At the trial court, both parties moved for summary judgment. The borrower argued that the Change In Terms Agreement demonstrated an intent by the bank to drop the third mortgage as collateral securing the promissory note. The borrower argued that the mortgage for the third property could not be foreclosed based upon a default on the promissory note. The borrowers argued that the omission of the third property from the “description of collateral” of the Change In Terms Agreement demonstrated an express change to a material term.
The lender argued that the statute of frauds prevented the borrower from succeeding in its argument. The statue of frauds states that “when a party voluntarily places his signature upon a note or other writing within the statute of frauds, and where that party’s sole defense to an action brought upon the writing is that a different set of terms was only agreed upon to at that time, such defense shall not be countenanced at law, regardless of the theory under which such facts are pled. In such event, the writing alone shall be the sole repository of the terms of the agreement.”
The Court of Appeals recognized that the mortgage is a separate contract from the promissory note and while the Change In Terms Agreement may have altered the obligations under the promissory note, it did not alter the borrowers obligation under the mortgage. Additionally, the language of the mortgage provided that the “lender shall not be deemed to have waived any rights under the mortgage unless such waiver is given in writing and signed by lender.” The Court of Appeals found that this provision supported the lender’s argument that in order for the third property to have been released as collateral, the lender would have to execute a separate release. Based upon these findings, the court found that the third property could be foreclosed upon.
This case provides a good example of a court protecting a lender’s clearly established right to property secured by a mortgage. While it is unclear whether the absence of the third property from the Change In Terms Agreement was intentional, this court’s opinion will provide protection for a lender who has secured its interests in collateral through a properly executed mortgage.
If you have any questions regarding the Cranberry Financial, LLC v. S&V Partnership (2010), 186 Ohio App.3d 275, 2010 – Ohio – 464 opinion, or would like a copy of the opinion, please feel free to call upon one of our area practice leaders.
