Chapter 9-3 During Foreclosure

• Jurisdiction: United States

9-3 During Foreclosure

Normally, unless the association has already taken title from the borrower (and is thus likely renting out the property), the association usually doesn't actively attempt to thwart the mortgagee's foreclosure, as the association usually wants the non-paying borrower out of the property as much as the lender does.¹³ Sometimes the associations will even attempt to hurry the mortgagee's foreclosure along, by various means. Sometimes this eagerness to oust the defaulted borrower will cause the association to admit the mortgagee's right to safe harbor in its answer (which it normally should in good faith anyway), prohibiting its ability to challenge safe harbor post-judgment and sale under a waiver doctrine.¹⁴

But any attempt by associations to obtain lien priority over a mortgagee as a sanction for delay in the foreclosure will fail,¹⁵ and any attempt by the association to collect dues from the mortgagee before it takes title, due to alleged foreclosure delay, will fail.¹⁶

Where the association has taken title, and is thus renting the property or intends to do so, that association very well may challenge the foreclosure;¹⁷ of course, the association may challenge the foreclosure even if the association is just a lienor.¹⁸ In their challenge, associations will often raise many of the same arguments and defenses raised by borrowers in foreclosures, sometimes successfully.¹⁹ Older cases had allowed associations to challenge foreclosures, both as a lienor and a title holder, but without any analysis of their right to do so.²⁰

There are now cases, increasing in number and vehemence, that hold that, third-party purchasers (which could be associations) with an interest in the underlying property have standing to contest a foreclosure action brought by a party claiming a superior interest.²¹ In fact, the Third District's view is that there is no inter-district conflict such that all trial courts must follow its and the Fourth District's precedent on this issue.²² However, while they no doubt must alert trial courts to this authority, first mortgagees may arguably attack the association's standing to raise certain defenses in light of contrary case law such as that cited below as well as that cited by Judge Sleet in his concurrence in Pealer v. Wilmington Tr. Nat'l Ass'n for MFRA Tr., 212 So. 3d 1137, 1137-38 (Fla. 2d DCA 2017). Note however that the Second District has distinguished at length prior cases denying third-party purchaser standing to raise foreclosure defenses, in part on due process grounds.²³

Still, there are several cases, still good law, preventing third parties from asserting such defenses. It has been held that alleged harm to the borrower caused in the loan origination is not harm to the association because the association is not a party to the mortgage.²⁴ It has been held that a third-party purchaser at an association's foreclosure sale cannot raise a forgery defense against a first mortgagee,²⁵ and it has been held that no one but the borrower can argue failure of a mortgage's condition precedent, like the breach letter.²⁶

It has also been held that the association cannot raise a statute of limitations defense as to the mortgage, which defense is personal to the mortgagor,²⁷ unless, perhaps, the association has taken title from the borrower; some older authority distinguishes between the power of subsequent owners versus mere junior lienors to assert the statute of limitations defense.²⁸

However, it is relatively clear an association can challenge the amount due on the note, when it owns the property since that affects its right of redemption.²⁹ The ambiguous status of third-party standing to raise foreclosure defenses needs to be addressed by the Florida Supreme Court or the Florida Legislature.

The wise foreclosure lawyer will also ensure that the foreclosing lender adduces evidence of past dues owed, lien priority³⁰ and safe harbor entitlement, and will ensure that the final judgment specifically reserves jurisdiction for the circuit court to resolve post-judgment disputes over safe harbor and/or amounts owed to the association.³¹

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Notes:

^[13] See U.S. Bank Nat. Ass'n v. Tadmore, 23 So. 3d 822, 823 (Fla. 3d DCA 2009); Deutsche Bank Nat'l Trust Co. v. Coral Key Condo. Ass'n, 32 So. 3d 195 (Fla. 4th DCA 2010).

^[14] See Bank of Am., Nat. Ass'n v. Enclave at Richmond Place Condo. Ass'n, 173 So. 3d 1095, 1097-98 (Fla. 2d DCA 2015) ("We conclude that the Association's affirmative plea of entitlement to only the lesser of six months' unpaid assessments or one percent of the mortgage debt was a waiver of any claim to a greater assessment figure."). However, judicial estoppel may not be applicable in this circumstance, because generally a party has to prevail on the prior inconsistent position, and additionally, the doctrine has been weakened somewhat in the case of Anfriany v. Deutsche Bank Nat'l Tr. Co. for Registered Holders of Argent Secs., Inc., Asset-Backed Pass-Through Certificates, Series 2005-W4, 232 So. 3d 425 (Fla. 4th DCA 2017). The Anfriany court also held that Florida law of judicial estoppel differs from federal law. See id. For general principles of waiver and judicial estoppel, see Blumberg v. USAA Cas. Ins., 790 So. 2d 1061, 1067 (Fla. 2001) (the doctrine of judicial estoppel prevents parties from "making a mockery of justice by inconsistent pleadings" . . . and "playing fast and loose with the courts"); DK Arena, Inc. v. EB Acquisitions I, LLC, 112 So. 3d 85, 97-98 (Fla. 2013) ("Waiver operates to estop one from asserting that upon which he otherwise might have relied. . . ." (quoting SourceTrack, LLC v. Ariba, Inc., 958 So. 2d 523, 527 (Fla. 2d DCA 2007))); Barbe v. Villeneuve, 505 So. 2d 1331, 1333 (Fla. 1987) ("A party will not be permitted to...