Ohio law provides that no person doing business under a trade name or fictitious name shall commence or maintain an action in the trade name or fictitious name in any Ohio court until the name has been registered with the Ohio Secretary of State.  This issue has rarely been raised in foreclosure actions, but it reared its head in a recent Columbus, Ohio case.

In the case, the trial court granted the borrower’s motion to dismiss the foreclosure complaint, because the plaintiff/lender, which is an out-of-state national bank, had not registered its name in Ohio.  The dismissal of the case is pending on appeal to the Court of Appeals. 

The Lender’s Argument
In the appeal, the lender is arguing that as a national bank, it is exempt from the registration requirement.  A separate state statute requires that a foreign corporation must obtain a license to transact business in Ohio, but an exception is provided in the statute for national banks, federal savings banks, or federal savings and loan associations, where the main office is located in another state.  The lender further argued that the office of Thrift Supervision is the primary federal regulator of federally-chartered and state-chartered savings associations and their subsidiaries, and that federal law preempts state regulation of federal financial institutions.

The Borrower’s Argument
In its appellate brief, the borrower argued that the lender’s counsel responded to the motion to dismiss in the trial court after the motion had already been granted.  Hence the borrower argued that the lender’s evidence that it was a national bank had not been submitted timely and should not be considered by the court of appeals.  In addition, the borrower argued that federal preemption should not apply in this situation, and that the registration requirement should be strictly enforced.

Ohio Attorney General Weighs In
The Ohio Attorney General filed an amicus curiae brief, siding with the borrower’s argument that the name registration statute is not preempted, and therefore should be enforced.  A decision from the Court of Appeals is expected during the coming months.

Registration and License
Lenders using fictitious names should verify that their names are properly registered with the Ohio Secretary of State.  Out-of-State corporations or limited liability companies should also review the requirements for being licensed to do business in Ohio, and the tax consequences of doing so.  Maintaining a foreclosure action as an entity with an unregistered fictitious name, or as an unlicensed out-of-state corporation or limited liability company, can give rise to this type of defense in foreclosure cases, which could result in delays or dismissals.

An Alarming Development
This issue has taken on an alarming dimension, as the debtor in the case has apparently seized the opportunity, through the creation of an entity called Amber Holdings, LLC, to reserve for registration the names of many unregistered, well-known financial institutions, in a scheme to demand that the institutions pay exorbitant amounts for the reserved name to be released for use.  If a lender finds that Amber Holdings, LLC, has already reserved the lender’s name, the lender should consider filing an action for declaratory judgment to seek to nullify the reserving of the name by Amber Holdings, LLC, as not having been done for a legitimate business purpose.   Please contact our office if we can be of assistance in that regard.

If you have any questions on this information, please contact Mr. Larry R. Rothenberg, Esq.

Larry Rothenberg is the partner-in-charge of the Cleveland real estate and foreclosure department of Weltman, Weinberg & Reis Co., L.P.A. He is the author of the Ohio Jurisdictional Section contained within the treatise, “Dunaway, The Law of Distressed Real Estate”. The firm handles foreclosures and related litigation throughout Ohio, Kentucky, Indiana, Illinois, Pennsylvania and Michigan. Larry can be reached at (216) 685-1135 or via e-mail at lrothenberg@weltman.com.

Client Advisory is published by Weltman, Weinberg & Reis Co., L.P.A., an organization providing comprehensive creditor representation.  The information contained in this advisory is a summary of legal information and is not intended to constitute legal advice on specific matters or create an attorney-client relationship.  Contact any of our offices or visit our website at www.realestatedefaultgroup.com for more real estate related information, company facts and attorney profiles. © 2008