The District Court of Appeal of the State of Florida, Fourth District, recently held that res judicata does not render a mortgage unenforceable or preclude a subsequent foreclosure action based on a default not alleged in the prior action.
A copy of the opinion is available at: http://www.4dca.org/opinions/Sept.%202014/09-24-14/4D13-1992.op.pdf
A borrower (“Borrower”) executed a note and mortgage to purchase the property at issue. The mortgage and note were later sold and assigned to another entity (“Lender”). Borrower defaulted on the note and failed to pay homeowner association fees assessed by her homeowner association (“HOA”).
Lender’s predecessor in interest filed suit to foreclose in August 2007, alleging a default in the payment due on April 1, 2007 and accelerating the balance due. The complaint named HOA as a co-defendant because of its potential junior lien interest.
Because the Lender delayed the prosecution of its foreclosure action, the trial court dismissed the suit. Later, Lender filed a second foreclosure action as a result of the trial court’s involuntary dismissal of the first.
Between the dismissal of the first foreclosure action and the Lender’s filing of its second foreclosure action, HOA obtained title to the subject property by foreclosing its own homeowner association lien and purchasing the property at the court-ordered foreclosure sale.
As to Lender’s second foreclosure action, Lender alleged a default on a scheduled payment; indicated that all payments left due and owing were accelerated; and named HOA as a co-defendant in an effort to foreclose its inferior homeowner association fee lien. HOA moved for final summary judgment, arguing that the involuntary dismissal of Lender’s first foreclosure action operated as an adjudication on the merits pursuant to Florida Rule of Civil Procedure 1.420(b), and thus, Lender was barred from re-litigating the claim. The trial court granted HOA’s summary judgment motion.
HOA also filed a counterclaim to quiet title on the basis of res judicata and sought a court order removing Lender’s mortgage as an encumbrance on the property. At trial on HOA’s counterclaim, HOA argued that because res judicata barred Lender from filing further foreclosure suits, Lender’s mortgage was no longer enforceable as a lien on the property.
Following the trial, the trial court entered judgment on the counterclaim in favor of HOA. The trial court held that HOA’s title was quieted against Lender’s claim; Lender’s mortgage was released and no longer encumbered the property; and Lender was enjoined from seeking to foreclose the mortgage.
As you may recall, borrowers, home owners associations, and others have been arguing that there is a dispute under Florida law as to whether res judicata precludes a subsequent foreclosure action based on a default occurring after the dismissal of a prior foreclosure action, regardless of an adjudication on the merits in a prior action, and whether the doctrine of res judicata necessarily bars successive foreclosure suits where a lender sought to accelerate payments on the note in the first suit.
Courts have held that res judicata does not bar the later foreclosure action, because a new default -- based on a different act or date of default not alleged in the dismissed action -- creates a new cause of action that is not barred by res judicata. See Singleton v. Greymar Assocs., 882 So. 2d 1004, 1008 (Fla. 2004); Star Funding Solutions, LLC v. Krondes, 101 So. 3d 403, 403 (Fla. 4th DCA 2012).
The Appellate Court in this case agreed with Lender that despite an adjudication on the merits in a prior action to foreclose a mortgage, res judicata did not render the mortgage unenforceable by precluding enforcement actions on subsequent defaults. Nor did an acceleration of debt in the initial action impact the Court’s res judicata analysis.
The Appellate Court explained that, while a foreclosure action with an acceleration of debt may bar a subsequent foreclosure action based on the same event of default, it would not bar subsequent actions and acceleration based upon different events of default. See Singleton, 882 So. 2d at 1008. Accordingly, the Court held that the mortgage remained enforceable based on subsequent defaults.
The Court turned to HOA’s quiet title claim. The Court reasoned that because each payment default created a basis for a subsequent foreclosure, the note and mortgaged remained a valid and enforceable lien against the property, and did not, as a matter of law, constitute a cloud on the property supporting a quiet title claim. See Kaan v. Wells Fargo Bank, N.A., 981 F. Supp. 2d 1271, 1274 (S.D. Fla. 2013).
Accordingly the Appellate Court reversed the trial court’s rulings and remanded the matter.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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