Ohio Appellate Court Clarifies Time To Exercise Equity Of Redemption Under Ohio’s Receivership Law

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By Joseph H. Gutkoski

In recent years, creditors and their counsel have increasingly sought alternatives to the traditional method of selling real property in foreclosure proceedings; i.e., obtaining judgment and scheduling a sheriff’s sale. One alternative growing in popularity is the imposition of a receivership, through which a court-appointed receiver may sell property under a court-supervised process. This alternative can reduce the time and expenses associated with a traditional sheriff’s sale, and ultimately result in a higher price obtained for the property.

Depending upon whether a property is sold through a sheriff’s sale or by a receiver, Ohio law imposes different requirements upon the sale. One example is the right of redemption, which traditionally permits a debtor to prevent a sale by paying the amount owed in full before the court’s confirmation of the sale. While Ohio law generally recognizes two types of redemption rights, Ohio law governing receiver sales specifically eliminates one, and delimits the other. This article will explain the application of the doctrine of “equity of redemption” under Ohio’s receivership statute, as announced by the first Ohio appellate decision to give litigants instruction on the issue since amendments to Ohio’s receivership law went into effect in 2015.

Redemption Basics

Ohio law recognizes an absolute right of redemption that is dual in nature, arising both from equity and statute. In Hausman v. Dayton, 73 Ohio St.3d 671, 676 (1995), the Ohio Supreme Court explained that the equitable right of redemption “is typically cut off once a mortgagee seeks and is granted a decree of foreclosure. Generally, a common pleas court grants the mortgagor a three-day grace period to exercise the ‘equity of redemption,’ which consists of paying the debt, interest and court costs, to prevent the sale of the property.” Id. Additionally, a mortgagor in a foreclosure action retains a statutory right of redemption under R.C. 2329.33, which may be exercised at any time prior to confirmation of the sale by depositing the “amount of the judgment” with all costs in the common pleas court. R.C. 2329.33.

In contrast, Ohio’s receivership statute does not provide a right of redemption through confirmation of the sale. Rather, under R.C. 2375.04(D)(7), an order approving a receiver’s sale must establish a “reasonable time,” but not less than three days, for the owner to exercise its equitable right of redemption. Further, the statutory right of redemption provided by R.C. 2329.33 does not apply to a receiver’s sale.

Recent Decision Clarifies Redemption Rights for Receivership Sales

On April 6, 2017, the Eighth District Court of Appeals issued its decision Yidi, LLC v. JHB Hotel, LLC, 2017-Ohio-1285, in what appears to be the first time an Ohio appellate court has addressed the redemption provision of Ohio’s receivership statute since amendments to the law went into effect in 2015.

The underlying case was a breach of contract and foreclosure action concerning the John Hartness Brown Building, located on Euclid Avenue in Cleveland. Pursuant to an agreed order, the trial court appointed a receiver for the property. Aft er vetting potential buyers, the receiver determined a $9.1 million bid was the highest and best offer for the property. The receiver filed a motion to sell the property. The day before the hearing on the motion, the owner filed a notice of a purportedly higher offer in an attempt to prevent the sale. The trial court determined that the supposedly higher offer failed to comport with previously established bidding procedures and granted the receiver’s motion to sell the property. As part of its order, the trial court granted the owner a three-day period to exercise its equity of redemption. The owner appealed.

On appeal, the owner argued that the three-day redemption period was unreasonable because the receiver’s sale was not scheduled to close for approximately 90 days aft er the court’s authorization of the sale, such that the owner should have been granted the same period of time to redeem. The Eighth District disagreed, finding this argument “ignore[d] the specific exclusion of R.C. 2735.04(D)(7) that ‘Section 2329.33 of the Revised Code does not apply to a sale by a receiver under this section.’” Yidi, LLC, 2017-Ohio-1285 at ¶14.

The Eighth District further held the three-day redemption period was a “reasonable time” for the owner to exercise its equitable right of redemption. Id. at ¶15. The Eighth District determined that because nearly a year had elapsed from the receiver’s appointment, and because several weeks elapsed from the receiver’s filing of the motion to sell the property until the expiration of the redemption period, the owner “had adequate notice and time to redeem the property, even with the three-day redemption period set forth in the sale order.” Id.

The decision of the Eighth District underscores the continued use of receiver’s sales as an important and beneficial alternative to traditional foreclosure sales in Ohio.

Joseph H. Gutkoski is an associate with the Cleveland law firm of Collins & Scanlon LLP and received his Juris Doctor from the Cleveland-Marshall College of Law.

 

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