FYI: Cal App Ct Soundly Rejects Borrower's Third Attempt to Challenge Foreclosure

Noting that “[t]here are no free houses,” the Court of Appeal of the State of California, Second Appellate District, recently held that a borrower’s wrongful foreclosure claims had been adjudicated in a prior bankruptcy action, and in a prior unlawful detainer action, and were therefore barred by the doctrine of res judicata.  In so ruling, the Court stated “"[s]omewhere along the line, litigation must cease."

 

A copy of this opinion is available at: http://www.courts.ca.gov/opinions/documents/B255958.PDF

 

The borrower originally signed a promissory note for $1.15 million in 2006, secured by a deed of trust on his residence.  The note specifically advised the borrower that the originating lender could transfer the note.  The originating lender then transferred the note to an asset securitization trust.  The deed of trust was also assigned to the trustee of the trust.

 

Thereafter, the borrower made payments for three and a half years.  The borrower defaulted in December, 2010, and a notice of default was recorded “based upon a $32,508.04 loan default.” 

 

The trustee foreclosed, and in an apparent attempt to stay the foreclosure, the borrower filed an emergency bankruptcy petition.  The borrower declared that his home was worth $630,000 and that he currently owed $1,182,166.69.  The servicer filed a proof of claim based upon the note and deed of trust, and also filed a motion for relief from the automatic stay.  Ultimately, the bankruptcy court granted relief from the stay and further found that the deed of trust was valid, finding a “chain of control and title of the note[.]”

 

The trustee then purchased the property at the foreclosure sale and brought an unlawful detainer action to evict the borrower.  The borrower defended the action claiming that deed of trust was invalid and claimed that the trustee did not perfect title in the property. 

 

This claim was rejected, and the trial court entered summary judgment in favor of the trustee, which was affirmed on appeal.  The trustee then sold the property to a subsequent buyer, recording the grant deed in October of 2013.

 

The borrower then filed the action that was the subject of this appeal.  The borrower alleged causes of action for wrongful foreclosure, declaratory relief, violation of the Unfair Practices Act (“UPA”), and to quiet title.  The defendants to that suit, including the trustee, demurred.  In response, the trial court sustained the demurrers, finding that the wrongful foreclosure cause of action was subject to a res judicata/collateral estoppel bar and that the causes of action for quiet title, declaratory relief, and violation of the [UPA] were derivative of the wrongful foreclosure claim.

 

As you may recall, “res judicata precludes piecemeal litigation by splitting a single cause of action or relitigating the same primary right.”  Mycogen Corp. v. Monsanto Co., 28 Cal. 4th 888 (2002).  Under the doctrine, “all claims based on the same cause of action must be decided in a single suit; if not brought initially, they may not be raised at a later date.”  Id.

 

On appeal, the appellate court first opined that the wrongful foreclosure claim had been adjudicated in two prior actions – the bankruptcy and the unlawful detainer action.  The unlawful detainer judgment – in which the court found that the foreclosure sale was proper and that title was perfected – created a res judicata bar “that extends to [the trustee], the subsequent purchaser … and the defendants who prepared and recorded the foreclosure documents and conducted the foreclosure sale.”  The appellate court also held that the trial court did not err in finding the borrower’s remaining claims subject to the same res judicata bar.

 

Second, the appellate court addressed the trial court’s alternative ground for sustaining the demurrers.  The appellate court rejected the borrower’s assertion that the note and deed of trust were void, finding that the evidence attached to the borrower’s own complaint indicated that the originating lender was an active California corporation when the loan originated.

 

Furthermore, the appellate court rejected the borrower’s argument that later assignments, including the assignment to the trustee, were void because the assignments were made after the asset securitization trust closed. 

 

Importantly, the appellate court opined that Glaski v. Bank of America, N.A., 218 Cal. App. 4th 1020 (2013) was both inconsistent with California foreclosure jurisprudence and did not apply as that case did not involve a similar res judicata bar.

 

In conclusion, the appellate court noted that there is “one constant theme in most, if not all ‘wrongful foreclosure’ cases: failure to pay on the note secured by a deed of trust,” and that this case was no exception.  “[The borrower] lost in the bankruptcy court.  He lost in United States District Court. He lost in the unlawful detainer court.  He lost in the Appellate Department of Superior Court.  He lost in Superior Court,” and “[h]e now loses here.” 

 

Accordingly, the appellate court affirmed the trial court’s order sustaining the trial court’s dismissal.

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: rwutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

 

 

 

 

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FYI: 7th Cir Says TILA Requires Immediate/Same-Day Crediting of Direct Online Payments

The U.S. Court of Appeals for the Seventh Circuit recently held that a mortgage servicer’s failure to credit online payments on the same day the consumer authorized them violates the federal Truth in Lending Act (“TILA”).

 

A copy of the opinion is available at:  Link to Opinion

 

The borrower made her mortgage payments electronically “online” using the servicer’s website, which then would withdraw funds from the borrower’s account through the Automated Clearing House (“ACH”) network.

 

The process involved the servicer compiling daily ACH batch files, which were then sent the following day to the ACH network. The servicer would credit payments made through its website two business days after an electronic payment was submitted, which was supposedly the earliest that it could receive the funds transfer through the ACH network from the borrower’s bank.  Payments were credited in this fashion regardless of whether the funds had actually been received and cleared in the servicer’s account.

 

The borrower’s mortgage loan required payment on the first of the month, and allowed a 15-day grace period before a late charge would be assessed.

 

The borrower made her December 2012 payment using the servicer’s online payment system.  She did so on a Thursday or Friday morning. The servicer did not credit her account until the following Tuesday, which was 2 business days later, pursuant to the policy published on its website.  However, due to the 2-business-day interval, the payment was not credited until after the 15th of the month, and the servicer charged a late fee.

 

The borrower sued, alleging that TILA requires mortgage servicers to credit online ACH payments the same day the payment authorization is made by the borrower, not when the payment is actually received and cleared in the account of the servicer or at any other later time.

 

The lower court granted the servicer’s motion for summary judgment, agreeing that TILA requires that an electronic payment be credited when the servicer receives the funds from the consumer’s bank account.

 

On appeal, the Seventh Circuit reversed.

 

As you may recall, TILA requires that a mortgage servicer credit payments “as of the date of receipt,” unless a delay in crediting does not result in a late fee or an adverse consumer credit report. See 15 U.S.C. § 1639(a). The issue here was what constitutes the “date of receipt.”

 

The Seventh Circuit turned to the Consumer Financial Protection Bureau’s official interpretation of TILA’s implementing Regulation Z for guidance, which defines “date of receipt” as “the date that the payment instrument or other means of payment reaches the mortgage servicer.” The Court held that the CFPB’s interpretation was not irrational because, “[w]hile the CFPB (and the FRB before it) could have determined that "payment" means the receipt of funds by the servicer, the conclusion that ‘payment’ refers to the consumer's act of making a payment is equally sensible.”

 

The Court noted that Regulation Z and the CFPB’s Official Interpretations do not define the term “payment instrument or other means of payment,” an online electronic payment authorization according to the Court fell within the broad “other means of payment” language. 

 

Moreover, the Seventh Circuit noted that “[p]aper checks must be credited when received by the mortgage servicer, not when the servicer acquires the funds.”  Accordingly, the Court rejected the servicer’s argument that the actual receipt of funds electronically, not the borrower’s electronic authorization starting the process, was the “payment instrument or other means of payment,” because if a paper check must be credited on the day it is received, not when the funds clear, the Court believed there was no reason why a mortgage servicer can legitimately complain about a similar process when it receives an online electronic authorization to start the process of withdrawing funds from the borrower’s bank account as in a check transaction.

 

Finally, the Seventh Circuit rejected the servicer’s last argument as the term “preauthorized payment” in the last line of the Official Interpretations:

 

If the consumer elects to have payment made by a third-party payor such as a financial institution, through a preauthorized payment or telephone bill-payment arrangement, payment is received when the mortgage servicer receives the third-party payor's check or other transfer medium, such as an electronic fund transfer.

 

CFPB’s Official Interpretation of 12 CFR § 1026.36(c)(1)(i).

 

The servicer argued that “preauthorized payment” refers to when the borrower transmits her authorization to the servicer to withdraw funds from her account, meaning that the servicer could wait until it received the electronic funds from the borrower’s bank to credit the account.  However, the Court reasoned that the better reading was the one urged by the borrower, under which “preauthorized payments” means advance authorizations given to third parties such as automatic bill payments set up by a borrower through her bank or other third party bill paying services, not a payment authorization given directly by the borrower to the servicer to collect the payment.

 

This interpretation, the Seventh Circuit opined, promotes one of the purposes of TILA, which is to protect consumers from unwarranted delay by mortgage servicers. To do otherwise, according to the Court, would give servicers an incentive to collect payments through a slower method in order to generate late fees, because when the consumer deals directly with the servicer, the servicer controls the timing of submitting the authorization for payment to the ACH network. According to the Seventh Circuit, this potential for abuse does not occur when the borrower arranges payment through a third party payment company or automatic bill payment service, because in that situation there is no opportunity for the servicer to delay as it must credit the payment when it receives it from the third party, as required by the last sentence of the CFPB’s Official Interpretations.

 

The Seventh Circuit concluded that a borrower’s electronic authorization for a mortgage payment made through mortgage servicer’s website constitutes a “payment instrument or other means of payment” under TILA, and that TILA requires mortgage servicers to credit such payment authorizations when the authorization is received by the servicer.

 

The Court held that, because the servicer here did not credit the borrower’s payment when it received her authorization, it was not entitled to summary judgment, and therefore reversed and remanded for further proceedings.

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: rwutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

 

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FYI: Ill App Ct Holds Mortgagee Has Hazard Insurance Coverage Claim Independent Of Mortgagor

The Appellate Court of Illinois, First District, recently affirmed a lower court’s judgment finding coverage for a mortgagee’s property damage claim despite the insurer’s position that the loss was not covered. 

 

The Appellate Court held that the standard mortgagee clause contained in the insurance policy was a separate and distinct contract between the mortgagee and insurer that shields the mortgagee from coverage defenses arising from the acts of the named insured.

 

In sum, the Appellate Court opined – for the first time in Illinois – that where an insurance policy contains a standard mortgagee clause, the acts of the named insured, while potentially defeating coverage as to the named insured’s claim, cannot defeat coverage for a mortgagee’s claim so long as the terms of the mortgagee provision are complied with. 

 

The Appellate Court also held that pre-judgement interest begins to run on the date of the insurers’ denial of claim, and that post-judgment interest begins to accrue on the date that pre-judgment interest stops accruing.

 

A copy of this opinion is available at: http://illinoiscourts.gov/Opinions/AppellateCourt/2015/1stDistrict/1140265.pdf

 

By way of background, the named insured purchased a commercial warehouse in 2007 (the “risk”).  Shortly thereafter, one of the partners in the named insured died, and no business operations were ever conducted on the property.  The mortgagee obtained the existing mortgage in August of 2007. The building was entirely vacant at all times material to the litigation.

 

In June of 2008, the named insured applied for insurance through its insurance broker.  The insurance broker had binding authority with the insurer who ultimately wrote the risk.  The insurance broker handled the application personally, and transmitted it to the insurer electronically.  However, the application contained incorrect information, including but not limited to listing a much smaller size for the building, and stating that the property was owner-occupied.  It was undisputed in the litigation that the named insured had no involvement in preparing the electronic application.  The mortgagee was not named in the policy at the time it was initially issued.

 

In 2009, after the policy had been automatically renewed, the mortgagee contacted the insurance broker and requested that they add it to the insurance policy as a mortgage holder. In response the insurance broker returned proof of insurance indicating that the mortgagee had been added to the policy.

 

As a mortgage holder, the mortgagee then became the beneficiary of a “standard mortgage clause” rather than a “simple mortgage clause.”  Per the appellate court’s opinion, a standard mortgage clause “forms a separate and distinct contract between the insurer and the mortgagee, the effect of which is to shield the mortgagee from being denied coverage based upon the acts or omissions of the insured or the insured’s noncompliance with the terms of the policy.” 

 

In December of 2009, vandals broke into the risk, damaging the building and stealing wires, copper pipes and other equipment.  In response, both the named insured and the mortgagee provided timely notice of claim to the insurer.  However, the insurer informed them that because the property was vacant for more than sixty days prior to the loss, it denied coverage.

 

Thereafter, the named insureds and the mortgagee sued the insurer seeking to recover the value of their claim.  The trial court ultimately granted summary judgment in favor of the mortgagee, “concluding that, as a matter of law, [the mortgagee] was entitled to coverage under the mortgagee clause[.]” The trial court then entered final judgment in the mortgagee’s favor, awarding $816,833.13, which also included pre-judgment interest.  In contrast, the trial court agreed with the insurer and found the named insured’s claim was not covered due to the vacancy.

 

On appeal, the Appellate Court first opined, as the policy contained a standard mortgagee clause, that “the mortgagee must not be refused coverage as long as the loss did not result from its own breach of the policy.”  Because the insurer’s policy generally covers vandalism, and only “relieves [the insurer] of the obligation of pay the named insured for … covered losses” where the property is vacant more than sixty days prior to a loss, the appellate court held that the named insured’s failure to occupy the building as required did not affect the mortgagee’s rights under the policy.

 

Second, the Appellate Court addressed the insurer’s objections to the trial court’s award of prejudgment interest.  The insurer originally objected to the award as calculated, arguing that interest began to run on December 12, 2013 (the date of the court’s judgment), rather than on July 15, 2010, which was the date it denied the claim. 

 

The policy unambiguously states that it was to pay a covered loss within thirty days of the submission of a sworn statement in proof of loss, so long as the loss payee has complied with the terms of the policy.

 

Here, the mortgagee submitted its proof of loss on June 25, 2010, and it otherwise complied with the terms of the policy.  As such, the appellate court rejected the insurers’ argument and affirmed the trial court’s award of pre-judgment interest.  In doing so, it opined that “[w]hen an insurance carrier breaches its policy by denying coverage, the amount due under the policy is payable within the time fixed after the tender of the proof of loss and will bear interest from that date.”

 

Finally, the Appellate Court clarified that “the beginning date for the accrual of post-judgment interest marks the ending date for the accrual of pre-judgment interest.”  As such, it concluded that July 23, 2013 was the date that post-judgment interest began to accrue, and held that July 23, 2013 was also the correct date to terminate the accrual of pre-judgment interest.

 

Accordingly, the Appellate Court affirmed the trial court’s rulings in favor of the mortgagee and against the insurer.

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: rwutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

 

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FYI: Commentary Following US Sup Ct Rejection of Challenge to 2010 DOL Mortgage Loan Officer Overtime Pay Rule

As widely reported, the Supreme Court of the United States recently rejected a challenge to the U.S. Department of Labor’s March 24, 2010 Administrator’s Interpretation (No. 2010-1), which concluded that mortgage loan officers do not qualify for the “administrative exemption” under the federal Fair Labor Standards Act (“FLSA”), and therefore that mortgage loan officers are entitled to overtime pay.

 

In so ruling, the Court held that the Administrative Procedure Act (“APA”) does not require a federal administrative agency to use the notice-and-comment procedure to amend or repeal “interpretive rules,” which “do not have the force and effect of law and are not accorded that weight in the adjudicatory process.”  Under the Court’s ruling, only a “legislative rule” requires notice-and-comment rulemaking, and has the “force and effect of law.”

 

A copy of the opinion is available at:  http://www.supremecourt.gov/opinions/14pdf/13-1041_0861.pdf

 

COMMENTARY

 

Several commenters have noted that the Court’s ruling only lets stand the U.S. Department of Labor’s 2010 Administrator’s Interpretation as to the “administrative exemption” to overtime pay under the FLSA. 

 

The commenters note that the ruling says nothing about other exemptions from the FSLA’s overtime pay requirements that might apply to mortgage loan officers, such as the FLSA’s “outside sales” exemption, the “executive” exemption, and the “highly compensated” exemption.

 

Other commenters note that, even though the Court held that the U.S. Department of Labor’s 2010 Administrator’s Interpretation is only an “interpretive rule,” and therefore officially does not have the “force and effect of law” (i.e., it is not necessarily binding on private parties or the courts), courts frequently defer to agency interpretations of a law or regulation.

 

Other commenters note the effects of this ruling on procedural rules relating to administrative law and statutory interpretation, not the least of which is that the ruling appears to empower federal agencies to make significant changes in their interpretation and application (and enforcement) of federal laws without need for notice-and-comment rulemaking procedure, with the new interpretation by the federal agency often being entitled to deference from the courts. 

 

The ruling, some commenters note, might encourage challenges to agency interpretations as in effect being “legislative rules” that did not properly go through the notice-and-comment rulemaking (an argument the Court held was waived in this case), or perhaps other challenges that the new interpretation violates the “arbitrary and capricious” standard under 5 U.S.C. § 706(2)(A), or that the new interpretation is contrary to the unambiguous language of the statute, or that the new interpretation is not based on a reasonable or permissible construction of the statute (which the Supreme Court has indicated is the same or virtually the same as the “arbitrary and capricious” standard under 5 U.S.C. § 706(2)(A)).

 

 

THE RULING

 

The Administrator of the Department of Labor’s Wage and Hour Division (“DOL”) issued opinion letters in 1999 and 2001 that mortgage-loan officers do not qualify for the administrative exemption to overtime pay requirements under the Fair Labor Standards Act (“FLSA”).

 

In 2004, the DOL issued a regulation concluding that mortgage-loan officers did not qualify for the administrative exemption to the overtime pay requirements of the FLSA.  Stated simply, this meant that mortgage loan officers were entitled to overtime pay.

 

At the request of an industry trade group, the DOL in 2006 reversed course, issuing an opinion letter to the effect that mortgage loan officers fell within the administrative exemption, and thus were not entitled to overtime pay.

 

However, in 2010, the DOL reversed course yet again by withdrawing its 2006 opinion letter and issuing a new “Administrator’s Interpretation,” which concluded that mortgage loan officers do not qualify for the administrative exemption, and thus are entitled to overtime pay.

 

The 1999, 2001, and 2006 opinion letters, and the 2010 Administrator’s Interpretation, were all issued without notice or an opportunity for comment.

 

The industry trade group sued, arguing that the DOL used the wrong rule-making procedure because the holding of the U.S. Court of Appeals for the D.C. Circuit in Paralyzed Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579 (D.C. Cir. 1997), and its progeny requires an agency to use the notice-and-comment procedure when it comes up with a new interpretation of the law that deviates significantly from its previous interpretation.

 

The DOL won on summary judgment in the district court, but the D.C. Circuit reversed, finding that the Paralyzed Veterans doctrine controlled. The DOL appealed to the Supreme Court of the United States, seeking a writ of certiorari.

 

The Supreme Court reversed, holding that “[t]he Paralyzed Veterans doctrine is contrary to the clear text of the APA’s rulemaking provisions, and it improperly imposes on agencies an obligation beyond the “maximum procedural requirements” specified in the APA.”

 

The Supreme Court noted that, under the APA, “[w]hen a federal administrative agency first issues a rule interpreting one of its regulations, it is generally not required to follow the notice-and-comment rulemaking procedures” under that statute. 

 

The Court stated that the APA creates two kinds of rules: (1) “legislative rules” that are issued using a notice-and-comment procedure and have the force and effect of law; and  (2) “interpretive rules” that are advisory only, providing the agency’s reading of the meaning of the statutes and rules it administers, and “do not have the force and effect of law and are not accorded that weight in the adjudicatory process.”

 

The Court reasoned that, because an agency is not required to use this procedure when it initially issues an interpretive rule, it need not use it when it amends or repeals that rule.  The Court held that “[b]ecause an agency is not required to use notice-and-comment procedures to issue an initial interpretive rule, it is also not required to use those procedures when it amends or repeals that interpretive rule.”

 

The Supreme Court noted that “the APA requires an agency to provide more substantial justification when ‘its new policy rests upon factual findings that contradict those which underlay its prior policy; or when its prior policy has engendered serious reliance interests that must be taken into account. It would be arbitrary and capricious to ignore such matters.’”

 

The Court also noted that “the FLSA provides that ‘no employer shall be subject to any liability’ for failing ‘to pay minimum wages or overtime compensation’ if it demonstrates that the ‘act or omission complained of was in good faith in conformity with and in reliance on any written administrative regulation, order, ruling, approval, or interpretation’ of the [DOL], even when the guidance is later ‘modified or rescinded.’”

 

Accordingly, the Court reversed the judgment of the U.S. Court of Appeal for the D.C. Circuit, rejecting the Paralyzed Veterans doctrine because it is inconsistent with the APA’s rulemaking provisions by imposing a judge-made obligation requiring the notice-and-comment procedure when an agency changes its interpretation of a regulation that it enforces.

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: rwutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

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FYI: Fla App Ct (4th DCA) Holds Voluntary Dismissal of Foreclosure Does Not Necessarily Make Borrower "Prevailing Party" Entitled to Atty Fees

The District Court of Appeal of the State of Florida, Fourth District, recently held that, where neither party substantively prevails in litigation, then neither party can be viewed as a prevailing party for the purpose of recovering attorney’s fees under a contractual attorney’s fees provision made reciprocal under section 57.105(7), Florida Statutes. 

 

The appellate court reached this conclusion because the short sale agreement between the parties, which led to the mortgagee’s voluntary dismissal, resulted in both the mortgagor losing his home and recovering none of the proceeds of the sale, as well as the mortgagee recovering less than 25% of the full amount claimed in the foreclosure.

 

A copy of the opinion is available at: http://www.4dca.org/opinions/March%202015/03-18-15/4D14-2359.Rehearing.pdf

 

Here, a mortgagor appealed a trial court’s order denying his motion for attorney’s fees as the purported prevailing party in a foreclosure action.  His position was that because the mortgagee voluntarily dismissed the foreclosure, he prevailed in the litigation and was entitled to attorney’s fees under the contractual provision in the mortgage made reciprocal under section 57.105(7), Florida Statutes.

 

By way of background, the mortgagee filed a foreclosure against the mortgagor as he was in default.  The mortgagor answered and further invoked Fla. Stat § 57.105, which he asserted would entitle him to recover his incurred fees in the event he prevailed in the case.

 

Final summary judgment was ultimately entered in the mortgagee’s favor, nut during the mortgagor’s appeal of the judgment, the property was the subject of a short sale to a third party.  Because of this, the mortgagee “moved to cancel the foreclosure sale, vacate the summary judgment, dismiss the action and return the original note and mortgage, which the trial court granted.”  However, neither party requested the appellate court dismiss the mortgagor’s appeal of the final summary judgment before dismissing the action in the trial court.

 

Thereafter, over a year following the short sale, the appellate court reversed the final summary judgment and remanded the case.  On remand, the mortgagor moved for attorney’s fees, “arguing that he was the prevailing party in the case and entitled to fees[.]”  However, the trial court denied his motion for attorney’s fees.  The mortgagor then filed the instant appeal.

 

Initially, the appellate court noted that the mortgagor’s request for fees in his answer was “sufficient to place [the mortgagee] on notice of [the mortgagor’s] intent to seek attorneys’ fees in the action.”  The appellate court also deemed the mortgagee’s attempt to voluntarily dismiss the trial court litigation during the appellate review of the final summary judgment to have been a nullity, and that it did not factor in their analysis.

 

Under Fla. Stat. § 57.105(7):

 

If a contract contains a provision allowing attorney’s fees to a party when he or she is required to take any action to enforce the contract, the court may also allow reasonable attorney’s fees to the other party when that party prevails in any action, whether as plaintiff or defendant, with respect to the contract. This subsection applies to any contract entered into on or after October 1, 1988.

 

In addition, under this stature, “[a] plaintiff’s voluntary dismissal makes a defendant the ‘prevailing party’ within the meaning of [the statute], even if the plaintiff refiles the case and prevails.”  Mihalyi v. LaSalle Bank, N.A., 39 Fla. L. Weekly D2269 (Fla. 4th DCA Oct 29, 2014). 

 

However, “it is [the] results, not [the] procedure, which govern the determination of which party prevailed for purposes of awarding attorney’s fees[.]”  Tubbs v. Mechanik Nuccio Hearne & Wester, P.A. 125 So. 3d 1034 (Fla. 2d DCA 2013). 

 

Here, the appellate court noted that “upon voluntary dismissal after execution of the short sale agreement, [the mortgagor] lost his home and received none of the proceeds of the sale of the property, yet the amount [the mortgagee] received from the short sale constituted less than 25% of the amount claimed prior to the voluntary dismissal.” 

 

Because of this, the appellate court opined that “the conclusion that neither of the parties achieved their litigation objectives in [this foreclosure] case is inescapable.”

 

Therefore, as “the purpose of section 57.105 is to deter misuse of the judicial system and discourage needless litigation,” the appellate court declined to hold the mortgagee responsible for paying the mortgagor’s attorney’s fees and affirmed the trial court’s order denying the mortgagor’s motion for attorney’s fees.

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: rwutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

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FYI: Fla App Ct (5th DCA) Reverses Atty Fee Award In Favor of Borrowers in Unsuccessful Foreclosure Action

The District Court of Appeal of the State of Florida, Fifth District, recently reversed a trial court’s award of over $20,000 in attorney’s fees to the borrowers based on the mortgage’s prevailing party attorney’s fee provision, holding there was no legal basis for the award.

 

A copy of the opinion is available at:  http://www.5dca.org/Opinions/Opin2015/030915/5D14-1649.op.pdf

 

The mortgagee sued to foreclose its mortgage and, in response, the borrowers moved to strike the bank’s pleadings and for sanctions on the basis that their signatures on the mortgage were allegedly forged. The trial court held an evidentiary hearing and granted the borrowers’ motion, struck the bank’s pleadings with prejudice, and found the borrowers were entitled to an award of attorney’s fees at an amount to be determined at a later date.

 

After some convoluted motion practice, a second senior circuit judge entered an order awarding over $20,000 in attorney’s fees to the borrowers, and eventually referred the case back to the first judge.

 

As you may recall, many mortgage instruments – including the one at issue in this case – contain a provision requiring payment by the mortgagor of reasonable attorneys’ fees incurred for the purpose of enforcing and protecting the mortgagee’s rights under the mortgage. 

 

In addition, under Fla. Stat. § 57.105(7):

 

If a contract contains a provision allowing attorney’s fees to a party when he or she is required to take any action to enforce the contract, the court may also allow reasonable attorney’s fees to the other party when that party prevails in any action, whether as plaintiff or defendant, with respect to the contract.

 

The mortgagee here appealed the award, arguing that the borrowers were not entitled to recover attorney’s fees. The appellate court agreed, and reversed the lower court’s orders to the extent they determined the issue of attorney’s fees in favor of the borrowers.

 

In support of its ruling, the appellate court first reasoned that no contractual basis existed for the fee award because, even though the mortgage contained a prevailing party fee provision, the trial court found that the borrowers’ signatures were forgeries and, as a result, the forged document was void and unenforceable and no legal obligations were created between the parties.

 

Next, the appellate court held there was no statutory basis for the fee award.

 

Although borrowers cited section 57.105, Florida Statutes in their first motion for attorney’s fees, the court questioned whether it applied to a contract that never came into existence, but then held that the borrowers had abandoned this argument in their second motion for attorney’s fees, which withdrew the first motion and was based on first trial judge’s initial order granting the borrowers’ motion to strike and for sanctions.

 

Finally, the appellate court analyzed and rejected the last basis under Florida law for an award of fees, the “inequitable conduct doctrine.”

 

The appellate court reasoned that under Florida Supreme Court precedent, a fee award based on the doctrine must contain express findings of bad faith conduct and detailed factual findings describing the specific acts of bad faith conduct that caused attorney’s fees to be incurred unnecessarily. 

 

Because the trial court had specifically found mortgagee’s counsel did not commit any unethical conduct and refused to impose sanctions against the mortgagee, the award of fees was inappropriate under the inequitable conduct doctrine.

 

 

Ralph T. Wutscher
McGinnis Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: rwutscher@mwbllp.com

 

Admitted to practice law in Illinois

 

 

 

 

 

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