FYI: Fla App Ct (1st DCA) Upholds Judgment in Action on Note Following Foreclosure

The District Court of Appeals of the State of Florida, First District, recently affirmed a monetary judgment against a borrower in a follow up action to collect the balance owed on the note secured by a mortgage, which follow up action was consolidated with a prior foreclosure action in which the court reserved jurisdiction to enter a deficiency judgment.

 

A copy of the opinion is available at: https://edca.1dca.org/DCADocs/2014/0930/140930_DC05_05012015_101049_i.pdf

 

The plaintiff bank sued to foreclose its mortgage on borrower’s property in 2008. The complaint also requested a deficiency judgment.

 

The trial court entered summary judgment against the borrower, reserving jurisdiction to enter a deficiency judgment. The plaintiff mortgagee was the highest bidder at the foreclosure sale and the clerk issued a certificate of title shortly thereafter.

 

In January of 2010, the mortgagee filed a second action at law for damages under the promissory note. The borrower moved to dismiss, arguing that the court lacked jurisdiction due to the foreclosure judge’s reservation of jurisdiction in the foreclosure judgment, and due to the fact that the mortgagee’s foreclosure complaint included a request for a deficiency judgment.

 

The mortgagee moved to consolidate the two cases, which was granted. The borrower’s motion to dismiss was later denied.  After a bench trial of the consolidated cases, the court in the consolidated action entered judgment for the mortgagee, minus $350,000 credit for the value of the property at the time of the foreclosure sale, resulting in a balance owed of just over $619,000.

 

The borrower appealed, arguing that the follow up action for damages was precluded by prayer for a deficiency in the foreclosure complaint, and by the foreclosure court’s reservation of jurisdiction to enter a deficiency judgment.

 

On appeal, the Appellate Court examined section 702.06, Florida Statutes, which governs the right to recover deficiency judgment.

 

The Appellate Court reviewed the Florida Supreme Court’s long line of cases interpreting the statute, which established the rule that if a deficiency judgment is pled in the foreclosure action, but not ruled upon, the creditor may seek to recover the balance owed after crediting the proceeds of sale through an action at law on the note.

 

However, Appellate Court also noted that the prior case law also holds that, where a deficiency judgment was pled in the foreclosure complaint and the trial court reserved jurisdiction to enter a deficiency, the creditor could not pursue a later, separate action at law on the note.

 

The Appellate Court distinguished the case at bar from the situation where a deficiency judgment was pled in the foreclosure complaint and the trial court reserved jurisdiction to enter a deficiency, noting that in the case at bar, the trial court in the foreclosure action (into which the follow up action on the note was consolidated) retained jurisdiction by virtue of the consolidation of the two cases and the borrower did not oppose consolidation.  Important to the Appellate Court was the fact that the trial judge treated the case as a deficiency proceeding rather than an action at law. 

 

The Appellate Court concluded that the trial court did not err in determining that the property was worth $350,000 at the time of the foreclosure sale, under Florida law.  According to the Appellate Court, the correct formula to calculate a deficiency judgment is the total debt reflected in the final judgment of foreclosure minus the fair market value of the property as of the date of the foreclosure sale.

 

Finally, the Appellate Court found that any procedural error by the trial judge was harmless error, because the borrower made no showing on appeal how he was prejudiced or harmed by how the consolidated cases proceeded or the manner in which the trial court calculated the amount owed. Accordingly, the final judgment below was affirmed.

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
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Chicago, Illinois 60602
Direct: (312) 493-0874
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Email: rwutscher@MauriceWutscher.com

 

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FYI: OH Sup Ct Rules Standing Must Exist When Foreclosure Is Filed, But Can Be Proven Later in Litigation

The Supreme Court of Ohio recently held that, although the plaintiff in a mortgage foreclosure action must have standing to sue when suit is filed, standing can be proven after the case is filed.

 

A copy of the opinion is available at: http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2015/2015-Ohio-1484.pdf

 

The plaintiff mortgagee sued to foreclose its mortgage in 2010 after borrowers defaulted on the promissory note. The complaint did not seek a deficiency because the borrowers’ personal liability had been discharged in bankruptcy.

 

One of the borrowers filed an answer raising lack of standing as a defense. The mortgagee moved for summary judgment, supporting its position on standing by submitting the affidavit of a “Default Litigation Specialist” who explained the chronology of events by which the mortgagee’s predecessor in interest changed its name then merged into the plaintiff mortgagee.

 

The trial court granted the mortgagee’s motion for summary judgment.  The borrower appealed on several grounds, but did not challenge the trial court’s conclusion that the bank had standing to sue.

 

The appellate court, however, took up the standing issue sua sponte. Relying on an earlier Ohio Supreme Court decision, the appellate court held that a foreclosure plaintiff must attach to the complaint proof that it has standing when the complaint is filed, and because the mortgagee didn’t do this, the appellate court held that the mortgagee lacked standing and thus could not invoke the court’s jurisdiction. The case was remanded to the trial court with instructions to dismiss the complaint without prejudice.

 

On appeal to the Supreme Court of Ohio, the mortgagee argued that it was not required to attach to the complaint the evidence it would use to prove standing. The Ohio Supreme Court began it analysis by reiterating that standing is a jurisdiction requirement and that a party that lacks standing cannot invoke the court’s jurisdiction. It then turned to its earlier decision, Fed. Home Loan Mortgage Corp. v. Schwartzwald, 134 Ohio St. 3d, 2012-Ohio-5017, 979 N.E. 2d 1214, on which the appellate court had relied in holding that the plaintiff in a foreclosure action must attach evidence of standing to the complaint.

 

In Schwartzwald, the note was not assigned to the plaintiff until after the complaint was filed, and the Ohio Supreme Court held that standing is determined when the complaint is filed and lack thereof cannot be cured by assignment before final judgment. The Court pointed out, however, that Schwartzwald did not hold that the plaintiff must also submit proof of standing at the time the case is filed.

 

Instead, citing two Ohio court of appeals decisions, the Ohio Supreme Court agreed that proof of standing may be submitted after the complaint is filed.

 

In addition, the Ohio Supreme Court reasoned that requiring a plaintiff to attached proof of standing to the foreclosure complaint would contravene Ohio’s notice-pleading standard, which only require a “short and plain statement of the claim.” The Court held that, because the factual allegations in the complaint are deemed true for purposes of determining whether the complaint states a claim, a plaintiff is not required to provide proof at the pleading stage beyond the allegations in the complaint.

 

The Ohio Supreme Court then turned to whether Ohio Rule of Civil Procedure 10(D), which requires that when a claim is based on a written instrument, it must be attached to the complaint, applied to the case at bar.  At least one Ohio appellate court had held that the rule requires a foreclosure plaintiff to attach loan documents to the complaint. The Court quickly dispatched this issue by concluding that the failure to attach documents to a complaint does not equate to lack of standing, and that Rule 10(D) does not apply to the case at bar because the issue presented was not whether the plaintiff attached loan documents to the complaint, but whether the plaintiff was the successor-in-interest to the original creditor.

 

The Ohio Supreme Court held that although a foreclosure plaintiff must have standing when suit is filed, proof of standing may be submitted after the complaint is filed. The judgment of the court of appeals was reversed, the foreclosure action reinstated, and the case remanded to the court of appeals for further proceedings.

 

 

 

 

 

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

 

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FYI: Fla App Ct (5th DCA) Reverses Trial Court's Refusal to Extend Duration of Lis Pendens

The District Court of Appeal of Florida for the Fifth District recently held that a trial court’s refusal to extend the duration of a lis pendens on real property was a departure from the essential requirements of law.

 

A copy of the opinion is available at: http://www.5dca.org/Opinions/Opin2015/042715/5D14-4009.op.pdf

Due to a scrivener’s error by the closing agent, the real property that was supposed to have secured a loan was not encumbered by the mortgage. The lender sued to reform the loan documents and foreclose or, in the alternative, to impose an equitable lien against the subject property.

The lender moved to extend the lis pendens, which pursuant to subsection 48.32(2), Florida Statutes, expires “1 year from the commencement of the action … unless the relief sought is disclosed by the pending pleading to be founded on a duly recorded instrument or on a lien claimed under part I of chapter 713 against the property involved, except when the court extends the time of expiration on reasonable notice and for good cause.”

The trial court denied the motion to extend the lis pendens and the lender appealed, seeking a writ of certiorari, which is the vehicle to review an interlocutory order discharging a lis pendens. In order to prevail, a petitioner seeking the writ must show that the interlocutory order departs from the essential requirements of law and causes irreparable harm that cannot be correct on appeal post-judgment.

Reversing the trial court’s ruling, the Appellate Court noted that a lis pendens that is not based on a recorded instrument must be dissolved unless the proponent establishes a fair nexus between the legal or equitable ownership of the property and the lawsuit.

The Appellate Court found that the fair nexus requirement was clearly met because the petitioner/lender presented substantial evidence that supported either reformation of the mortgage to include the subject property or imposition of an equitable lien.

The Appellate Court also found that the statute’s good cause requirement for extending the lis pendens was met, even though the trial court failed to make any findings in its order, because it was undisputed that the petitioner/lender actively litigated the case, the lender’s interest was the same as when the case was commenced and still needed protection from potential third-party lienors, and the subject property was central to the underlying dispute.

 

Accordingly, the Appellate Court held that the lis pendens should have been extended in order to protect lender’s interest and warn third parties about the pending lawsuit’s potential effect on the property.

The Appellate Court quashed the trial court’s order denying the extension and remanded with directions to reinstate the lender’s lis pendens on the subject property, leaving the trial court free to exercise its discretion to decide whether a bond is required under subsection 48.23(3), Florida Statutes.

 

 

 

 

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

 

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FYI: 1st Cir Confirms Loan Mod Rendered Borrower's "Standing" Challenge Moot

The U.S. Court of Appeals for the First Circuit recently dismissed a borrower’s appeal as moot because the borrower and loan servicer entered into a loan modification agreement while the appeal was pending, meaning the borrower was no longer subject to any actual or threatened foreclosure proceedings.

 

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

 

In 2005, the borrower obtained a $200,000 loan secured by a mortgage on her home. The mortgage was assigned twice, the last one to a bank as trustee. The first assignee, to whom the note was transferred along with the mortgage, endorsed the note in blank a payable to the bearer and eventually sold into the trust in late 2005.

 

The trustee sued in state court to foreclose the mortgage and the borrower responded by filing suit in federal district court, challenging the assignments for several reasons, including that the assignment to the trust violated the trust’s Pooling Service Agreement. The district court granted summary judgment in favor of the plaintiff trustee and the borrower appealed.

 

On appeal, the First Circuit learned for the first time at oral argument that the parties had entered into an agreement that brought the loan current. The Court asked the parties to submit a stipulation explaining the agreement and whether the case was rendered moot as a result of the agreement. The parties could not agree and filed separate statements explaining their position.

 

Despite the modification agreement, the borrower continued to argue that the plaintiff trustee lacked standing to sue due the allegedly invalid assignments.

 

The First Circuit directed the district court to hold an evidentiary hearing to determine and clarify whether loan modification agreement was valid and binding and whether the borrower still faced any actual or threatened foreclosure. After a hearing, the district court found that the modification agreement was valid and borrower no longer was subject to any actual or threatened foreclosure action, which the borrower did not dispute.

 

The First Circuit limited its focus to the borrower’s argument that the plaintiff trustee lacked standing to foreclose, first pointing out that mootness is jurisdictional and can be raised by the court sua sponte because an actual controversy must exist at all stages of a case, both at trial and appellate levels, in order to comply with the “case or controversy” requirement of Article III of the U.S. Constitution. As the Court noted, when there remain no “live” issues or the parties lack a legally cognizable interest in the outcome, a case becomes moot and must be dismissed.

 

The First Circuit then found that there no longer existed a live controversy because the borrower’s case hinged on whether the plaintiff trustee had standing to foreclose, but foreclosure was no longer being sought due to the parties’ execution of the modification agreement. 

 

Noting that federal courts do not issue declaratory rulings as to past actions that have no continuing effect and there remained no substantial controversy, the First Circuit concluded it lacked jurisdiction to issue an advisory opinion and dismissed the case as moot, taxing costs against the borrower.

 

 

 

 

 

 

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

 

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