What’s on their Minds: The Adequacy of Notice in a Foreclosure Sale. PHH Mortgage v. Prater.

On September 6, 2012, the Supreme Court handed down a merit decision in this case.  Read the analysis of that decision here.

On May 23. 2012, the Supreme Court of Ohio heard oral argument in PHH Mortgage v. Prater, 2011-1526.  The issue is the adequacy of the notice provided to the mortgage company in the final sheriff’s sale on a foreclosed property once owned by defendant Michael Prater, on which PPH held the mortgage and intended to bid on. 

The Clermont County Sheriff’s office had notified PHH of the date, time, and location of three previously scheduled sales of the Prater property which had not gone forward.  By the time of the fourth sale, the sheriff’s office had changed its policy regarding notice of such sales, posting details on the sheriff’s website. The sheriff’s office sent notice of the policy change to all lawyers with pending foreclosures in Clermont County. This notice directed the lawyers to the sheriff’s official website. Counsel for PHH did not appear at the final sale.  The Prater property was sold to Scott Wolf, defendant appellee, who had intervened in this case, at an amount substantially less than was owed to PHH and less than PHH would have bid. PHH argued that it was entitled to actual notice of the date, time and place of the sale, and moved to set the sale aside.  The trial court denied the motion and the Twelfth District Court of Appeals, upheld the denial, in a split decision. Read the oral argument preview of this case here.

Counsel for PHH stayed on message with a basic due process argument– that as an interested party, it was entitled to actual notice of the sale in this case.  Sending its lawyer a letter about a policy change directing interested parties to the sheriff’s website for details about the sale of foreclosed properties does not satisfy due process in this case. It impermissibly shifts the burden of notification by making the interested party go out and look for the information.  That isn’t how things are supposed to work.   

Counsel for Wolf, the buyer, argued that the lawyer for the mortgage company did receive the necessary notice in this case.  In the regularly-mailed notice of the third attempted sale, which PHH received, was a notice of the change in the sheriff’s policy going forward. The trial court found that both the plaintiff’s lawyer in the Prater sale and other lawyers in that office received notice of this policy change directing them to the sheriff’s website. Being directed to the website for details was adequate and sufficient  notice under the specific facts of this case.

A key precedent in this case is Central Trust Co. v. Jensen.  The syllabus of that case holds

Notice only by publication to a party to a foreclosure sale or to a person having an interest therein is insufficient to satisfy due process when the address of that party or interested person is known or easily ascertainable. (R.C. 2329.26, construed.)

The oral argument in this case got quite spirited, especially an exchange between Justice Pfeifer and Wolf’s counsel.

How Widespread is this Practice

Asked Justice O’Donnell

Central Trust v. Jensen

Chief Justice O’Connor asked if this case controlled the outcome of the case at bar.

Justice O’Donnell asked if there were any new law to write in this case, or just to require that Jensen be followed, commenting that “we don’t generally just uphold what we’ve done before.”  If the Court were to agree with the court of appeals and rule in favor of the buyer, would it have to modify Jensen?  

 Is Notice to a Lawyer for an Interested Party Good Enough?

Justice Cupp asked whether counsel for PHH ever received notice of the fourth sale, regardless of how  (answer from PHH counsel: no)

Justice O’Donnell commented that the lawyer is not an interested party.

Chief Justice O’Connor wanted to know who got the actual mail notice—the lawyer or the interested party?

This is where Justice Pfeifer really tussled with the buyer’s lawyer.  So, he said, PHH’s lawyer got notice that there would be no more mail notice, but how was that actual notice of the fourth sale?  How difficult would it be for the sheriff to mail notice to the actual party who brings the action, who is listed on all the court documents? Was it the  volume of the foreclosures causing the sheriff to do this?

Then came this exchange:

Wolf’s lawyer said the trial court had found that the same plaintiff’s lawyer and other lawyers in that office received notice of the policy change directing them to the sheriff’s website in other cases, and in fact had shown up the same day as the sale in another case.

Justice Pfeifer: “they did it before and they showed up and this time they didn’t, so that was a mistake in their office, but their point is the law requires mail notice. Your argument that well they got it other times and they didn’t miss it seems to me spectacularly unpersuasive”

 Ouch!

And the Adequacy of that Notice…

Justice Stratton asked Wolf’s counsel if his argument was being told to go to the website is sufficient notice (answer: in this case, yes) Should the court write a rule that website notice is adequate notice? That you can now use a website instead of the required mail?

Justice Lanzinger noted that the fourth letter did not contain specific details about the sale.

Is Website Notice the same as Newspaper Notice?

Asked Chief Justice O’Connor?

Justice Stratton asked how being directed to the sheriff’s website was different from being told to look in the newspaper.

And Justice O’Donnell wanted to know if website notice was even good enough for constructive notice.

Justice Cupp noted that the issue wasn’t whether the notice could be put on the website, or even whether that might be useful, but whether in this case it provided actual notice to an interested party.

Would Email Notification Work ?

Wondered Justice Cupp

Is This Strictly a Due Process Issue?

Justice O’Donnell asked if the case raised a due process question on whether or not internet posting is adequate notice of a sheriff’s sale.

Justice Cupp asked if PHH was only making a constitutional due process argument, or whether a rule or statute requires a judgment creditor to be notified of when the sale is taking place.

Burden Shifting

This was the key line of questioning of the day.  Several justices asked about this. Chief Justice O’Connor asked if the web notification suffered the same problems as newspaper notice—it required interested parties to “ferret out” the details of the pending sale. But later, as counsel for PHH went on about the difficulty in getting the information, requiring a number of steps, she (who uses her laptop during argument) said she’d just gone on the site and it was a snap to navigate  it. But did any of that really matter on the question of the adequacy of the notice (answer from PHH’s counsel—no, and “the degree of difficulty is in the eye of the beholder”)

Justice Lanzinger said this to counsel for PHH—“the more interesting part of your argument is the shifting of the burden –in that way the owner has the burden of finding the information instead of the information being sent to the owner.”

Justice Stratton noted that even if an interested party were sent a specific URL or other targeted link, it still shifted the burden to the interested party to go out and find the information. She later asked Wolf’s lawyer how the web notification was different from newspaper notice in that regard.

What about Folks Who Don’t Have Access to the Web or Know how to Use A Computer?

Asked Justice Stratton

 What about a Statute Approving this Practice?

Justice Lanzinger wanted to know if the legislature passed a law allowing for website notification, that would pass muster. She said that she found the policy change  letter was definitely notice to the attorney, but shouldn’t it be for the legislature to determine whether web notification is sufficient notice? 

Or what about allowing this change by local rule, asked Chief Justice O’Connor.  Would that be good enough?

 How it Looks from the Bleachers

This looks like a win for PHH based on the specifics of this case.  Whether or not web notification someday passes constitutional muster as adequate notice to an interested party in a foreclosure action,  sending notice of a policy change to the lawyer for the mortgage holder  directing  the lawyer to the website for the particulars of a sale in which PHH had an interest wasn’t good enough in this case.  The rationale is likely to be the extra burden of having to go and “ferret out” the information, to use the Chief’s words.  There is a certain irony here—a number of legal aid organizations filed amicus briefs supopporting the mortgage company in the case. 

Student contributor Elizabeth Chesnut also calls this one for PHH.  To her, the justices seemed to feel that being directed to the website, like the newspaper notification in Jensen, is insufficient to provide actual notice to interested parties.

 

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3 Responses to What’s on their Minds: The Adequacy of Notice in a Foreclosure Sale. PHH Mortgage v. Prater.

  1. Andy Engel says:

    One interesting point is that an amicus brief was filed by several of Ohio’s legal aid groups in support of PHH. Notice of a sale cuts both ways. And even if PHH and its counsel are sophisticated enough to find the sale information online, many of Ohio’s lower income population, i.e. those who face foreclosure, would have a far more difficult time finding the information.

    I’m curious how notice of the sale was provided to the homeowner. If PHH did not receive notice of the sale, how could it have complied with R.C. 2329.26? That provision requires the foreclosing party to provide notice of the sale to the judgment debtor.

    • MBettman says:

      Andy,
      I agree that the Legal Aid amici supporting the mortgage holder in this case made for strange bedfellows, but they clearly agree, albeit from very different perspectives, on the notice issue raised here. While there weren’t a lot of questions on this, I have no doubt that the Court has concerns about the effect of web notification on defaulting homeowners who are unsophisticated about computers.
      I don’t know the answer to how notice was given to Mr. Prater in this case.

      Prof. M. Bettman

  2. loan says:

    This post is really packed with useful information that people can use in their finances. I will surely recommend this to my clients. Good job!

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