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DiscussionNote Buying (Non-Performing)

Can a note with no recorded assignments since 2011 actually be enforced

pavelk88pavelk88CapitalPRO12

Bid due in nine days on a first lien, $74k ask, $141k UPB, SFR in Ohio. The title report shows the originating lender sold it twice but neither transfer was ever recorded with the county. The current seller has an allonge endorsed in blank and says that's enough to establish standing in Ohio. I've done enough draws to know that paper trails with gaps get expensive fast, so I'm sitting on this one with real discomfort. Ohio is a judicial state, so if the borrower fights standing at any point in the foreclosure, I'm looking at delays that could run 18 to 24 months before I even get a sheriff sale date. At that burn rate the $67k discount gets eaten down to something I could have gotten from a CD. The seller says courts routinely accept possession of the note as proof of ownership without a recorded chain and that I'm overthinking the assignment gap. I've heard that before and it was wrong before. What I can't figure out is whether Ohio case law actually supports that position reliably enough to bid, or whether I'm one aggressive borrower's attorney away from a two-year mess and a note I can't liquidate.

1pavelk88pavelk88CapitalPRO12
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3 replies

annika_sorenannika_sorenCF1APRO17

Ohio courts have generally sided with note holders on the possession-plus-blank-endorsement question since Fed. Home Loan Mtg. Corp. V. Schwartzwald (2012) clarified standing requirements, but that case cut both ways. It also showed exactly how hard a borrower's attorney can make your life if you can't prove standing at the moment the complaint is filed. The unrecorded assignments are your real problem because if the seller can't hand you a complete written assignment chain at closing, you may not be able to prove you are the holder in due course on day one of litigation, which is precisely when Ohio requires it.

I would not bid at $74k without getting a title company to commit to insuring the chain as-is, or getting the seller to cure the assignments before closing. If they won't do either in nine days, that tells you something about how confident they actually are in what they're selling.

0annika_sorenannika_sorenCF1APRO17
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brianna_kellybrianna_kellySU3CPRO15

Ohio does have cases going the other way, and borrower's counsel in Cuyahoga and Franklin counties specifically knows how to weaponize a broken chain.

What I want to know is whether any of those unrecorded transfers crossed a MERS to non-MERS boundary, because that's where the standing fights get ugliest and longest.

0brianna_kellybrianna_kellySU3CPRO15
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abena_mensahabena_mensahCA2APRO10

The part the seller is glossing over is that "possession plus blank endorsement" works until the borrower retains someone who files a motion to dismiss for lack of standing on day one, and in Cuyahoga and Franklin counties specifically that motion succeeds often enough that experienced Ohio foreclosure mills now require a complete recorded chain before they'll take the file on contingency. If the law firm won't touch it without the assignments, that tells you the real risk pricing.

The $67k spread sounds like a lot until you add 24 months of county taxes, insurance advances, and attorney retainer burns in Ohio, which I've seen run $18k to $25k on a contested judicial file before anyone touches a sheriff sale. Bid math has to survive that scenario, not just the clean one.

0abena_mensahabena_mensahCA2APRO10
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