Point of View: The Snoozeth-Looseth Doctrine: "The buyer of the loan may be at risk of losing its mortgage in the event of a transfer of title.".

When a mortgage loan is purchased, an assignment of the mortgage and the underlying note generally must be executed and filed for record in the public records. This requirement is intended to provide others with the ability to know to whom notice is required to be given in the event of a foreclosure in a judicial foreclosure state like Ohio, or whom to contact to request a payoff figure.

In today's environment of frequent purchases and sales of larger and larger pools of loans, mortgage servicers are confronted with logistical and practical difficulties in ensuring that assignments are filed for record properly and timely. In Ohio, failure to do so can result in being unprotected in a foreclosure filed by another creditor.

The Doctrine

On Feb. 10, 2006, the Court of Appeals for Hamilton County (Cincinnati), Ohio, issued a decision causing a creditor to be unprotected under these exact circumstances. A second mortgage had been sold multiple times, but there was no recorded chain of assignments showing ownership of the loan in the final purchaser. Therefore, when the first mortgagee filed a foreclosure on its mortgage, it properly named and served a summons on the original owner of the second mortgage, rather than naming and serving a summons on the hidden current owner of the second mortgage.

When the named seller of the second mortgage failed to respond, a default judgment was entered against it. Two months later, after learning of the foreclosure, the true owner of the second mortgage filed a motion for leave to file an answer, claiming in an affidavit that the seller "inexplicably" failed to record the assignment despite having agreed to do so. The Trial Court originally granted the motion, but then rescinded its order, leaving the second mortgage unprotected in the case. Therefore, the property was ordered to be sold free and clear of the second mortgage, and the owner of the second mortgage was not entitled to any of the proceeds of the sale.

The owner of the second mortgage filed an appeal to the Court of Appeals, arguing that there had been "excusable neglect." However, the Court of Appeals held that because there was no explanation for the failure to have an assignment recorded, the neglect was not excusable. Therefore, the Court of Appeals affirmed the Trial Court's ...