Four Common Foreclosure Defenses That Lenders Should Be Aware Of
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In Florida, foreclosures are judicial. This means that a lender must file a foreclosure complaint with the court, and the borrower will be given an opportunity to file defenses to stop the foreclosure. Some of the common defenses to foreclosure include: lack of standing; failure to provide required notice of default; statute of limitations; and unclean hands. To increase chances of success in foreclosure, lenders should be aware of what these defenses are and how to overcome them.
Lack of Standing
In Florida, lack of standing is a common defense in a foreclosure lawsuit. To have standing to bring a foreclosure lawsuit, the plaintiff must demonstrate that it holds the note and mortgage at the time the foreclosure lawsuit was filed. Country Place Cmty. Ass’n v. J.P. Morgan Mortg. Acquisition Corp., 51 So. 3d 1176, 1179 (Fla. 2d DCA 2010) (“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.”). The plaintiff must also demonstrate that it holds the note and mortgage at the time of the trial. Kiefert v. Nationstar Mortg., LLC, 153 So. 3d 351, 352 (Fla. 1st DCA 2014) (“A plaintiff alleging standing as a holder must prove it is a holder of the note and mortgage both as of the time of trial and also that the (original) plaintiff had standing as of the time the foreclosure complaint was filed.”).
If the note does not name the plaintiff as the payee, the note must bear a special endorsement in favor of the plaintiff or a blank endorsement. Alternatively, the plaintiff may submit evidence of an assignment of the note from the payee to the plaintiff, or an affidavit of ownership to prove its status as holder of the note. McLean v. JP Morgan Chase Bank Nat. Ass’n, 79 So. 3d 170, 173 (Fla. 4th DCA 2012). To learn more about this, see our blog: Florida’s Second DCA: Florida Law Remains That Plaintiffs in Foreclosure Actions Must Have Standing at the Time of Filing Suit.
To combat against a standing defense, lenders, or the holder of the note and mortgage, must ensure that it has proof of standing by demonstrating that it is the holder of the note and mortgage at the time of filing a foreclosure lawsuit and throughout the lawsuit. The original lender will usually have no problem proving standing. However, if the foreclosing party is not the original lender, it must prove that it is the holder of the note and mortgage at the time of filing the foreclosure lawsuit and throughout the lawsuit, by submitting a note with a black or special endorsement, an assignment of the note, or an affidavit otherwise proving the plaintiff’s status as the holder of the note. Failure to prove standing at the time of filing the foreclosure lawsuit will result in the foreclosure lawsuit being dismissed. Jallali v. Christiana Tr., 200 So. 3d 149, 152 (Fla. 4th DCA 2016) (dismissing foreclosure lawsuit for lack of standing because assignment of the mortgage took place after the foreclosure lawsuit was filed).
Failure to Provide Required Notice of Default
Another common defense in foreclosure lawsuits in Florida is the lender failed to provide the required notice of default. Usually, mortgage lenders are required by the loan documents to give borrowers notice of default as a condition precedent to bring a foreclosure lawsuit. Citigroup Mortg. Loan Tr. Inc. v. Scialabba, 238 So. 3d 317, 319 (Fla. 4th DCA 2018) (“Giving a notice of default is a condition precedent to foreclosure in most residential mortgages.”). The specific requirements that lenders must follow to provide a borrower with notice of default are found in the loan documents or loan modification agreement. Although the specific requirements vary in each loan agreement, lenders are usually required to provide borrowers with notice that they are behind in their loan payments, an opportunity to cure the default by making a payment or performing some sort of action within a stated period of time (usually not less than 30 days), and notice that if they do not cure the default in the stated period of time, the lender has the right to accelerate the loan. If the loan document provides that lenders must provide borrowers with a notice of default, the lender must prove that it complied with these requirements before filing their foreclosure complaint. Liberty Home Equity Sols., Inc. v. Raulston, 206 So. 3d 58, 60 (Fla. 4th DCA 2016) (“Where there are conditions precedent to filing the suit, [a] plaintiff must also prove that it has complied with them.”). Luckily, lenders only have to show that they “substantially complied” with the requirements. Id. at 61 (“[A] plaintiff need only substantially comply with conditions precedent.”).
Based on this, lenders, or the holder of the note and mortgage, should be sure to review the loan documents and provide borrowers with the required notice of default before filing a foreclosure lawsuit, or risk having the foreclosure lawsuit dismissed. Blum v. Deutsche Bank Tr. Co., 159 So. 3d 920, 920 (Fla. 4th DCA 2015) (holding foreclosure lawsuit should be dismissed because lender failed to prove that it complied with the mortgage and note’s contractual requirement to mail notice of default to borrower as a condition precedent to foreclosure). Lenders should also keep a copy of the notice of default letter in their loan file as evidence of substantial compliance.
Statute of Limitations
All foreclosures in Florida must be brought within five years from the date of default. Fla. Stat. § 95.11(2)(c). Failure to bring a foreclosure lawsuit within 5 years from the date of default will result in dismissal. However, borrowers usually default more than once. Each new default, based on a different act or date of default, creates a new cause of action. Bartram v. U.S. Bank Nat. Ass’n, 211 So. 3d 1009, 1019 (Fla. 2016) (“[W]ith each subsequent default, the statute of limitations runs from the date of each new default providing the mortgagee the right, but not the obligation, to accelerate all sums then due under the note and mortgage.”).
Based on this, a lender, or the holder of the note and mortgage, must bring its foreclosure lawsuit within five years from the date of default. Luckily for lenders, the five year timeline starts for each “separate and distinct” default. Id. (“[T]he statute of limitations on the balance under the note and mortgage would not continue to run after an involuntary dismissal, and thus the mortgagee would not be barred by the statute of limitations from filing a successive foreclosure action premised on a ‘separate and distinct’ default.”). Stated differently, each monthly payment that the borrower fails to pay restarts the 5-year clock.
Another defense in foreclosure lawsuits is that the foreclosing plaintiff came to the court with unclean hands. PNC Bank, Nat’l Ass’n v. Smith, 225 So. 3d 294, 295 (Fla. 5th DCA 2017) (“Unclean hands may be asserted as an affirmative defense to a mortgage foreclosure action.”).
The defense of unclean hands is an equitable defense, however, “[a]ll mortgages in Florida are foreclosed in equity.” Fla. Stat. § 702.01. If the foreclosing plaintiff came to the court with unclean hands, it will be prevented from foreclosing, regardless of the merits of the claim. Roberts v. Roberts, 84 So. 2d 717, 720 (Fla. 1956). In the context of foreclosure lawsuits, the plaintiff will have unclean hands if it uses “unscrupulous practices, overreaching, concealment, trickery, or other unconscientious conduct.” Shahar v. Green Tree Servicing LLC, 125 So. 3d 251, 253 (Fla. 4th DCA 2013). For example, Florida courts have found that a lender came to the court with unclean hands when it altered the borrower’s income information on the loan application, without the borrower’s knowledge, in order to qualify the borrower for a loan, which resulted in a payment increase of 50%. Shahar, 125 So. 3d at 251. To succeed on this defense, the borrower must show that it relied on the plaintiff’s misconduct, and suffered an injury. 21st Mortg. Corp. v. TSE Plantation, LLC, 301 So. 3d 1120, 1122 (Fla. 1st DCA 2020).
Based on this, a lender, or the holder of the note and mortgage, must ensure that it is coming to the court with clean hands. Accordingly, lenders should avoid “unscrupulous practices, overreaching, concealment, trickery, or other unconscientious conduct.”
The best way for lenders to succeed in their foreclosure lawsuit is to ensure the borrower cannot succeed on possible defenses. Although this blog does not contain all of the possible defenses a borrower may raise in a foreclosure lawsuit, it contains some of the most common defenses. Before filing a foreclosure lawsuit, lenders should assess the loan file and history to spot any possible defenses, and take them into consideration when deciding how to proceed in collecting the loan.