What is good for the goose is good for the gander. Turnabout is fair play?
Wednesday’s decision by the Florida’s Second District Court of Appeal seems, at least to those who compare appellate decisions, to allow aphorisms to run wild.
Green Emerald Homes, LLC v. Residential Credit Opportunities Trust, Case No. 2D17-4410 (Fla. 2nd DCA June 27, 2018), may be known not only for its substantive holding that the lender could not enforce a mortgage’s sequestration and assignment of rents against a third-party acquirer of title subject to the mortgage, but also the logic leading to the holding, that plain statutory and contract language must be followed, and not subjected an interpretation analysis.
The facts are straightforward.
· 2008: Borrowers execute a promissory note and mortgage to CTX Mortgage which contained an assignment of rents. The Mortgage was recorded.
· June 2014: Junior lien holder Homeowners’ Association forecloses, resulting in a Clerk’s sale and Green Emerald Homes obtaining a Certificate of Title.
· September 2014: Residential Credit was assigned the Note and Mortgage.
· October 2014: Residential Credit files a foreclosure action, including Green Emerald Homes as a defendant.
· April 2017: Residential Credit moves to sequester earnings, revenues, rents, issues, profits and incomes based upon §697.07 Fla. Stat. (2017), and the Mortgage’s sequestration terms.
The trial court’s order on appeal granting the motion to sequester, required Green Emerald to file a copy of rental agreements to which it was a party for the year 2017, and to deposit in Residential Credit attorney’s trust account rents collected from March 2017 forward. Renters were required to pay into the trust account rents not previously paid.
The Appellate Court quoted §697.07 in large part, including the provisions stating the statute is binding upon the “mortgagor.”
The appellate court began its analysis with a foundation premise, that the purchaser of real property at a junior lien holder’s foreclosure sale did not become the mortgagor or borrower. Instead, the third-party purchaser becomes the “owner of the property subject to the superior interest and lien and posed by the recorded mortgage.” (Citations omitted). Thus, Green Emerald, not a party to the mortgage and note, was not obligated to perform pursuant to those documents. Further, otherwise Green Emerald was not an assignee.
Analyzing the duty created by the statute, the statute’s language does not bind third party owners. The statute places an obligation upon a “mortgagor.” Similarly, the Mortgage’s sequestration provisions bind the “borrower.” Green Emerald did not become the “mortgagor” or “borrower” by virtue of purchasing at the foreclosure sale, it was neither a “mortgagor” or “borrower”.
The Appellate Court does not interpret the mortgage or the statute’s text because courts do not have authority to vary the “plainly written” language of the mortgage and statute. Thus, applying the seemingly tried and true rules of judicial interpretation, at the first stop, if a statute or document is not ambiguous, there is no ambiguity to interpret! Applying the mortgage binding the “borrower” and in the statute binding the “mortgagor,” neither the Mortgage or the statute limits the third-party purchaser subject to the Mortgage.
The Court notes that the decision does not address whether the assignment of rents provision would apply to leases executed by the mortgagor/borrowers which may have been assumed by Green Emerald Homes. That issue of assumption of leases apparently was not raised in the the motion.
Moving forward, this decision will find a warm welcome from most third-party purchasers at foreclosure sales, and those purchasing property without assuming an otherwise binding mortgage. This would include Florida community associations that take title and rent property until the seemingly unending foreclosure action is completed. The decision readily acknowledges that the holding may result in longer foreclosure processes, implying that third party purchasers have a financial incentive to avoid a swift determination, but the court is bound by words as “plainly written.”
Of course, an observer may conclude that if lenders were interested in swift resolutions, then sequestration is near the end of the list of processes anticipated to speed litigation. Interestingly, the decision does not state the date of the alleged mortgage default, but the timeline reflects nearly three years passing from the filing of the foreclosure action before the sequestration of rents was sought. One would anticipate that in three years a summary judgement could be heard, if the lender had its proverbial “ducks lined up.”
One may also anticipate that lenders will seek to change the law and similarly amend mortgage documents; however, these changes would likely not impact existing mortgages.
As for the introduction’s reference to aphorisms, readers may recall the holdings that when a borrow prevails in a foreclosure because the lender cannot prove up the note, then the borrower cannot obtain prevailing party attorney’s fees because if there is no note, then there is no agreement providing for fee. The courts have strictly construed who is the “borrower” or the “mortgagor” and though the lender lost the case, the lender did not pay the borrower’s fees. See e.g. Sabido v. The Bank of New York Mellon, _____ So. 3d _____, 43 Fla. L. Weekly D 296 (Fla. 4th DCA, February 7, 2018); Nationstar Mortgage LLC v. Glass, _____ So. 3d _____, 42 Fla. L. Weekly D 815 (Fla. 4th DCA, April 12, 2017).
This decision similarly applies the plain text as to who is the “borrower” or “lender” but the result denies the lender relief. Thus, pick your aphorism: “What is good for the goose is good for the gander” or “Turnabout is fair play?” Or come up with your own.
As we head into the Independence Day holiday, please take a moment during celebrations to remind family and friends of the freedoms fought for on many types of battlegrounds over the past two and a half centuries. Relate how lawyers crafted the Declaration of Independence, and the Federal Constitution. Communicate that it is the duty of each citizen to educate themselves as to the issues of the day, to challenge what is false, what is not right, and to vote.
Do not just talk about our freedoms, but help all to be able to exercise these freedoms.
Have a great holiday. Turn off the \phone. Get some rest.
Many thanks to appellant’s counsel Brennan Grogan, and to Doug Christy, each for swiftly providing the decision.
Michael J. Gelfand
Real Property, Probate and Trust Law Section
of The Florida Bar
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Note: This article is not legal advice. Statements and comments made are not those of The Florida Bar or the RPPTL Section
© 2018 Michael J. Gelfand
Michael J. Gelfand
Florida Bar Board Certified:
Real Estate Attorney
Condominium & Planned Development Law
Florida Supreme Court Certified Mediator:
Civil Circuit Court & Civil County Court
Fellow, American College of Real Estate Attorneys
The only thing necessary for the triumph of evil is for good men to do nothing.
- Edmund Burke