Ohio Supreme Court bars voluntary dismissals after trial court enters foreclosure judgment and order of sale

In a unanimous decision, the Supreme Court of Ohio held that after a court has entered judgment granting a foreclosure decree and ordering the sale of a foreclosed property, the plaintiff cannot later dismiss the action under Ohio Civil Rule 41(A)(1)(a).

Countrywide Home Loans Servicing v. Nichpor stems from a foreclosure action filed by Countrywide in the Wood County Court of Common Pleas. On May 18, 2009, the trial court entered a default judgment in the case in Countrywide’s favor. The court subsequently issued a writ ordering that the home be sold at a sheriff’s sale. The sale was held later and the property was purchased by a third party. Critically, following the sale but before an order confirming the sheriff sale, the plaintiff filed a voluntary dismissal, without prejudice, under Ohio Civil Rule 41(A)(1)(a).

Ohio Civil Rule 41(A)(1)(a) provides that “a plaintiff, without order of court, may dismiss all claims asserted by that plaintiff against a defendant by . . . filing a notice of dismissal at any time before the commencement of trial . . . . ”

The Supreme Court’s analysis focused on the application of the rule when a trial did not occur. The Court explained that default judgment is the functional equivalent of a judgment following a trial, Civ.R. 55(B). The Court further held that Ohio courts have previously determined that an order of default judgment means that a trial has commenced for purposes of Civ.R. 41(A). What’s more, the Court referenced its 1976 decision in GTE Automatic Elec., Inc. v. ARC Industries, Inc., where it stated, “Regardless of whatever else may be said of a default judgment, it is a judgment. It is as good as any other judgment. It is a final determination of the rights of the parties.”

From a policy perspective, Justice O’Neill stated that to grant a lender the right to dismiss an action after a trial court has entered what amounts to a final judgment would allow unhappy lenders to simply wait until after the sheriff’s sale has occurred, decide that the sale price was too low and then dismiss the case in order to get a second bite at the apple.

The Court went on to explain that in this case “all that remained . . . were administrative matters finalizing the result of the sheriff’s sale and giving the mortgagors the opportunity to exercise their equitable right of redemption. These actions can be classified as proceedings to aid in execution of the judgment.” Thus, the Court ruled that “after a judgment entry grants a decree of foreclosure and order of sale, the foreclosure action cannot be dismissed pursuant to Civ.R. 41(A)(1)(a), because that rule pertains only to the voluntary dismissal of a pending case.” As the foreclosure case is no longer pending following a judgment of foreclosure, Civ.R. 41(A)(1)(a) would be inapplicable.

Moving forward, foreclosing parties must use alternative strategies to protect financial interests concerning foreclosure properties before a foreclosure order is entered by the court.