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HSBC Bank USA, N.A. v. Ward

Court of Appeals of Ohio, Eighth District, Cuyahoga

August 24, 2017


         Civil Appeal from the Cuyahoga County Court of Common Pleas Case No. CV-12-778444

          ATTORNEYS FOR APPELLANT Charles A. Nemer Robert R. Kracht McCarthy Lebit Crystal & Liffman Co. Chrissy M. Dunn Dutton Blank Rome L.L.P.

          ATTORNEYS FOR APPELLEES For HSBC Bank USA, N.A. as Trustee for the Holders of the Ellington Loan Acquisition Trust Bradley P. Toman Carlisle, McNellie, Rini, Kramer, & Ulrich Co., L.P.A. John B. Kopf Todd Seaman Thompson Hine, L.L.P. For Cuyahoga County Treasurer Michael C. O'Malley Cuyahoga County Prosecutor Gregory B. Rowinski Judith Miles Assistant County Also Listed: Cynthia Turner.

          BEFORE: Kilbane, P.J., S. Gallagher, J., and Laster Mays, J.



         {¶1} Plaintiff-appellant, HSBC Bank USA, N.A., as trustee on behalf of Ace Securities Corp. Home Equity Loan Trust, Series 2005-HE6, Asset Backed Pass-Through Certificates (the "Ace Trust"), appeals the trial court's adoption of the magistrate's decision granting summary judgment in favor of defendant-appellee HSBC Bank USA, N.A., as trustee for the holders of the Ellington Loan Acquisition Trust 2007-2 Mortgage Pass-Through Certificates Series 2007-2 (the "Ellington Trust"). This appeal involves a priority dispute between these two lienholders. The Ace Trust and the Ellington Trust were both granted residential mortgages on real property located at 33800 Harrow Court, Solon, Ohio ("the property"). Each claims a superior lien on the property. For the reasons set forth below, we affirm.

         The NovaStar Mortgage

         {¶2} In June 2005, defendants Anthony Ward ("Ward") and Pamela Thomas-Ward (collectively referred to as "the Wards") entered into a real estate purchase agreement as purchasers of the property from defendant Cynthia Turner ("Turner"). In order to finance the $324, 000 purchase price, the Wards obtained a residential mortgage loan from NovaStar Mortgage, Inc. ("NovaStar") in the amount of $259, 200. The balance of the purchase price was paid to Turner by way of a promissory note (the "Turner note") in the amount of $64, 800. As security for repayment of the Turner note, the Wards executed a security agreement granting Turner a security interest in the property. Turner granted title to the property to the Wards by a warranty deed (the "warranty deed"). Turner never recorded her security agreement with the Cuyahoga County Recorder's Office.

         {¶3} The NovaStar mortgage and the warranty deed were also never recorded. Unisource Information Services, L.L.C. ("Unisource"), is a title company that acted as closing agent for the sale of the property from Turner to the Wards and the NovaStar loan transaction. NovaStar provided closing instructions to Unisource that required Unisource to "follow these instructions exactly" and "record [the lien] in [first] position on or prior to the disbursement date [of June 29, 2015]" and "return certified copies of those documents that are to be recorded." The closing instructions provided that "[f]ailure to comply with these instructions may delay funding." Unisource failed to record the NovaStar mortgage and the warranty deed. NovaStar received signed and notarized closing documents from Unisource, but they were not certified. Nonetheless, NovaStar funded the loan and authorized Unisource to disburse the loan proceeds to satisfy Turner's mortgage debts and real estate taxes as evidenced by the fully executed HUD-1 Settlement Statement ("HUD-1").

         {¶4} The NovaStar loan closed on June 29, 2005. Less than one month later, on July 25, 2005, the Wards executed a quitclaim deed (the "quitclaim deed") conveying title in the property back to Turner. The quitclaim deed was recorded on August 29, 2005. The NovaStar note and mortgage were ultimately negotiated and assigned to the Ace Trust in August 2008.[1]

         The Fremont Mortgage

         {¶5} In December 2006, Turner obtained a loan from and granted a mortgage to Fremont Investment and Loan ("Fremont") in the amount of $283, 000. The Fremont mortgage was recorded on January 12, 2007. In the loan application documents Turner submitted to Fremont, she identified the only mortgage on the property at that time as the "Anthony Ward - private mortgage." When a Fremont representative contacted Ward to verify this mortgage, he disclosed the date the mortgage originated - June 29, 2005, the 7.3 percent interest rate, the original mortgage amount of $259, 200, the then-current mortgage balance of $227, 214, and the monthly principal and interest payment of $1, 777. Although this information is identical to the terms of the NovaStar mortgage, Ward failed to clarify that these terms pertained to the NovaStar mortgage and not to a "private mortgage" between him and Turner. Notably, he signed the request for loan verification as Turner's "creditor."

         {¶6} The Fremont note and mortgage were assigned to the Ellington Trust in November 2009.

         The Foreclosure Action

         {¶7} As a result of the Wards' nonpayment of the NovaStar loan, the Ace Trust initiated a foreclosure proceeding in the instant matter. The Wards and Unisource were found to be in default and the matter proceeded to summary judgment. The magistrate granted summary judgment against Turner in favor of the Ace Trust. The magistrate also granted the Ellington Trust's motion for summary judgment on the Ace Trust's amended complaint, finding that the Fremont mortgage is valid and the first lien upon the property, subject only to the lien of the Cuyahoga County Treasurer for taxes and the mortgage. The Ace Trust had opposed this motion and later filed its objections to the magistrate's decision with the trial court. The trial court adopted the magistrate's decision with findings of fact and conclusions of law in its entirety and issued a foreclosure decree.

         {¶8} It is from this order that the Ace Trust appeals, presenting the following four assignments of error for review:

         Assignment of Error One

The trial court erred and abused its discretion in adopting the magistrate's decision of January 16, 2016, where the Magistrate applied the wrong legal standard and relied on clearly erroneous findings of fact.

         Assignment ...

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