Today's Trends in Credit Regulation

Showing of Inequity
By Latif Zaman

Courts sometimes reject a lender’s attempt to foreclose because the lender allegedly acted unfairly when dealing with the borrower. Two borrowers in Ohio tried to take that one step further – they asked a court to put the burden on the lender to prove it had acted equitably. Here’s what happened.

Melissa and Charles Fox received a mortgage loan from WMC Mortgage Corp. The note for the mortgage was endorsed to JP Morgan Chase Bank, as trustee. Bank of New York Mellon Trust Company was the successor trustee to Chase. After the Foxes defaulted, Mellon sued to foreclose. The Foxes moved to dismiss based on issues with standing. Mellon moved for summary judgment. The trial court denied the Foxes’ motion to dismiss and granted Mellon’s motion for summary judgment. The Foxes appealed to the Ohio Court of Appeals.

Under applicable Ohio law, foreclosure is a two-step process. Once a court determines that the borrower has defaulted, the court must then consider the equities to determine if foreclosure is the appropriate remedy. On appeal, the Foxes argued that Mellon’s right to foreclose required not only demonstrating that it had the right to judgment on the note, but also to show that it was entitled to foreclose on the mortgage. The Foxes relied on an Ohio Court of Appeals case that determined a creditor did not have the right to foreclose because of “material representations” regarding the creditor’s willingness to aid the homeowners in avoiding foreclosure. PHH Mortg. Corp. v. Barker, 190 Ohio App. 3d 71 (Ohio Ct. App. October 18, 2010). In that case, the appellate court reinstated the mortgage because the lender started to foreclose after taking several steps that indicated to the borrower that the mortgage was in loss mitigation and had accepted a revised payment plan. The appellate court explained that there was ample evidence to support the trial court’s decision that the equitable principles warranted a reinstatement of the mortgage.

However, in the Foxes’ case, the appellate court pointed out that the Foxes had failed to allege that there was any inequitable conduct, such as that they had been foreclosed on even though they had cured the default or that Mellon misrepresented the status of their repayment. As a result, the Foxes failed to show that the foreclosure was inequitable.

The Ohio Court of Appeal’s holding basically affirmed that for a foreclosure to be deemed inequitable, the borrower has the responsibility of showing material representations or actions that would make the foreclosure inequitable. Foreclosure may be an unpleasant process but the fact remains that foreclosing on a property is not inherently inequitable to the debtor.

Bank of N.Y. Mellon Trust Co. v. Fox, 2012 Ohio 6245 (Ohio Ct. App. December 31, 2012).

Latif Zaman is an associate in the Hanover, MD office of Hudson Cook, LLP. Latif can be reached at 410-782-2346 or by email at

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