Written by Managing Partner Natalie Mencia & Litigation Attorney Sarah Stemer

Recently, in GMAC Mortgage v. Whiddon, Florida’s First District Court of Appeals held that a trial court should not bar a servicer from filing a new foreclosure action based upon a different default date where a first foreclosure action had been previously dismissed with prejudice.[1] While its holding is nothing new to Florida law, the analysis set forth in Whiddon offer servicers and their counsel insight into the application of this principle.

The Whiddon Court explains that in December of 2010, GMAC filed its first complaint for foreclosure. The first complaint alleged that the borrowers defaulted on their loan in June 2010. The trial court dismissed the first complaint with prejudice, when GMAC did not respond or appear to the Order to Show Cause. In March 2013, GMAC filed a second compliant for foreclosure, once again alleging that borrowers defaulted on their loan in June 2010. The borrowers filed a Motion to Dismiss based on Res Judicata, stating that the previous dismissal with prejudice barred GMAC from bringing the second action. Although GMAC voluntarily dismissed, the trial court ordered the dismissal be stricken, granted the borrowers Motion to Dismiss with prejudice, and issued an order denying leave for GMAC to re-file a foreclosure action with different dates.[2] The First DCA’s decision that the trial court abused its discretion comports with the 2014 Florida Supreme Court decision in Singleton v. Greymar Associates. In that case, the Florida Supreme Court held that the doctrine of res judicata did not bar a second foreclosure action which alleged a subsequent and separate default from that alleged in first foreclosure action.[3] Hence, the trial court in Whiddon should have allowed GMAC to refile the complaint, so long as it alleged a subsequent and separate default date.

Typically, this type of issue occurs when a borrower successfully defended against a prior foreclosure action and the lender brings a subsequent foreclosure action, either alleging the same default date or subsequent dates. The mortgagor then pleads res judicata as an affirmative defense. Res judicata is a legal doctrine that bars the same parties from litigating a second lawsuit on the same claim. Trial courts were conflicted (and some still are) on how to handle this affirmative defense as some judges reasoned that that subsequent defaults were the same issue, and not different from the original claim. The Florida Supreme Court clarified this issue by clearly stating that subsequent defaults present separate and distinct issues. Mortgage contracts are unique because not only is the first default actionable, but each and every month that the borrowers fail to pay, is an entirely separate event. Since a mortgage is an installment contract, the borrowers are not only defaulting on the month they stopped paying, they are defaulting on each payment thereafter. That means that so long as the servicer through their foreclosure counsel, lists a subsequent default date on the complaint, the servicer has sufficient caselaw to support their answer to the affirmative defense for res judicata.

These recent decisions provide servicers with the long-awaited answer to the question: how should servicers pursue a new foreclosure action where the mortgagor successfully defended against a prior foreclosure action? Below, Brock & Scott provides its clients with, not only the answer, but a roadmap.

1. Review prior actions as a matter of course. Servicers and their counsel should review the foreclosure history to determine if a previous foreclosure action was taken. If a previous action is identified, counsel should review the action to determine whether the mortgagor successfully defended against the action. Whether or not an action was taken and was successful should be communicated between the servicer and counsel prior to first legal.
2. Ensure subsequent default date is supported by evidence. Upon identifying the previous successful action and communicating with the servicer, counsel should review the payment history to validate/support a subsequent default date. Once a date can be supported, counsel may use this date on the complaint. Care should be taken to ensure that the date on the subsequent complaint is different and more recent than the date in the previous action.
3. Establish and communicate written procedures. Servicers and their counsel should have processes for identifying referrals where the mortgagor successfully defended against a previous action. This process should be in writing and known to the affected departments. Just because the process is documented, does not mean it was communicated or acted upon.
4. Measure results.  Servicers should measure the efficiency and effectiveness of review process. Servicers can do this by using their scorecard framework or through audits. Servicers can also request that their counsel evidence internal monitoring records.
5. Expect the unexpected. Sometimes mistakes occur and processes fail. In these instances, the Florida Supreme Court decision can serve to assist counsel as they make the appropriate steps. How did the servicer find out about the previous successful action? If the action was identified internally, inquire with counsel to see if filing an amended complaint is recommended. If opposing counsel identified the issue by pleading res judicata as an affirmative defense, the servicer should inquire with counsel on whether filing an answer with amended complaint or voluntarily dismissing the action and refiling is recommended.
6. Create a record for appeal. –If the trial court dismisses the case with prejudice, after going through all the above steps, rely on the Florida Supreme Court opinion on appeal and preserve the record.