When foreclosure lawsuits are frivolous
Florida’s Second District Court of Appeal issued a very significant ruling today that helps frame the arguments for many foreclosure cases in Florida. Here’s the backdrop …
A Hillsborough County judge appropriately dismissed a foreclosure lawsuit because the bank lacked standing to sue. Having prevailed in the lawsuit, the defendant moved for attorneys’ fees under Fla. Stat. 57.105, asserting the bank and its lawyers knew or should have known the lawsuit lacked the requisite legal or factual support. In layman’s terms, the defendant alleged the lawsuit was frivolous, and since the bank’s lawyers knew it, the lawyers and the bank should pay the defendant’s attorney’s fees. When the Hillsborough judge denied a fee award, the defendant appealed.
The Second District reversed the Hillsborough judge’s order, finding the lawsuit was frivolous and the defendant should have been awarded attorneys’ fees (from the bank and the bank’s lawyers). Why is this so significant? Well, it’s not easy to get attorneys’ fees against a lawyer as a sanction. Fla. Stat. 57.105 sets forth the circumstances where it can happen, but judges (who are lawyers themselves) typically don’t like awarding sanctions under the statute.
The point here, though, isn’t about attorneys’ fees. The point is that the Second District is saying that certain legal principles in foreclosure cases are so well-established that the banks and their lawyers subject themselves to sanctions if they contend otherwise. This is earth-shattering news because, candidly, these are arguments that Florida foreclosure defense attorneys make on a regular basis.
The fact pattern in this case was one I see often. The bank filed suit for foreclosure and to re-establish a lost note. As the case progressed, the bank could not prove it was the owner or holder of the Note. The note was lost (and hence not in the bank’s possession), and an Assignment of Mortgage had not been recorded in the Hillsborough County Public Records as of the date the Complaint was filed. Essentially, the bank could not prove it had standing to foreclose as of the date the lawsuit was filed. In the words of the Second District:
Because J.P. Morgan did not own or possess the note and mortgage when it filed its lawsuit, it lacked standing to maintain the foreclosure action. See Bank of N.Y. v. Williams, 979 So. 2d 347, 347 (Fla. 1st DCA 2008); Jeff-Ray Corp. v. Jacobson, 566 So. 2d 885, 886 (Fla. 4th DCA 1990). It follows that when J.P. Morgan filed its mortgage foreclosure action, it knew or should have known that its action was unsupported by the material facts necessary to establish the claim.
Based on these facts, the Second District concluded not only that the foreclosure lawsuit was appropriately dismissed, but that the bank and its lawyers were deserving of sanctions, i.e. payment of attorneys’ fees to the defendant! This is huge news, so much so that it will impact my arguments in court on a daily basis. Now, every time I have a case with this fact-pattern (and I have many), I’m going to tell the presiding judge not only that dismissal is required for lack of standing, but that the law is so well-established in this regard that appellate courts have required sanctions for the bank filing the suit in the first place. Again, the point isn’t about sanctions or attorneys’ fees, but to make judges realize that the law in this arena is clear, and foreclosures can’t happen upon such facts. I assure you – judges will open their eyes when they realize an appellate court issued sanctions against a lawyer.
So what are the facts? Well, this is the fact-pattern I’ll be looking for: (1) a foreclosure lawsuit where plaintiff is not the original mortgage holder; (2) no assignment of mortgage as of the date the suit was filed; and (3) no indorsement to plaintiff/indorsement in blank as of the date the suit was filed. When presented with such a fact pattern, Florida courts should – no, *must* – dismiss foreclosure lawsuits.
One note – notice how the Second District emphasized the bank’s lack of standing “when it filed its lawsuit”? This is no coincidence. There is a well-established line of cases holding that a plaintiff cannot acquire standing to foreclose after filing suit. Hence, if the plaintiff obtained an indorsement/assignment after the suit was filed, and did not have the indorsement/assignment beforehand, dismissal is still required, even if the original note is in thecourt file. The Second District did not explicitly say dismissal is required even if the original note is in the file, but that’s what they mean when they talk about the bank not having standing “when it filed the lawsuit.” It doesn’t matter if the note shows up afterwards – it matters if the bank had the note when it filed suit.
Mark Stopa
www.stayinmyhome.com
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