Editor's note: This story was originally featured in the January issue of DS News, out now.
Recently, the Ohio Eighth District Court of Appeals expanded upon the Ohio Supreme Court’s Holden decision. In Holden, the court had determined that a foreclosure plaintiff is not barred from enforcing its mortgage interest against the property when the borrower’s personal obligation to pay the mortgage loan has been discharged in bankruptcy. According to the Eighth District, Holden applies to permit the foreclosure plaintiff to enforce its mortgage interest even if the plaintiff is barred from enforcing the promissory note because the statute of limitations has expired.
The facts of the Walker case at hand are a common set. The borrower has defaulted on the promissory note, but through a series of circumstances, the matter was not referred for foreclosure until after the six-year statute of limitations governing negotiable instruments has expired. These facts beg the question: Can the mortgagee pursue foreclosure even after the statute of limitations for enforcing the borrower’s obligation to pay the note expires? The Walker case answers the question in the affirmative. The Eighth District has applied the longer statutes of limitations governing contracts in writing and actions against real estate to permit mortgagees to recover on the mortgage instead of the promissory note.
Under Ohio law, the statute of limitations governing negotiable instruments is six years from the acceleration date. Accordingly while a party may be entitled to enforce a promissory note, it may not be entitled to obtain a judgment on the note because the six-year statute of limitations has expired. Notwithstanding this conclusion, the mortgagee may still have the right to pursue an ejection action or foreclosure because actions on the mortgage are governed by longer statutes of limitations under Ohio law.
As a result, the Ohio courts have provided a means by which mortgagees can enforce otherwise time-barred mortgage loan defaults. While this approach denies the mortgagee a personal judgment against the borrower, it solves the larger problem of permitting the mortgagee to liquidate the mortgaged property under many circumstances.
You can read more legal updates in the January 2018 Black Book issue of DS News, out now.