Florida Second District Court of Appeal Ruling Highlights the Possible Pitfalls of Relying on Prior Servicer Records

By: Michael R. Esposito

Florida’s Second District Court of Appeal (“Second District Court”) recently held that a mortgagee failed to demonstrate it satisfied the condition precedent in a residential mortgage foreclosure. Allen v. Wilmington Trust, N.A., 2D15-2976, 2017 WL 1325896 (Fla. 2d DCA 2016). In Allen, the underlying mortgage contained the standard provision which requires a lender/servicer to notify the borrower of a default prior to the loan being accelerated and a foreclosure filed. In addition to the foregoing provision, the mortgage specified that any notice mailed in relation to the instrument “shall be deemed to have been given to [b]orrower when mailed by first class mail or when actually delivered to [b]orrower’s address if sent by other means.” Prior to the commencement of the action, a notice of default was mailed to the borrower by the prior loan servicer, EMC Mortgage Corporation (“EMC”), in accordance with the provision. Thereafter, Wilmington Trust, N.A. (“Wilmington”) filed a complaint on or about November 21, 2012, seeking foreclosure of the subject mortgage. In response to the lawsuit, the borrower denied Wilmington satisfied all conditions precedent to filing the lawsuit and raised an affirmative defense that asserted Wilmington failed to establish that a notice of default was provided as required by the mortgage.

During the bench trial, a corporate representative of the current servicer testified on behalf of Wilmington. The witness testified as to the boarding process used to verify the accuracy of the records of EMC and specified the related business records included a notice of default that was addressed to the borrower and dated March 12, 2010. Further, the witness testified that because the letter existed, it had been sent to the borrower and there were no records indicating the notice was returned as undeliverable. More importantly, the witness confirmed the business records associated with the loan did not specifically show the notice was actually mailed to the borrower and she was unable to testify as to EMC’s mailing procedures. In response, the borrower objected to the witness’ testimony that EMC mailed the notice and argued Wilmington failed to establish the appropriate foundation for the testimony since she was unfamiliar with the prior servicer’s procedures. Despite the trial court’s denial of the objection, the borrower argued at the close of the bench trial that Wilmington neglected to demonstrate it satisfied the condition precedent of mailing the notice of default. Ultimately, the trial court held the witness’ testimony as to the boarding process was sufficient to show Wilmington satisfied the condition precedent and entered a final judgment of foreclosure in favor thereof.

In reviewing the matter, the Second District Court held the trial court incorrectly relied on the boarding process to prove the notice of default was actually mailed. Although the witness’ testimony as to the boarding process was sufficient to support the admission of the notice of default, the Second District Court concluded that the testimony and evidence proffered failed to establish the notice of default was mailed to the borrower. In support of its conclusion, the Second District Court cited to Burt v. Hudson & Keyse, LLC, 138, So. 3d 1193 (Fla. 5th DCA 2014) and held that while the notice of default was dated, it did not contain any proof that the notice was mailed to the borrower. Without proffering further evidence of proof of regular business practice, an affidavit swearing that the notice of default was mailed, or a return receipt, Wilmington was only able to rely upon the testimony of its witness, who was unable to show personal knowledge of EMC’s general practice in mailing letters. As a result, the Second District Court reversed and remanded the action for dismissal since Wilmington was unable to demonstrate the notice of default was mailed pursuant to an established business procedure of EMC and, therefore, could not prove the required condition precedent was satisfied.

This case highlights the litigation risks associated with service transferred loans and the importance of current loan servicers obtaining all relevant business records and/or education on prior servicer policies and procedures.

Florida Statutory Requirement for a Notice of Assignment Is Not a Condition Precedent to Foreclosure

By: Alen H. Hsu

Florida’s Second District Court of Appeal (“Second District Court”) recently held that a lender’s failure to provide written notice of assignment of a debt to a borrower as required by Section 559.715, Florida Statutes (2012) (“Section 559.715”), does not bar a foreclosure suit. Brindise v. U.S. Bank Nat. Ass’n, 2D14-3316, 2016 WL 229572, (Fla. 2d DCA 2016). In Brindise, the borrower took out a loan from Countrywide Home Loans, Inc., and the loan was subsequently acquired by U.S. Bank National Association (“U.S. Bank”) via an assignment of the promissory note. Borrower stopped making mortgage payments in 2010, and U.S. Bank instituted a foreclosure action and sought a money judgment for the accelerated principal amounts due on the promissory note, together with any deficiency after sale, interest, and attorney’s fees.

After conclusion of a non-jury trial, U.S. Bank obtained final judgment of foreclosure. Borrower appealed and argued that all foreclosure actions are attempts to collect debt under Florida’s Consumer Collection Practices Act (“FCCPA”), and because of this, Section 559.715, which is part of the FCCPA, is a condition precedent to foreclosure. Borrower further argued that U.S. Bank failed to plead or prove this issue at trial which barred foreclosure.

Section 559.715 states in pertinent part that, “the assignee must give the debtor written notice of such assignment as soon as practical after the assignment is made, but at least 30 days before any action to collect the debt.”

The Second District Court, in interpreting Section 559.715, rejected borrower’s argument for several reasons. First, Section 559.715 does not contain any language that makes a written notice of assignment a condition precedent to a lawsuit. The Second District noted that the legislature knows how to condition the filing of a lawsuit on a prior occurrence; it has done so, for example, in statutes related to libel and slander actions and condominium associations. Second, Section 559.715 was enacted for the purpose of allowing the consolidation of all claims by various creditors against a particular debtor. Section 559.715 does not apply to the mortgage foreclosure context, in which a single note holder seeks to foreclose on a single mortgage and note. Lastly, the FCCPA prohibits egregious debt collection practices and the borrower, in this matter, did not demonstrate how the filing of a foreclosure suit implicates such concerns.

Thus, the Second District Court held that the failure to provide written notice of assignment of a debt under Section 559.715 does not bar a foreclosure. In other words, Section 559.715 does not create a condition precedent to the institution of a foreclosure, regardless of whether a foreclosure action is an attempt to collect a consumer debt under the FCCPA. In light of the number of foreclosure cases pending in Florida, the Second District, however, certified this issue to the Florida Supreme Court as a question of great public importance. Accordingly, lenders and servicers should monitor this decision, which if reversed, could alter the landscape of foreclosure law in Florida.