a remedy in the form of restitution to the former, aggrieved title holder. By their nature, the statutes are shields, not swords. Their intent is to safeguard a purchaser’s title from legal attack so that potential purchasers are not dissuaded from investing in foreclosed properties for fear of losing their investment. See, e.g. , Moor at 244-245. {¶13} Hicks argues that R.C. 2325.03 specifically prohibits title from being set aside or affected by an attack on a final order conferring title and therefore contends that Fannie Mae cannot convey title back to her through a Civ.R. 60(B) motion to vacate the confirmation order. Accordingly, Hicks maintains that her only remedy is restitution under R.C. 2329.45. Although a plain reading of the statutes seemingly supports Hicks’s interpretation, this case is distinguishable from most cases discussing the protections and remedies of R.C. 2325.03 and 2329.45 because Fannie Mae is both the foreclosing plaintiff and the purchaser of the property. As such, neither statute applies in

this instance.

60(B)(commentary). Courts had formerly interpreted R.C. 2325.03 as a limitation on a party ’ s right to proceed under R.C. 2325.01. See Stewart v. Kellough , 104 Ohio St. 347 (1922), at syllabus (interpreting former analogous statute). Civ.R. 60(B) now provides the process and grounds for seeking relief after judgment. Accordingly, it follows that R.C. 2325.03 serves as a limit on motions to vacate judgments under Civ.R. 60(B).{¶14} In Cent. Natl. Bank v. Great Lakes Distilleries, Inc. , 8th Dist. Cuyahoga No. 16905, 1939 Ohio Misc. LEXIS 1169 (Jan. 20, 1939), this court concluded that G.C. 11702, the former analogous statute with identical relevant language to R.C. 2329.45, “has no application whatsoever” when the plaintiff in a foreclosure action purchases the property at judicial sale, because the plaintiff “does not stand in the position of a stranger.” Id. at 5, citing Hubbell v. Admrs., etc., of Broadwell, 8 Ohio St. 120 (1837);

McBain v. McBain , 15 Ohio St. 337 (1864); Ins. Co. v. Sampson, 38 Ohio St. 672 (1883). This court further stated, The statutory provision [(G.C. 11702, former R.C. 2329.45)] is not effective under the facts in this case to preculde [sic] a reversal of the judgment entered in the trial court from operating to set aside, vacate and nullify everything done under and in pursuance of said judgment; we therefore conclude that the sale made under the first decree of foreclosure was vacated when the judgment, upon the authority of which the sale was made, was reversed by the Court of Appeals, which judgment of the Court of Appeals was not thereafter reversed or modified by the Supreme Court.

Id. {¶15} Consequently, Great Lakes Distilleries sets forth three conclusions relevant to the present appeal. First, that the former R.C. 2329.45 operates to protect the title of a third-party purchaser, not a plaintiff purchaser, where the judicial sale occurs prior to the reversal of a foreclosure order. Second, that the former R.C. 2329.45 does not operate to provide restitution to the defendant-debtor when the purchaser is not a third party. And finally, that reversal of a foreclosure order in such instances operates, as a matter of law, to set aside, vacate, and nullify the sale of the property.{¶16} Great Lakes Distilleries is still the law in this district. 4 It has not been overruled by the Ohio Supreme Court nor has any subsequent legislative action clarified the terms of R.C. 2329.45 to require an alternate interpretation. Accordingly, the holding

in Great Lakes Distilleries that R.C. 2329.45 applies only to third-party purchasers,

controls the outcome of this case. {¶17} The court erred as a matter of law by not vacating the foreclosure sale and by ordering Fannie Mae to pay Hicks $110,000 in restitution. This court’s reversal of the foreclosure order served to nullify the foreclosure sale and confirmation order . See Great Lakes Distilleries, 8th Dist. Cuyahoga No. 16905, 1939 Ohio Misc. LEXIS 1169, at 5. Accordingly, we reverse the trial court’s order of restitution and the denial of Fannie Mae’s Civ.R. 60(B) motion. On remand, the trial court is instructed to vacate the confirmation of sale, order title to the property be returned to Hicks, and enter judgment in favor of Hicks on the foreclosure action, pursuant to this court’s order in Hicks, 2015-Ohio-1955, 35 N.E.3d 37 (8th Dist.) {¶18} Judgment reversed and remanded to the trial court for further proceedings consistent with this opinion. It is ordered that appellant recover of appellee the costs herein taxed. The court finds there were reasonable grounds for this appeal.

4 More recent decisions from other districts have also interpreted R.C. 2329.45 as protecting the title of a third-party purchaser. See, e.g. , Bankers Trust Co. of Cal., N.A. v. Tutin , 9th Dist. Summit No. 24329, 2009-Ohio-1333, ¶ 15.It is ordered that a special mandate issue out of this court directing the common pleas court to carry this judgment into execution. A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure.

______________________________________________ MELODY J. STEWART, JUDGE KATHLEEN ANN KEOUGH, P.J., and MARY J. BOYLE, J., CONCUR