FYI: Fla Ct (11th Jud Cir) Holds Borrower's Heir Could Raise Statute of Limitations Defense in Foreclosure

The Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida recently dismissed a second foreclosure complaint, filed more than five years after the initial complaint and alleging the same incident of default, as barred by the statute of limitations. 

 

In so ruling, the Court also held that the borrower's daughter and sole beneficiary to the property encumbered by a reverse mortgage had standing to assert the statute of limitations defense.   A copy of the order is attached.

 

In October of 2007, a borrower entered into "home equity conversion mortgage," commonly known as a "reverse mortgage."  After the borrower died in May of 2008, 100% of her homestead property was devised to her daughter.  The then-mortgagee sued to foreclose in July 2009, alleging that he was the borrower's 2008 death triggered the acceleration clause in the mortgage.  The 2009 foreclosure complaint was dismissed in 2013.

 

In September 2014, a new holder of the note ("mortgagee") filed a foreclosure complaint which alleged the same date of default — the May 2008 death of the borrower — and cited the acceleration provision of the reverse mortgage as grounds for accelerating the debt. 

 

After the borrower's daughter was granted homestead status of the property by the Probate Circuit Court of Miami-Dade County as heir to the borrower in May 2016, she moved to dismiss the foreclosure complaint on the grounds that the suit is barred by Florida's five-year statute of limitations.  A nonjury trial followed.

 

At trial, the mortgagee argued that the borrower's daughter lacked standing to assert the statute of limitations defense, as such defense is personal in nature, and she lacked privity with the note and reverse mortgage.

 

Under Florida law, a defendant may not assert a statute of limitations defense if the defendant has no relation of privity with the party who has the defense.  However, when there is privity between a person who could, if sued, plead the statute of limitations and the party offering to plead it, the party offering to plead the defense may raise it to save his or her property.

 

Here, the Court concluded that as the sole legal titleholder of the encumbered, homestead-protected property, the borrower's daughter had standing to plead a statute of limitations defense.

 

Next, the Court examined whether or not Florida's 5-year statute of limitations applied.  As you may recall, under Florida Law, when a mortgage declares the entire indebtedness due upon default of certain of its provisions or within a reasonable time thereafter, the statute of limitations to a foreclosure claim begins to run immediately when the default takes place. § 95.11(2)(c), Fla. Stat. (2016).  To determine whether a second foreclosure claim amounts to a statute of limitations violation, Florida courts examine the duration between the foreclosure actions and the types of default that triggered those actions.  See Singleton v. Greymar Assocs., 882 So. 2d 1004 (Fla. 2004) [29 Fla. L. Weekly S481a]; Deutsche Bank Tr. Co. Ams. v. Beauvais, 188 So. 3d 938 (Fla. 3d DCA 2016) [41 Fla. L. Weekly D933b].

 

Here, the Court noted that the reverse mortgage at issue permits acceleration of the debt upon the death of the borrower.  Moreover, the Court added, "a reverse mortgage, unlike a traditional, installment loan mortgage with a monthly payment obligation, does not have successive events of default where the basis for acceleration is death of the borrower. Accordingly, the loan cannot be decelerated."

 

Because both foreclosure complaints alleged the same dates of default, the Court concluded that it was "unlikely that the actions allege subsequent and different defaults as laid out in Singleton," and that the statute of limitations applied to any subsequent foreclosure action.  Thus, because the instant, second foreclosure action was filed more than five years after the borrower's 2008 death and date of alleged default, and the defaults in both foreclosure actions were the same, the Court held that the statute of limitations applied.

 

Accordingly, final judgment was entered in favor of the borrower's daughter and against the mortgagee.

 

 

 

 

Ralph T. Wutscher
Maurice 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 7th Cir Holds Debt Collectors Did Not Violate FDCPA By Demanding Prejudgment Interest Under Wisconsin Law

The U.S. Court of Appeals for the Seventh Circuit recently held that two debt collectors were entitled to demand payment for both principal amounts owed and interest under Wisconsin law.

 

Therefore, the Court held, the debt collectors' dunning letters demanding the principal sums owed and 5% per annum interest did not violate the federal Fair Debt Collection Practices Act, even where the demand was made prejudgment.

 

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

 

After the consumer plaintiffs failed to pay their bill for medical services received, their providers referred the debts to the defendant debt collectors. 

 

The debt collectors sent dunning letters demanding payment not only of the principal amounts owed but also of 5% per annum interest. The consumers argued that the letters violated the FDCPA in that Wisconsin law provides for interest only if a debt has been reduced to judgment, and any prejudgment request for interest is forbidden.

 

The debt collectors argued that interest under Wis. Stat. §138.04 runs automatically, and that a judgment just memorializes what state law requires.  They also argued that Wis. Stat. §426.104(4)(b), which creates a safe harbor for people who act in ways approved by the Administrator of Wisconsin's Department of Financial Institutions ("Administrator") applied, because the debt collectors sent the Administrator a letter asking if they were entitled to the interest, and because the Administrator did not respond within 60 days which is the equivalence of approval.

 

The trial court agreed with both of the debt collectors' arguments and granted summary judgment in their favor.

 

On appeal, the Seventh Circuit agreed that the Wisconsin safeharbor statute applied.  After quoting the statute, the Court held that the debt collectors were permitted to rely on the safeharbor provision, and therefore "when the defendants sent their dunning letters, they were entitled to demand payment of both the principal amounts and interest under §138.04."  Thus, the Court held the debt collectors also did not violate the FDCPA.  

 

In addressing the consumers' argument that the safeharbor statute was preempted by 15 U.S.C. §1692n, which provides that states may add but not subtract from the protections that the FDCPA offers to consumers, the Seventh Circuit held that "[Section] 1692n has nothing to do with interest — or for that matter with any other component of the debt."  Instead, the Court held, "Section 1692n deals with debt-collection practices, not how to determine the amount owed. The FDCPA itself provides that debt collectors may add interest when permitted by law."

 

In addition, the Seventh Circuit held that "[t]he safe harbor, if not §138.04 itself, permits defendants to add 5% interest to plaintiffs' debts."  Moreover, "[u]ntil the Administrator says something more, or a state court lifts the safe harbor under §426.104(4)(b) (and in addition rules that §138.04 does not by itself allow the debt collectors' practice), neither state nor federal law forbids dunning letters that demand 5% interest from debtors in Wisconsin."

 

Accordingly, the Seventh Circuit affirmed the ruling of the trial court.

 

 

 

 

Ralph T. Wutscher
Maurice 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 9th Cir Rejects Debtor's Attempt to Avoid SBA Judgment By Disclaiming Inheritance

The U.S. Court of Appeals for the Ninth Circuit recently affirmed the district court's judgment in favor of the United States Small Business Administration ("SBA") in a Federal Debt Collection Procedures Act, 28 U.C.S. § 3001 et seq. ("FDCPA"), lawsuit the SBA filed against a loan guarantor to satisfy a default judgment assigned to it after the guarantor disclaimed an inheritance to avoid paying the judgment. 

 

The Federal Debt Collection Procedures Act, which governs the collection of money owed to the U.S. government, should not be confused with the federal Fair Debt Collection Practices Act, which is found at 15 U.S.C. § 1692 et seq. and governs how debt collectors may collect debts from consumers.

 

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

 

The SBA, a federal government agency, guaranteed 75% of a $175,000 small business loan between a private bank and a company, and the company's owner personally guaranteed the loan. The company defaulted on the loan, and the private bank sued the company and guarantor, obtaining a default a judgment against them. When neither the company nor the guarantor satisfied the default judgment, the bank assigned the default judgment to the SBA to honor is guaranty of the loan, which totaled over $300,000.

 

The guarantor later inherited a share of his deceased father's trust, which was valued at over $150,000.  Instead of accepting the inheritance, he signed a disclaimer under California law that allowed him to renounce his share of the trust and legally pass it to his two children, thereby attempting to prevent his creditors from accessing his share of the trust.  The SBA filed a lawsuit under the FDCPA seeking to void the disclaimer under the FDCPA's prohibition of fraudulent transfers of property. 

 

The guarantor countered that California law permitted the disclaimer because it states that a disclaimer is not a voidable transfer, and that the default judgment obtained against the guarantor was not a "debt" as defined by the FDCPA.  The trial court disagreed, holding that the FDCPA pre-empted California law and that the default judgment was a debt within the meaning of the FDCPA. The guarantor appealed.

 

In affirming, the Ninth Circuit explained that the FDCPA's fraudulent transfer provision, 28 U.S.C. §3304(a), permits the federal government to void a fraudulent transfer by a debtor who owes a debt to the U.S. where the existence of the debt pre-dated the transfer, there was a transfer of assets, a lack of equivalent value in exchange of the transfer, and the debtor's insolvency at the time of the transfer. The parties' arguments focused on whether the guarantor's disclaimer qualified as a transfer of property and whether the default judgment constituted a debt within the meaning defined by the FDCPA. 

 

The guarantor argued that he had acted lawfully under the California Probate Code, which states that a disclaimer is not a voidable transfer. The Ninth Circuit held, however, that California law directly conflicted with the FDCPA, which defines "transfer" so as to include the guarantor's disclaimer because it involves "every mode…of disposing of or parting with an asset or an interest in an asset…". 28 U.S.C. §3301(6).  Thus, the Court held, the disclaimer was a transfer of property that could be voided under the FDCPA and the federal statute pre-empted state law, which the Ninth Circuit found was supported by U.S. Supreme Court precedent.

 

The guarantor's argument that the default judgment did not qualify as a debt under the FDCPA also failed.  The FDCPA defines "debt" as an amount owing to the U.S. government because of a direct loan or a loan insured or guaranteed by the U.S., includes a long list of various types of debts and financial obligations, and contains the catch-all phrase "other source of indebtedness."  28 U.S.C. §3002(3).  The Ninth Circuit found that the default judgment fit into the catch-all phrase and that limiting language attached to the catch-all phrase ("owing under the terms of a contract originally entered into by only persons other than the United States") did not prevent the default judgment from qualifying as "debt" under the statute. 

 

In reaching its ruling, the Ninth Circuit examined the statutory language and purpose of the FDCPA, the House report and legislative discussion on the statute, and case law interpreting limiting language in statutes. It reasoned that, looking beyond the label given to the debt and analyzing the source of the debt, especially the contract that the created the debt, led to the conclusion that the SBA was a party to the contract that created the debt and had statutory authority to pursue collection of it.

 

The Court rejected the guarantor's arguments that the default judgment had not been entered in favor of the U.S., but merely assigned to the SBA, that the financial obligation was merely a guaranty and not a loan, and that the SBA improperly sought to enforce the entire default judgment instead of only the portion related to the SBA loan. The Ninth Circuit found each of the arguments to be without merit or legal authority.

 

Accordingly, the Ninth Circuit affirmed the trial court's holding that the SBA was allowed to reach the guarantor's trust share because the FDCPA pre-empted California's disclaimer law and the default judgment was a debt within the statute.

 

 

 

Ralph T. Wutscher
Maurice 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: Fla App Ct (4th DCA) Holds Post-Foreclosure Deficiency Action Not Affected By Publication Service in Foreclosure

The District Court of Appeal of the State of Florida, Fourth District, recently held that a creditor may obtain a post-foreclosure deficiency judgment against a borrower when the borrower was personally served with process in the post-foreclosure deficiency action, and the fact that the foreclosure court only acquired in rem jurisdiction due to service by publication in the prior foreclosure did not matter.

 

In addition, the Appellate Court held that section 702.06, Florida Statutes, which governs deficiency judgments, is unambiguous and allows a separate suit to recover a deficiency where the foreclosure judgment did not adjudicate a claim for a deficiency judgment.

 

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

 

A borrower defaulted on his mortgage. The mortgagee sued to foreclose and obtained a final judgment of foreclosure. The final judgment reserved jurisdiction to enter a deficiency judgment.

 

The property encumbered by the mortgage was sold at judicial sale, but the proceeds were not enough to satisfy the amount owed.  The right to pursue the deficiency was assigned to a company, which sued the borrower for a deficiency judgment.

 

In the deficiency action, the borrower filed an answer and moved for summary judgment, arguing that the trial court lacked jurisdiction to enter a deficiency judgment "because he was served with the original foreclosure complaint by publication."  The trial judge granted the borrower's motion, reasoning that section 702.06, Florida Statutes, which governs deficiency judgments, was "both vague and a violation of due process."

 

On appeal by the creditor, the Fourth District reversed, finding the "[lower] court's ruling was incorrect on all accounts."

 

First, relying on its 1986 decision in NCNB Natl. Bank of Florida v. Pyramid Corp., the Appellate Court held that because the borrower was personally served with process in the deficiency action, the lower court had personal jurisdiction over him, and the fact that the foreclosure court only acquired in rem jurisdiction due to service by publication was irrelevant.

 

Second, the Appellate Court held that the trial court misread section 702.06, noting that the Appellate Court recently held in two 2016 cases involving the same creditor that the relevant statutory language — "The complainant shall also have the right to sue at common law to recover such deficiency, unless the court in the foreclosure action has granted or denied a claim for a deficiency judgment" — was "unambiguous and permits a separate suit to recover a deficiency where the foreclosure court did not grant or deny a claim for a deficiency judgment."

 

Accordingly, the trial court's grant of summary judgment in favor of the borrower was reversed and the case remanded.

 

 

 

Ralph T. Wutscher
Maurice 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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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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