An Ohio appellate court held that a lender's alleged destruction of property purchased at foreclosure was outside the scope of an arbitration agreement contained within a loan agreement secured by the same property.

In Runion v. American General Financial Services, Inc., No. H-08-001, 2008 WL 2468573 (Ohio Ct. App. June 20, 2008), Dennis Runion took out a home-equity loan from American General secured by a mortgage on real property. After Runion defaulted on his loan, the mortgage was foreclosed, and American General purchased the property.

Subsequently, Runion brought suit against American General, alleging it unlawfully changed the locks and destroyed the property. American General moved to compel arbitration based on the arbitration agreement within the parties' loan agreement. The trial court denied the motion and American General appealed.

On appeal, the Court held that an arbitration clause in a loan agreement secured by mortgaged property is not valid beyond the foreclosure and resale of the property. The alleged destruction of the property occurred after the sale.

Moreover, according to the Court, the purchase of mortgaged property subject to foreclosure is a distinct transaction from securing a loan with property, which brought the dispute outside the scope of the arbitration agreement in the loan agreement.

Accordingly, the Court affirmed the trial court's denial of the motion to compel arbitration.