Legal Alert: Ohio Foreclosure Reform Brings Standardization and Modernization to County Foreclosure Processes and Paves the Way for the Expedited Foreclosure of Vacant and Abandoned Residential Properties
On September 28, 2016, Ohio foreclosure reform takes effect following the enactment of House Bill 390 (HB 390). The changes created by HB 390 will impact the foreclosure of both residential and commercial properties. While Ohio foreclosure reform will undoubtedly cause county courts across the state to make revisions to their local foreclosure procedures and rules, the new law provides long overdue uniformity for foreclosing judgment creditors. Furthermore, the modernization of Ohio’s sheriff foreclosure sales, including the implementation of online sales, finally ushers the Ohio foreclosure process into the 21st century. Additionally, the new law expedites the foreclosure of vacant and abandoned residential properties—a positive step in favor of community revitalization efforts to fight against community blight and prevent the existence of “zombie homes.”
Below is a more detailed summary of the significant reforms implemented by HB 390. In light of these significant reforms, it is important to understand how to best utilize the foreclosure statutes in your residential and commercial foreclosure related matters. If you would like to discuss the practical application of these reforms to your business, please contact Joseph E. Lehnert at email@example.com or Geoffrey G. Leder at firstname.lastname@example.org.
Standardization of County Foreclosure Processes
Enforcement of Lost or Destroyed Promissory Note: HB 390 revises R.C. § 1303.38 to provide that a person not in possession of an instrument is entitled to enforce the instrument if, among other things, such person was entitled to enforce the instrument when loss of possession occurred or has directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred.
Use of Private Selling Officers: HB 390 creates R.C. § 2329.152, which allows judgment creditors to move the Court for the subject property to be sold by a private selling officer (PSO). A PSO is required to be a resident of Ohio, as well as licensed in Ohio as both an auctioneer and a real estate broker or salesperson. While the PSO is authorized to advertise and conduct the sale of the subject property, the appraisal remains the responsibility of the county sheriff who appoints 3 disinterested persons to conduct the appraisal.
Appraisal Requirements: HB 390 revises R.C. § 2329.17 to require that appraisers must not only be residents of the county in which the subject property is located, but also that they be owners of real property in that county. For residential foreclosures, the appraisal must be delivered within 21 calendar days; otherwise, the appraised value is determined by the county auditor’s value and the appraisers’ costs shall not be payable. For commercial foreclosures, the Court may establish the specific timing and other requirements for the appraisal.
Sale Deposits: HB 390 creates R.C. § 2329.211, which provides a schedule of sale deposits required in residential foreclosures based upon the appraised value of the residential property. However, if the judgment creditor is the purchaser at foreclosure sale, the judgment creditor is not required to make a sale deposit. The timing of the sale deposit and other requirements must be established by the Court or the person conducting the foreclosure sale and must be included in the sale advertisement. For commercial foreclosures, the Court may establish specific sale deposit requirements.
Proration of Real Estate Taxes: HB 390 revises R.C. § 323.47 to provide that current year real estate taxes (not yet due and payable) are prorated as of the date of sale—not the date of confirmation. A similar change also applies to non-foreclosure sales. If the plaintiff is the purchaser at sale, the proration of real estate taxes is not required and the unlevied real estate taxes become payable at the next succeeding date prescribed for the payment of real estate taxes. Delinquent real estate taxes would continue to be paid at the time of transfer from the proceeds of the foreclosure sale.
Recording of Deed: HB 390 revises R.C. § 2329.31 to provide that the officer making the sale must record the prepared deed required by R.C. § 2329.36 within 14 days after the confirmation of the sale (required within 30 days of the return of the writ of execution) and payment by the purchaser of the balance due (required within 30 days of sale confirmation). If the deed is not timely prepared and recorded, the purchaser may move the Court for an order transferring title and requiring that such order be recorded in the county record of deeds.
Modernization of Sheriff Foreclosure Sales
HB 390 provides for the creation, operation and maintenance of an official statewide public sheriff sale website and an integrated auction management system, as set forth in newly created R.C. § 2329.153. Among other things, the sheriff sale website will be limited to the judicial sale of property located in the state, will allow the public to view properties for sale at no charge, will provide a secure payment processing system that accepts online payments, and will allow attorneys to enter bids online in a representative capacity. All sales conducted on the official public sheriff website must be open for bidding for at least 7 days. The auction management system will be fully integrated with the sheriff sale website and will record relevant sales data, be able to generate sale-related documents and keep an accounting of all monies received and disbursed in each judicial sale of real property.
For residential property, not later than 1 year following the new law’s effective date and for the first 5 years that the online system is fully operational, sales may be conducted on the official public sheriff sale website. Thereafter, all sales of residential property must be conducted on the official public sheriff sale website. For commercial property, not later than 1 year following the new law’s effective date, sales may be conducted on the official public sheriff sale website, but online sales are not mandatory in a commercial foreclosure. R.C. § 2329.153 allows a judgment creditor to postpone an online sale one time for up to 180 days or otherwise cancel the online sale.
Combating Community Blight
Expedited Foreclosure of Vacant and Abandoned Residential Properties: HB 390 creates R.C. § 2308.02, which allows a mortgagee to file a motion with the Court to proceed in an expedited manner on the basis that the residential property is vacant and abandoned. The Court must decide such motion within 21 days after the last answer period has expired, unless the motion is filed after the last answer period, then the Court must decide the motion within 21 days of its filing. In addition to finding by a preponderance of the evidence that the residential mortgage loan is in default and that the mortgagee is entitled to enforce the instrument or obligation secured by the mortgage, R.C. § 2308.02 provides a list of factors evidencing that the property is vacant and abandoned—at least 3 of which the Court must find by clear and convincing evidence.
If a government official has not verified the real property is vacant and abandoned as part of the Court’s analysis of the applicable statutory factors, but the Court otherwise makes a preliminary finding that the residential real property is vacant and abandoned, then within 7 days of such preliminary finding, the Court must order the appropriate official of a county, municipal corporation, or township in which the property is located to verify that the property is vacant and abandoned. Furthermore, the record must show that no mortgagor or other defendant has filed an answer or objection setting forth a defense or objection that if proven would preclude a final judgment of foreclosure, or has filed a written statement with the Court indicating that the property is not vacant and abandoned.
If the Court decides after an oral hearing that the property is vacant and abandoned and that the mortgagee who filed the motion to proceed in an expedited manner is entitled to judgment, the Court must enter a final judgment and decree of foreclosure and order the property to be sold. Such sale must occur not later than 75 days after the issuance of the order of sale.
Additionally, after the residential property is found to be vacant and abandoned by the Court, the mortgagee may enter that property to secure and protect it from damage. Otherwise, the mortgage contract or other documents must provide for such entry. The equitable and statutory rights to redemption on property found to be vacant and abandoned expire upon the confirmation of sale of the property.
Failure to Sell Residential Property at First Sale: HB 390 revises R.C. § 2329.52 to provide that if residential property is ordered to be sold pursuant to a residential mortgage loan foreclosure action, and the sale will be held at a physical location and not online, but such property first fails to sell for the required minimum 2/3 of appraised value, then without reappraisal, the property must be sold at a second sale without the minimum bid requirement. The second sale must occur between 7 and 30 days after the first sale and R.C. § 2329.26 has been revised to allow for the provisional second sale date to be advertised in the same advertisement for the first sale.
Intervention by County Prosecutor in Certain Residential Foreclosures: HB 390 creates R.C. § 2329.071, which provides that, in the event residential property has not been sold or a sale is not underway 12 months after the entry of the decree of foreclosure, the county prosecutor may file a motion with the Court for authorization to sell the property in the same manner as if the prosecuting attorney were the attorney for the party in whose favor the decree of foreclosure and order of sale was entered. The Court shall decide such motion not sooner than 30 days after the date of the filing of the motion. Unless the Court finds good cause as to why the property should not be sold, the Court must grant the motion and order the prosecuting attorney to issue a praecipe for order of sale and sell the property at the next available public auction with no set minimum bid (subject to the payment of costs and real estate taxes). The judgment creditor in the foreclosure action has the right to redeem the property within 14 days after the sale by paying the purchase price to the clerk of the court.
Penalty for Damages to Residential Property: HB 390 creates R.C. § 2308.04, which provides that a person, who has been served with a summons and complaint in a pending residential mortgage loan foreclosure action, is guilty of criminal mischief if that person knowingly and with purpose to diminish the value or enjoyment of the residential real property moves, defaces, damages, destroys, or otherwise improperly tampers with the person’s own residential real property. The new law further clarifies that “pending” includes the time between the filing of the foreclosure action and confirmation of sale.
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