Rogers Towers, PA welcomes readers to its new Florida Banking Law Blog! A product of the firm’s Banking and Financial Services Practice Group, the blog will serve as a convenient way for us to share our expertise in banking-related legal issues. We represent banks and other providers of financial services in a broad range of matters throughout the state of Florida. As a result of our significant experience, we will have much to share in the upcoming blog posts and we hope that you will find these posts to be informative and beneficial to you in your respective positions in the industry. We appreciate your interest in the field and in Rogers Towers, PA and we look forward to your comments in response to our blog. Again, welcome to the Florida Banking Law Blog!
The legal right to enforce, by judicial proceeding, a promissory note and mortgage is referred to as “standing”. This has been a hot topic in Florida foreclosure cases with courts holding that standing must exist when the suit is filed and, if it does not, the lack of standing is a defect that cannot be cured once the foreclosure suit has begun (though this question has recently been certified to the Florida Supreme Court).
So, is standing included as an element in a cause of action that a foreclosing plaintiff must prove or is it an affirmative defense that must be raised by the defendant? In a recent 5th DCA opinion, the district court found both to be correct. In Beaumont v. Bank of New York Mellon, Inc., the Court reversed the trial court’s entry of summary judgment as the bank was unable to demonstrate that it had standing to bring the lawsuit. The defendant had apparently not raised standing as an affirmative defense in its pleadings, doing so for the first time at the summary judgment hearing. The bank argued that standing, as an affirmative defense, was waived as the defendant had not raised it in its pleadings.
The 5th DCA found that the foreclosing plaintiff “…must prove its right to enforce the note as of the time the summary judgment is entered, even if Beaumont (the defendant) had waived the right to challenge the bank’s standing…” The Court further stated that, while standing is an affirmative defense and it can be waived, in cases where the facts giving rise to a standing issue were not known to the defendant at the time it filed an answer, it could in fact raise the issue for the first time at summary judgment.
There are a few complicating factors in the Beaumont case. For one, it involved allegations of reestablishing a lost instrument which have their own statutory pleading requirements. In addition, the judgment being appealed had been entered in favor of a non-party to the lawsuit (apparently the original plaintiff who later withdrew from the case in deference to the real note holder). Its no surprise then that the bank did not prevail here. Still, I think the case supports two points: (1) the plaintiff cannot count on standing being waived if the facts suggest that the defendant may not have been able to know about standing-related issues in time to raise them in its answer to the complaint and, (2) even if waived as a defense, standing is still the plaintiff’s burden and must be supported by evidence.
Florida’s Fifth District Court of Appeal recently emphasized the need for lenders to strictly comply with the notice requirements of a mortgage prior to foreclosure. In Samaroo v. Wells Fargo, the borrower appealed the circuit court’s entry of a summary final judgment of mortgage foreclosure. Finding that the bank failed to strictly comply with all of the notice requirements contained in the mortgage, the 5th DCA ruled against the bank and overturned the foreclosure judgment.
Before it initiated the litigation, the bank sent a demand letter to inform the borrower that the loan was in default and that the bank elected to accelerate the loan. The letter further informed the borrower that partial payments would not cure the default. However, the letter failed to explicitly mention that the borrower had the right to reinstate the loan after acceleration. This omission was a problem because the mortgage stipulated that any notice of default must inform the borrowers of the right to reinstate their loan after acceleration.
The bank suggested on appeal that its default letter “substantially” complied with the notice requirements of the mortgage. However, the 5th DCA rejected this argument because the bank’s own mortgage specified all of the important information to be provided to a borrower in default. In seeking to foreclose the mortgage, the bank itself could not provide any notice less than what the mortgage required.
This particular case began in April 2009. However, the 5th DCA’s ruling means that the bank must restart the foreclosure process five years after it began. Lenders and their counsel cannot be too careful about complying with the notice provisions provided by their own loan documents.
As described in a previous post, the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”) requires that anyone with a claim against a failed bank must file a claim with the FDIC within 90 days of being notified (either by mail or by newspaper publication) of the FDIC’s administrative claims process. Claims that must go through the administrative process include claims for payment from the assets of failed banks, actions seeking a determination of rights with respect to the assets of failed banks, and claims relating to alleged acts or omissions of failed banks.
A party’s failure to utilize the administrative claims process divests a court of subject matter jurisdiction to even consider that claim. That is, a lawsuit by a creditor in such an instance cannot be adjudicated upon by any court. FIRREA deprives courts of jurisdiction over claims for payments from, or seeking a determination of rights with respect to, the assets of a failed bank in the absence of strict compliance with, and the exhaustion of, the statutorily mandated administrative claims process. See 12 U.S.C. § 1821(d)(13)(D). The policy underlying this strict rule is to allow the FDIC to efficiently deal with potential claims and to sell the assets of the failed bank in an orderly manner.
Federal and state courts routinely uphold FIRREA’s jurisdictional bar. The Eleventh Circuit Court of Appeals recently affirmed in the Interface Kanner, LLC v. JP Morgan Chase Bank case that claimants must exhaust their administrative remedies against the FDIC before filing a claim in court against the assets of a failed bank. Florida’s Third District Court of Appeals in the FDIC v. Fleet Credit Corp. case similarly explained that the federal statutory framework of FIRREA provides the “exclusive remedy” for claims against assets of a failed bank.