Opinion
Decided February 11, 1929.
Mortgages — Foreclosure and receiver — Second mortgage not entitled to rents as against first mortgage — Rents specifically mentioned in second, but not first, mortgage.
A second mortgage specifically covering rents and profits of the mortgaged premises is not entitled, as against the first mortgage, to rents collected by a receiver appointed in foreclosure proceeding, even though the first mortgage does not specifically refer to rents and profits.
APPEAL: Court of Appeals for Cuyahoga county.
Messrs. Krueger Pelton, for plaintiff.
Mr. Albert Mendelson, for defendants.
Rudolph Wechsler brought his action in the common pleas to foreclose a certain second mortgage on real estate. Shortly thereafter the Fidelity Mortgage Company brought another action to foreclose its first mortgage upon the same property. Thereafter the two actions were consolidated. Upon the application of Wechsler a receiver for the property was appointed. Later an order was entered foreclosing both mortgages, an order of sale was issued, and the mortgaged property was sold. The sale price was insufficient to satisfy the first mortgage, and, of course, nothing was paid on the second. Pending foreclosure and sale the receiver collected a considerable sum by way of rent. This sum is less than the amount still owing on the first mortgage.
The immediate question for determination is whether these rentals shall be paid by the receiver to the holder of the first mortgage or to the holder of the second. The first mortgage was in terms a plain mortgage of the premises in question. The second mortgage, in addition to describing the property as it was described in the first mortgage, added a clause reading: "Also all buildings and improvements now situated or which may be hereafter erected thereon * * * all appurtenances now or hereafter pertaining thereto; all rents and profits arising therefrom; all the grantor's rights under any leases whether recorded or unrecorded," etc.
It is now claimed by the second mortgagee that the language quoted gave to him a specific lien upon the rents and profits arising from the mortgaged property, and that by virtue thereof he is entitled to the same as against the general lien of the first mortgage.
For many years it has been recognized in this state that a mortgage is a mere security in the hands of the mortgagee, and does not convey any interest in the land itself. After the mortgage conditions have been broken, the mortgagee may bring an action for possession, or he may bring an action in foreclosure, which results in a judicial sale. Kerr v. Lydecker, Admr., 51 Ohio St. 240, 37 N.E. 267, 23 L.R.A., 842. Even after a condition is broken, the mortgagor is entitled to rents and profits so long as he retains possession. A mortgagee, however, after bringing an action in foreclosure and making to the court such showing as is required by Section 11894, General Code, has a right to have a receiver appointed for the property, and this receiver, by virtue of his possession, is entitled to the rents and profits that may issue from such possession, to be received and held by him for the benefit of the parties in interest.
In the instant case, as we pointed out, the receiver was appointed upon the motion of the second mortgagee, but this fact did not change the substantive rights of the parties, and the receiver was appointed for the benefit of all the parties. Williamson v. Gerlach, 41 Ohio St. 682.
The section referred to, 11894, General Code, is not confined in its operation to mortgages in which the rents have been specifically pledged, but is a right conferred upon all mortgagees. If there had been no second mortgage upon this property, it is perfectly apparent that the Fidelity Mortgage Company could have had the receiver appointed in this case, and would, by virtue of that receivership, have realized all the rents collected by the receiver notwithstanding its mortgage did not contain a specific pledge of the rents, for the rents and issues of the property were as much pledged as the corpus itself. It seems to us after seeing that the first mortgage would have been entitled under the existing circumstances to the rents in the absence of a second mortgage, that it requires no extended discussion to see that the execution of the second mortgage did not affect those rights at all, for manifestly a second mortgage cannot impair the rights already granted to the holder of the first mortgage. Since, therefore, the Fidelity Mortgage Company had an unquestioned right to the funds in question as against the mortgagor, it follows that the mortgagor, by his second mortgage, did not take away any of the rights of the Fidelity Company and grant them to the second mortgagee. This conclusion is supported by Wiltsie on Mortgage Foreclosure (4th ed.), at page 754.
We do not undertake to determine whether in all respects a mortgage that does not specifically undertake to pledge rents and profits is as comprehensive as one that does contain such a specific pledge. It is possible that a specific pledge of the rents and profits may reach rents and profits accruing before condition broken, while it is clear that a mortgage without such special pledge does not reach rents accruing prior to the maturity of the instrument. Such a case is not before us and we do not undertake to decide it.
This case has reached this court both by appeal and by a proceeding in error. It has been heard upon appeal. In the appeal case an entry will be made in favor of the Fidelity Mortgage Company, and the cause will be remanded to the common pleas court for execution. The proceeding in error will be dismissed.
Decree for plaintiff.
MIDDLETON, P.J., concurs.
Judges MIDDLETON and MAUCK, of the Fourth Appellate District, and Judge FARR, of the Seventh Appellate District, sitting in place of Judges VICKERY, LEVINE and SULLIVAN, of the Eighth Appellate District.