Daily Development for Thursday, May 1, 2003
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
LENDER LIABILITY; FAILURE TO SATISFY: Ohio provides
helpful platform for class action plaintiffs in statutory liability cases.
In re Consolidated Mortgage Satisfaction Cases,I 780 NE 2d 556
(2002), rehearing denied 781 NE2d 220 (2003) 97 Ohio St. 3d 465
Ohio's version of the statutory penalties for a mortgagee's failure to enter
promptly a record satisfaction of mortgage upon payoff imposes (one
gathers from this opinion) a $250 penalty. Twelve different class actions
were filed against every lender in sight to collect this penalty on behalf of
all mortgagors who had suffered a failure to satisfy or a late satisfaction
(or, for the cynics - to reap a big attorney's fee based upon a settlement in
which individual mortgagors get little.) The cases were consolidated for
Defendant's argued that certification of the class was inappropriate
because separate and distinct issues of fact predominated in determining
liability. In each case, the type of mortgage, the payment history, the fact
of payment, the date satisfaction was delivered to the recorder, and the
date of recording were all factual issues distinct from all other cases.
The only common issue, really, was whether the statute applied to the
defendant mortgagee - a mixed issue of fact and law which obviously
was unlikely to be of much difficulty.
Although the trial court did permit certification of the class to proceed,
the Court of Appeals reversed, but now, on appeal to the Ohio Supreme
Court, the tables turned again. The Supreme Court held, in a 3-2
decision, that the class certification could proceed.
Stating first that broad discretion will be vested in the trial court and that
the "abuse of discretion" standard is very high, involving more than a
mere error of law or judgment, the Supreme Court concluded that the
trial court was within the permitted discretion in reaching its conclusion
that the class certification was proper.
The Supreme Court acknowledged that there were many separate and
distinct factual issues, but said that this really was not the fundamental
"In resolving [the common question of breach of statute] the trial
court of course will be presented with different evidence relating
to each lender's failure to record a satisfaction of a residential
mortgage. While appellees assert that sifting through these facts
in a class action suit will be arduous, we are not compelled to
agree. The mere existence of different facts associated with the
various members of a proposed class is not be itself a bar to
certification of that class. If it were, then a great majority of
motions for class certification would be denied."
The court stressed that much of the required information could be
retrieved through computer analysis of the bank's electronic records.
The court, however, never mentioned what common issue
"predominated" so as to minimize the significance of this case-by-case
The court then turned to a theoretically separate requirement - the "utility
and propriety" of using a class action. Here, of course, the court was on
stronger ground. Since the individual recovery under the statute was
only $250, there was scant liklihood that the lenders would feel much
sting from violation of the statute if each injured mortgagor was required
to bring a separate lawsuit. Few mortgages would find it economically
worthwhile to hire a lawyer and file suit for a $250 return. In light of the
fact that title insurers routinely "eat" the risk of late satisfaction,
individual transactions are rarely delayed and actual damages rarely
Comment 1: The editor is blissfully unaware of the "real" law concerning
class actions. He can only read the words set forth in the legal tests and
draw conclusions based upon his own puny logical abilities. But if,
indeed, a fundamental test is whether common issues of law or fact
predominate over questions affecting only individual members - as the
dissenting duo of judges assert, the editor admits to some befudlement as
to how a class action is appropriate here. As indicated, there are virtually
no common issues of any significance.
There is, however, some question about the complexity of the individual
issues. It is true that computer generated data will give the starting point.
It is interesting that the court is so confident that these records will be the
primary source of reliable information, since the whole case is about the
bank's failure to carry out it's business in a workmanlike manner.
If, however, the alleged error of the banks is not in failing to satisfy, but
in satisfying beyond the date required by the statute, the individual
issues, however, are likely to be quite complex. We are not given the
language of the statute, but the dissent suggests that the really relevant
questions are whether in fact final payment was made and when the
satisfaction was delivered for recording (not when it was recorded). The
actual date that the bank sent each satisfaction to the recorder, in
particular, would seem to be a fundamental question and one that is not
easily resolved through computer records.
Comment 2: In recent years, virtually every state in America has come up
with a satisfaction requirement and, in many cases, a penalty for failure
to satisfy. Some of these reflect practical realities. Many don't. In fact,
the method of satisfaction itself often is quite complex, since the UCC in
most states currently doesn't provide that the record owner of the
mortgage is necessarily the real owner. The physical holder of the note
need not record to be viewed as the owner of the mortgage.
Where the mortgage is discharged on transfer, most states hold that
recording act considerations protecting the BFP will lead to the
conclusion that a discharge from the record holder of the mortgage will
suffice to release the mortgage from the property, even if the record
holder is not the true owner of the debt. But the last three or four years
have seen huge numbers of refinancings by existing owners, who are not
taking new interests in the property in connection with the mortgage
discharge (although the refinancing lenders are). This will lead to some
interesting results in some states.
Remember also that discharge of the mortgage is different from
satisfaction of the debt. Some states statutes address both questions.
Others address only the clearing of the record.
Comment 2. The problem is exacerbated to a large degree by the refusal
of lenders to provide releases into closing escrows, even though they do
provide payoff requirements. The hold back for "one last look" to make
sure that their own bookkeepers counted the pennies correctly - forcing
all the other players in the transaction to bear the cost and risk of the
lender's unwillingness to commit to the payoff requirement. Many feel
that this isn't right, and thus have little sympathy for lenders who get
caught up in statutory penalties for their own dithering.
Comment 3: NCCUSL - the Uniform Law Commissioners - is tackling
this problem. A drafting committee is at work on a uniform title clearing
act that addresses mortgage satisfactions. It is hoped that there will be a
preliminary draft submitted to NCCUSL for first reading as early as this
summer. Wilson Freyermuth of the Missouri-Columbia Law School is
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