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Juan Barwick, et al. v. State Farm Fire & Casualty

November 4, 2011


T.C. NO. 10CV2148 (Civil appeal fromCommon Pleas Court)

The opinion of the court was delivered by: Donovan, J.

Cite as Barwick v. State Farm Fire & Cas. Ins. Co.,


{¶1} This matter is before the Court on the Notice of Appeal of Juan and Margaret Barwick, filed March 10, 2011. The Barwicks appeal from the trial court's grant of summary judgment in favor of Bank of New York Mellon as Trustee on behalf of the Registered Certificate Holders of GSAMP Trust 2004-SEA2, Mortgage Pass-Through Certificates, Series 2001-SEA2 ("BONY"), and OCWEN Loan Servicing, LLC ("OCWEN"), and the grant to BONY of insurance proceeds paid after a fire loss to the Barwicks' home.

{¶2} The events giving rise to this matter began when the Barwicks executed a promissory note for $90,000.00, secured by a mortgage on real property located at 400 Richmond Avenue, in Dayton. BONY became the successor trustee of the mortgage loan, and OCWEN serviced the loan. In February, 2006, a foreclosure action was initiated against the Barwicks, and on May 18, 2006, the trial court issued an order granting judgment on the pleadings, in which it determined that the Barwicks owed $90,000.00, plus interest at the rate of 10.5 per cent per annum, from August 27, 2005 (Case No. 2006 CV 1345). In August, 2006, a fire substantially damaged the Barwicks' property, and pursuant to an insurance policy with State Farm Fire & Casualty Company ("State Farm"), in late 2006, a check was issued to the Barwicks, made payable to them and OCWEN in the amount of $87,387.06.

{¶3} The real property was subsequently sold at sheriff's sale. The sale was confirmed on November 13, 2006, and the entry confirming the sale provides that the property sold for $41,385.00. BONY was the successful bidder at the sale, and its actual receipt from the sale, after payment of fees and costs, was $37,837.72.

{¶4} On March 11, 2010, the Barwicks filed a Complaint against State Farm and JPMorgan Chase Bank, as Trustee on Behalf of the Registered Certificateholders of GSAMP Trust 2004-SEA2, Mortgage Passthrough Certificates, Series 2004-SEA2, herein after,

BONY (as successor trustee). The Barwicks asserted that State Farm owed payment to them under the policy and that BONY is named as a defendant due to State Farm's claim that BONY has an interest in the insurance proceeds.

{¶5} On May 12, 2010, the trial court sustained State Farm's motion for joinder of OCWEN as a defendant. On the same date, State Farm filed an Answer to the Complaint and a Counterclaim and Cross-Claim against OCWEN for interpleader. A copy of the insurance policy at issue is attached to State Farm's Answer, Counterclaim and Cross-Claim, and OCWEN is listed on the declarations page as "Mortgagee." Finally, on the same date, State Farm moved the court for an order permitting it to interplead $87,387.06 and be dismissed from the matter. According to State Farm, that sum is due and owing under the policy, and the Barwicks, as named insureds, and OCWEN, as mortgagee, may claim rights to the proceeds. State Farm sought an order, pursuant to Civ.R. 22, allowing it to deposit the funds due with the clerk of courts and be dismissed.

{¶6} On June 21, 2010, the trial court issued an Entry sustaining State Farm's motion for interpleader and dismissing State Farm.

{¶7} On August 27, 2010, BONY and OCWEN filed their Motion for Summary Judgment. According to them, the Barwicks' mortgage required them to maintain insurance on the property against hazard losses, and the Barwicks contracted with State Farm to insure the property. BONY and OCWEN argued that the State Farm policy included a standard mortgage clause and identified OCWEN as mortgagee. BONY and OCWEN asserted that the Barwicks received the insurance check after the foreclosure judgment against the Barwicks had been entered but before the sheriff's sale, that a deficiency remained, and that the Barwicks' debt was accordingly not extinguished. BONY did not pursue a deficiency judgment against the Barwicks. BONY and OCWEN assert that the Barwicks did not provide the check State Farm mailed to them in 2006 to OCWEN, "but rather, intentionally waited several years until they could not be liable for a deficiency judgment to ask this Court to require State Farm to provide the proceeds to Plaintiffs alone." Since the mortgage debt exceeded the fire loss that the policy covered, BONY and OCWEN argued that OCWEN, as mortgagee, is the real party in interest entitled to the insurance proceeds as a matter of law. Further, BONY and OCWEN asserted that the rights of a mortgagee accrue at the time of loss, namely at the time of the fire herein.

{¶8} On September 7, 2010, the Barwicks filed a Motion for Summary Judgment, asserting that they are entitled to the full amount of the insurance proceeds, and that BONY and OCWEN have no enforceable right thereto. The Barwicks asserted that they had a right to discharge the mortgage after the default until the sheriff's sale was confirmed. According to the Barwicks, the insurance contract contained a simple, as opposed to a standard, mortgage clause, such that the mortgagee is merely an appointee to receive payment, and there is no contractual obligation between the mortgagee and the insurance company. The Barwicks contended that the mortgagee's rights accrued when the fire occurred, but that those rights were extinguished by the actions of the parties subsequent to the loss. According to the Barwicks, the mortgagee's rights were partially extinguished when the property was purchased at the sheriff's sale for $41,385.00, and were fully extinguished when the

Barwicks received an IRS Form 1099, "demonstrating income to the Plaintiffs to write off the deficiency." According to the Barwicks, the statutory period to a pursue a deficiency judgment expired in 2008, pursuant to R.C. 2329.08.

{¶9} On December 6, 2010, the court issued an Entry of Dismissal, dismissing State Farm with prejudice.

{¶10} On February 8, 2011, the trial court issued a Decision, Order, and Entry overruling the Barwicks' Motion for Summary Judgment and sustaining the Motion for Summary Judgment of BONY and OCWEN. The trial court quoted the following language from the mortgage that required the Barwicks to "procure and maintain policies of fire insurance with standard extended coverage endorsements on a replacement basis for the full insurable value covering all improvements on the Real Property in an amount sufficient to avoid application of any coinsurance clause, and with a standard mortgagee clause in favor of Lender * * *. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person." The court further indicated that the Barwicks complied with this requirement, and it noted that the State Farm policy procured by them provides, in part, "If a mortgagee is named in this policy, any loss payable under Coverage A shall be paid to the mortgagee and you, as interests appear. If more than one mortgagee is named, the order of payment shall be the same as the order of precedence of the mortgages."

{ΒΆ11} The court determined that, "[p]ursuant to applicable Ohio law, 'where a mortgage debt equals or exceeds fire loss covered by policy containing standard mortgage clause, mortgagee is "real party in interest." (Citation omitted).'" The court noted that the total mortgage debt herein exceeded the fire loss covered by the policy, since at the time of the fire the mortgage debt was $90,000.00 plus interest, as reflected in the May, 2006 foreclosure judgment, and the insurance proceeds were $87,386.06. Accordingly, the court concluded that BONY "has an interest in the insurance proceeds as a real party in interest." The court further determined that when BONY bought the property at sheriff's sale, "it extinguished its interest in the insurance proceeds in the amount it received in payment on the underlying debt secured by the property." After BONY received $37,837.72 for the property, as discussed above, there remained the sum of $52,162.28 ...

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