As of March 2014, there were 1,159,905 U.S. properties in some stage of foreclosure, which represents a 23% year-on-year decline from 2013. Despite the fact that the reverberations of the financial crisis of 2008, which resulted in the collapse of the mortgage-backed securities market, appear to be ebbing, courts across the nation continue to struggle with adjudicating borrowers’ and lenders’ rights. The courts’ asymmetric approach to analyzing the intersection between Article 3 of Uniform Commercial Code (“UCC”), which governs negotiable instruments (promissory notes), and Article 9 of the UCC, which governs secured transactions (mortgages), has resulted in myriad, conflicting case law on the issue of a party’s standing to foreclose. Notably, this issue primarily arises in judicial foreclosure states that require commencement of a formal action to enforce the instruments.
At the heart of courts’ consternation is a question: What rights in the note and mortgage must a party possess in order to have standing prosecute a case to enforce both documents? To answer this question, some background on the UCC is necessary. The mortgage gives the note’s holder a security interest in the collateral – here the real property – in order to ensure repayment of the debt – here evidenced by the promissory note. UCC Article 3 and Article 9 have been adopted, almost uniformly, across the United States. In 2011, the UCC Commissioners issued a report on the interaction between the two articles in an effort to harmonize their interpretation. Nevertheless, the process of enforcing a mortgage note remains a creature of state law, which varies drastically across the nation. Ohio courts, in particular, have struggled with the issue of standing. Their published decisions provide insight into the dialectical debate ongoing on a national scale.
On October 31, 2012, the Supreme Court of Ohio issued its decision in Federal Home Loan Mortgage Corp. v. Schwartzwald, 134 Ohio St.3d 13, 2012-Ohio-5017. The appellate conflict issue raised was whether, in a mortgage foreclosure action, a party must have standing at the time the suit is filed, or whether the lack of standing can be cured so long as it is done so prior to judgment. For our purposes, the key wording is found in paragraph 28 of the opinion: because [the plaintiff] failed to establish an interest in the note or mortgage at the time it filed suit, it had no standing to invoke the jurisdiction of the common pleas court. (Emphasis added.) This clause has been the central focus of dozens of appellate decisions.
The First, Second, Fifth, Sixth, Seventh, Eighth, Tenth, Eleventh, and Twelfth Districts of Ohio have all found that the plain language of Schwartzwald requires a plaintiff to establish an interest in the note or mortgage at the time the suit is filed. The Fourth District has adopted this position in dicta. The Ninth District remains the lone holdout in requiring that a party must establish an interest in the note and mortgage at the time the suit is filed. The Third District has yet to take a clear stance on the issue.
While the debate regarding standing has likely resulted in millions of dollars in legal fees and has been the subject of many blog discussions, this post included, Ohio courts could have circumvented the issue by concentrating on the primary document at hand – the promissory note. As explained in the UCC Editorial Board’s 2011 analysis, the “and/or” debate going on in Ohio and across the nation is largely moot. UCC Section 9-203(g) provides that the transfer of the interest in the note automatically transfers a corresponding interest in the mortgage. While Ohio courts have acknowledged this concept, they have thus far failed to marry it with Schwartzwald’s standing analysis. When this issue comes up on appeal to the Ohio Supreme Court, one hopes the Court it will correctly interpret the UCC to clarify the status of the law.
Perhaps it will take the opportunity to clarify Schwartzwald’s standing analysis when it issues its decision in Bank of America, N.A. v. Kuchta, Case No. 2013-0304, for which oral arguments were held January 8, 2014. The issue in Kuchta is: When a defendant fails to appeal from a trial court’s judgment in a foreclosure action, can a lack of standing be raised as part of a motion for relief from judgment? A decision that clarifies Schwartzwald, when read in conjunction with the voluminous case law undergirding the debate, should inform other jurisdictions struggling with the standing issue.
 RealtyTrac, U.S. Real Estate Statistics and Foreclosure Trends, (April 2014) , available at http://www.realtytrac.com/statsandtrends/foreclosuretrends.
 Report of the Permanent Editorial Board for the Uniform Commercial Code, Application of the Uniform Commercial Code to Selected Issues Relating to Mortgage Notes, American Law Institute (Nov. 14, 2011), available at http://www.uniformlaws.org/Shared/Committees_Materials/PEBUCC/PEB_Report_111411.pdf.
 Notably, some states, e.g. Oregon, Idaho, Minnesota, Montana, Wyoming, require that a mortgage assignment be recorded before a foreclosure can occur.
 SBC Bank USA v. Sherman, 1st Dist. C-120302, 2013-Ohio-4220, ¶ 15; Bank of New York Mellon Trust Co. v. Herres, 2d. Dist. No. 25890, 2014-Ohio-1539, ¶ 24; Federal Home Loan Mtge. Corp. v. Rufo, 983 N.E.2d 406, 2012-Ohio-5930, ¶ 30 (Ohio App. 11 Dist. 2012); Bank of New York Mellon v. Matthews, 6th Dist. No. F-12-008, 2013-Ohio-1707, ¶ 11; CitiMortgage, Inc. v. Loncar, 7th Dist. No. 11 MA 174, 2013-Ohio-2959, ¶ 15; CitiMortgage, Inc. v. Patterson, 8th Dist. No. 98360, 2012-Ohio-5894, ¶ 21; U.S. Bank Natl. Assn. v. Gray, 10th Dist. No. 12AP-953, 2013-Ohio-3340, ¶ 27; Fed. Home Loan Mtg. Corp. v. Koch, 11th Dist. No. 2012-G-3084, 2013-Ohio-4423, ¶ 24; SRMOF 2009-1 Trust v. Lewis, 12th Dist. Nos. CA2012-11-239, 2014-Ohio-71, ¶ 16.
 Bank of America, N.A. v. Stewart, 4th Dist. No. 13 MA 48, 2014-Ohio-723, ¶ 32.
 BAC Home Loan Serv. v. McFerren, 9th Dist. Summit No. 26384, 2013-Ohio-3228, ¶ 13 (holding “that Schwartzwald did not overturn long-standing property and foreclosure principles and, therefore, [the plaintiff] had to be holder of the Note and the Mortgage at the time it initiated this action order to have standing”).
 Everbank v. Vanarnhem, 3d. Dist. 14-13-022013-Ohio-3872, ¶ 34, ftnte. 2 (“Because Everbank was a holder of the promissory note and had legal title to the mortgage in this case, we need not address the issues of whether legal title to the mortgage alone is sufficient for standing and whether the assignment of the mortgage also assigned the right to enforce the promissory note.”)
 See, e.g., Bank of New York Mellon v. Loudermilk, 5th Dist. Fairfield No. 2012-CA-30, 2013-Ohio-2296, ¶43 (citing cases); Deutsche Bank Natl Trust Co. v. Najar, 8th Dist. Cuyahoga No. 98502, 2013-Ohio-1657, ¶65 (“Even if the assignment of mortgage from Argent to Deutsche Bank was invalid, Deutsche Bank would still be entitled to enforce the mortgage because under Ohio law, the mortgage ‘follows the note’ it secures. * * * The physical transfer of the note endorsed in blank, which the mortgage secures, constitutes an equitable assignment of the mortgage, regardless of whether the mortgage is actually (or validly) assigned or delivered.”); Gray, at ¶31-34 (recognizing that the transfer of a note automatically results in equitable assignment of a mortgage securing the note).
 Briefs available at http://www.supremecourt.ohio.gov/Clerk/ecms/resultsbycasenumber.asp?year=2013&number=0304; Oral argument available at http://www.ohiochannel.org/MediaLibrary/Media.aspx?fileId=141925.