While lenders frequently prevail at foreclosure trials, there are certainly occasions where they do not. In those instances, is the lender precluded from pursuing a subsequent foreclosure action by the doctrine of res judicata?
In Singleton v. Greymar Associates, the Florida Supreme Court addressed this issue, holding that when a lender loses a foreclosure action, res judicata will not always bar a second foreclosure action on a subsequent default. The Court considered situations where a borrower’s trial victory results in the parties being returned to their pre-foreclosure relationship. For example, if a lender lost at trial on the basis that it failed to comply with applicable notice requirements, the parties would be returned to their original positions. In that instance, an action based on a subsequent event of default would be a completely new claim that is not barred by res judicata. If the court were to hold otherwise, borrowers would have no incentive to make future mortgage payments after winning a foreclosure trial on technical grounds.
There are, however, other circumstances in which a subsequent action likely would be barred. For example, when the borrower prevails on the basis that the lender was not the holder of the note or that the lender failed to prove the amount owing on the note, the parties may not be returned to their pre-foreclosure status. We have found no Florida case law on point, but there is certainly an argument that in these circumstances the relationship between the parties is fundamentally changed and a second action should be barred by res judicata.
Since the grounds for a loss or victory could affect the availability of subsequent actions, lenders should be mindful of their trial strategy. For instance, the lender may have an incentive to dismiss a case or pursue settlement options if it appears that the borrower could win on grounds that may not place the parties back into their original contractual arrangement.
The grounds on which a foreclosure action is won or lost could have important consequences for subsequent actions, or at least subsequent negotiations. Lenders should carefully consider these potential consequences before bringing foreclosure actions, and plan accordingly.