IN THE SECOND DISTRICT COURT OF APPEAL STATE OF FLORIDA
THOMAS CORRIGAN and DEBORAH CORRIGAN,
Appellants,
Case No. 2D14-3208 v.
L.T. Case No.: 2008-CA-010725 BANK OF AMERICA, N.A.,
Appellee.
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ON APPEAL FROM THE CIRCUIT COURT OF THE SIXTH JUDICIAL CIRCUIT IN AND FOR PASCO COUNTY, FLORIDA
_________________________________________________________________ APPELLANTS’ REPLY BRIEF
________________________________________________________________
_____________________________ Mark P. Stopa, Esquire
FBN: 550507 STOPA LAW FIRM
2202 N. Westshore Blvd. Suite 200
Tampa, FL 33607 (727) 851-9551
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ARGUMENT
Corrigans appeal the Final Judgment of Foreclosure at bar on two grounds: (1) BANA failed to prove it had standing to foreclose at the inception of this lawsuit; and (2) BANA failed to prove it complied with the face-to-face counseling requirements of 24 C.F.R. § 203.604. In its Answer Brief, BANA does not even argue it proved these issues at the underlying trial. Likewise, BANA does not contend that lack of standing and failure to comply with the subject HUD Regulation does not mandate dismissal as a matter of law. Rather, BANA tries to excuse its failure of proof on both issues by arguing they were affirmative defenses, not conditions precedent, so the burden of proof was on Corrigans. BANA is mistaken.
Under established precedent, standing at the inception of a lawsuit is part of a foreclosure plaintiff’s prima facie case at trial. BANA’s contention that the Corrigans bore the burden of proof on this issue is misguided and contrary to law. This Court should reverse on this basis.
Similarly, BANA was obligated to prove compliance with 24 C.F.R. § 203.604 as part of its prima facie case at trial. Though this is an issue of first impression in this Court, case law from other jurisdictions shows face-to-face counseling is a condition precedent to foreclosure of an FHA mortgage, just as paragraph 22 is a condition precedent to foreclosure of a Fannie Mae mortgage. This Court should reverse on this basis as well.
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BANA does not even argue for any remedy on remand other than dismissal without prejudice, much less present any case law supporting such a position. As such, this Court should reverse and remand with instructions to dismiss this case without prejudice.
I. STANDING AT INCEPTION WAS PART OF BANA’S PRIMA FACIE CASE AT TRIAL, NOT AN AFFIRMATIVE DEFNSE.
Numerous Florida courts, including this Court, have reversed final judgments of foreclosure entered after a trial where the foreclosing lender failed to prove standing as part of its prima facie case. These decisions all make clear that borrowers do not bear the burden of proving the lender’s lack of standing; rather, standing is an element of the lender’s case for which it bears the burden of proof at trial. See Russell v. Aurora Loan Services, LLC, ___ So. 3d ___ (Fla. 2d DCA, April 24, 2015); Seffar v. Residential Credit Solutions, Inc., ___ So. 3d ___ (Fla. 4th DCA, March 25, 2015); Lloyd v. Bank of New York Mellon, ___ So. 3d ___ (Fla. 4th DCA, March 25, 2015); Jelic v. LaSalle Bank, N.A., ___ So. 3d ___ (Fla. 4th DCA, March 25, 2015); Matthews v. Federal Nat’l Mortg. Ass’n, ___ So. 3d ___ (Fla. 4th DCA, March 25, 2015); Murray v. HSBC Bank USA, 157 So. 3d 355 (Fla. 4th DCA, Jan. 21, 2015); Joseph v. BAC Home Loans Servicing, 155 So. 3d 444 (Fla. 4th DCA, Jan. 7, 2015); Wright v. Deutsche Bank Nat’l Trust Co., 152 So. 3d 1289 (Fla. 4th DCA, Jan. 6, 2015); Kiefert v. Nationstar Mortg., LLC, 153 So. 3d 351 (Fla. 1st DCA, Dec. 16, 2014); Sosa v. U.S. Bank, N.A., 153 So. 3d 950 (Fla.
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4th DCA, Dec. 10, 2014); Pennington v. Ocwen Loan Servicing, LLC, 151 So. 3d 52 (Fla. 1st DCA, Nov. 6, 2014); May v. PHH Mortg. Corp., 150 So. 3d 247 (Fla. 2d DCA, Oct. 22, 2014); Lacombe v. Deutsche Bank Nat’l Trust Co., 149 So. 3d 152 (Fla. 1st DCA, Oct. 14, 2014); Hunter v. Aurora Loan Services, LLC, 137 So. 3d 570 (Fla. 1st DCA, April 25, 2014). To wit, each one of these decisions reversed a foreclosure judgment where the lender did not prove standing as part of its case and remanded with instructions to dismiss the suit.
That is 14 different, published appellate decisions on the DCA level, all within the past year, all requiring dismissal of a foreclosure lawsuit where the lender did not prove standing as part of its prima facie case at trial. Suffice it to say BANA bore the burden of proof on the issue of standing at trial in this cause, not the Corrigans. BANA’s argument otherwise is flat wrong. See cases, supra.
Some of the cases cited herein do indicate the borrower pled standing as an affirmative defense, see e.g. Lacombe, 149 So. 3d at 153, just as the Corrigans did in this case. R.156-160, ¶ 16. Nonetheless, all 14 of these cases plainly require the lender prove standing as part of its case in chief at trial (failing which dismissal is required); the borrower has no burden of proof on this issue. In the words of this Court:
[S]tanding must be established at the time the complaint was filed. Thus, the bank needed to introduce evidence that it was in possession of the original note with the blank endorsement at the time it filed the complaint. The bank failed to do so; none of the evidence
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adduced at trial demonstrated when, if at all, the bank came into possession of the note.
The bank’s failure to prove a prima facie case warrants dismissal. Accordingly, we reverse and remand with directions for the trial court to enter an order of involuntary dismissal.
May, 150 So. 3d at 248-249 (internal citations omitted); see also Russell, ___ So. 3d at ___. Hence, though standing may be pled as an affirmative defense, the obligation to prove standing in a foreclosure case lies with the lender.
In light hereof, BANA’s attempts to avoid reversal by arguing the Corrigans bore the burden of proof at trial on the issue of standing are wholly without merit. BANA was obligated to prove its standing as part of its prima facie case and it failed to do so. As such, this Court should reverse the Final Judgment of Foreclosure and remand with instructions to dismiss this case without prejudice.
II. THE FACE-TO-FACE COUNSELING REQUIREMENT OF 24 C.F.R. § 203.604 IS A CONDITION PRECEDENT TO ACCELERATION AND FORECLOSURE, NOT AN AFFIRMATIVE DEFENSE.
In their Initial Brief, the Corrigans argue at length why BANA was obligated to comply with the counseling requirements of 24 C.F.R. § 203.604 before accelerating and before foreclosing. Significantly, BANA does not argue otherwise in its Answer Brief, implicitly conceding the issue. That bears reflection: BANA implicitly concedes it was obligated to comply with 24 C.F.R. § 203.604 before accelerating and before foreclosing, as it does not even argue otherwise in its Answer Brief. Instead, BANA argues that its compliance with this HUD Regulation was an
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affirmative defense, not a condition precedent, so the burden of proof fell onto the Corrigans at trial. BANA is mistaken.
First off, the Corrigans and BANA pled the counseling issue as a condition precedent, not an affirmative defense, and litigated the issue in that manner through trial. In the Amended Complaint, BANA alleged compliance with conditions precedent generally. R.94-111, ¶ 9. In their Answer, the Corrigans specifically denied compliance with the pre-foreclosure counseling requirements. R.156-160, ¶ 9. This is precisely how a defendant is supposed to deny a condition precedent. As the Fifth District has explained:
The denial of the occurrence of conditions precedent is not an “affirmative defense,” which relates only to matters of avoidance. Fla.R.Civ.P. 1.110(d). Rather, it is a special form of denial that must be pled with specificity. Fla.R.Civ.P. 1.120(c).
Motor v. Citrus County School Board, 856 So. 2d 1054, 1055 n.1 (Fla. 5th DCA 2003) (Torpy, J., specially concurring).
Once the parties pled the issue in this manner (BANA by alleging compliance with conditions precedent generally and the Corrigans via a specific denial), BANA bore the burden of proof at trial. In the words of the Fifth District:
In the instant case, appellee pled performance of all conditions precedent as required by rule 1.120(c) of the Florida Rules of Civil Procedure and, pursuant to the same rule, appellant specifically denied that appellee complied with the requirements of section 768.28(6). A specific denial of a general allegation of the performance or occurrence of conditions precedent shifts the burden to the plaintiff to prove the allegations concerning the subject matter of the specific denial. Fidelity
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& Casualty Co. of New York v. Tiedtke, 207 So. 2d 40 (Fla. 4th DCA 1968), quashed on other grounds, 222 So. 2d 206 (Fla. 1969); 1967 comments to Fla.R.Civ.P. 1.120(c). See also Mellon Bank, N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001 (3d Cir. 1980).
Consequently, appellee had the burden to prove compliance with the applicable statutory claim provisions of section 768.28(6) …
Appellee failed to present any evidence indicating that the claim had been filed with the Department. This failure was fatal to her case. We note that appellee did not ask the trial court to reopen her case when this deficiency was raised in appellant's motions for directed verdict. Accordingly, we reverse the final judgment entered in this cause and remand for entry of a final judgment in favor of appellant.
Sheriff of Orange County v. Boultbee, 595 So. 2d 985, 986 (Fla. 5th DCA 1992); see also In re Standard Jury Instructions – Contract and Business Cases, 116 So. 3d 284, 320 (Fla. 2013) (“once the defendant has made a specific denial of a condition precedent to a contract, the burden reverts to the claimant to prove satisfaction of the condition.”).
BANA’s argument that the requisite counseling was an affirmative defense – interposed, tellingly, for the first time on appeal – was waived, not preserved, and litigated by consent where the parties pled this issue as a condition precedent and argued it as such, both at summary judgment and trial. See e.g. Hemraj v. Hemraj, 620 So. 2d 1300 (Fla. 4th DCA 1993). Put differently, it is not as if BANA introduced no evidence showing it complied with the Regulation because it was unaware of the issue or believed the counseling to be an (unpled) affirmative defense. In fact, BANA never even argued this was an (unpled) affirmative defense! R182-224. On the contrary, BANA took the position that it introduced the requisite
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evidence to prove its prima facie case, and that the Regulation did not apply. T.182-224. Suffice it to say the parties treated the counseling required by 24 C.F.R. § 203.604 as a condition precedent, so this Court should as well. See id.
Second, regardless of how these parties treated the issue in this case, the counseling required by 24 C.F.R. § 203.604 actually is a condition precedent.
There is no case law in Florida adjudicating whether the counseling required by 24 C.F.R. 203.604 is a condition precedent as opposed to an affirmative defense. Though BANA cites Laws v. Wells Fargo Bank, N.A., ___ So. 3d ___ (Fla. 1st DCA 2015) and Real Estate Mortg. Network, Inc. v. Knight, 149 So. 3d 121 (Fla. 4th DCA 2014), those cases are not on point.1 That said, other jurisdictions have deemed 24 C.F.R. § 203.604 a condition precedent to foreclosure of an FHA mortgage, not an
1 In Knight, the lender asked this Court to rule the counseling was “not a mandatory condition precedent,” yet this Court refused to do so. 149 So. 3d at 122. Also, Knight was adjudicated at summary judgment and turned on the existence of disputed, material facts, so whether the counseling was a “defense” or a “condition precedent” was not (and need not have been) adjudicated. Id. After all, at summary judgment, the burden of proof is always on the moving party, regardless of who bears the burden of proof at trial. See Fla.R.Civ.P. 1.510.
Laws was also a summary judgment case, so the First District did not decide (and need not have decided) who would have borne the burden of proof at trial. ___ So. 3d at ___. Moreover, the borrower in Laws chose to plead the issue as an affirmative defense, id., so, unlike here, the existence of a “condition precedent” was not even argued. Suffice it to say Knight and Laws were not decisions emanating from a trial, so neither court decided whether compliance with HUD Regulations in an FHA mortgage are a condition precedent at trial (and part of the lender’s prima
facie case) or an affirmative defense (for which the borrower bore the burden). 149
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affirmative defense. See Teed, ___ N.Y.S.2d ___ (“Because Plaintiff cannot demonstrate that it complied with all of the servicing requirements set forth in the applicable regulations, it failed to satisfy a condition precedent to the accrual of its rights of acceleration and, thus, its foreclosure action cannot be maintained.”); PNC Mortg. v. Garland, 2014 WL 1325908 (Ohio 2014) (containing lengthy discussion explaining why face-to-face counseling in an FHA mortgage is a condition precedent, not an affirmative defense); Mathews, 724 S.E. 2d at 207 (“PHH failed to first comply with a condition precedent to its right to enforce this remedy – i.e. the “face-to-face interview” requirement under 24 C.F.R. § 203.604 as incorporated into the deed of trust.”); U.S. Bank, N.A. v. Detweiler, 946 N.E. 2d 777, 784 (Ohio 2010) (“Those requirements, therefore, are conditions precedent.”); Pfeifer, 211 Cal. App. 4th at 1266-1279; Citimortgage, Inc. v. Kinney, 2012 WL 2411410 (Ohio 2012) (“Appellants’ loan at issue was a FHA insured loan; thus, subject to the requirements of 24 C.F.R. 203.604, including a face-to-face interview as a condition precedent to foreclosure.”).
As far as Florida law goes, the most obvious starting point in deciding what constitutes a “condition precedent” in a mortgage foreclosure case – and whether the language in paragraph 6 of the Note and paragraph 9 of this FHA mortgage qualifies – is analogous case law construing the language in paragraph 22 of the standard, Fannie Mae mortgage. In that context, Florida courts have routinely characterized
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the lender’s giving of the notice required by paragraph 22 not as an affirmative defense, but a condition precedent to acceleration and foreclosure.2 See Haberl v. 21st Mortg. Corp., 138 So. 3d 1192 (Fla. 5th DCA 2014); Samaroo, 137 So. 3d at 1128; Dominko v. Wells Fargo Bank, 102 So. 3d 696 (Fla. 4th DCA 2012); Zervas v. Wells Fargo Bank, 93 So. 3d 453 (Fla. 2d DCA 2012); Laurencio v. Deutsche Bank Nat’l Trust Co., 65 So. 3d 1190 (Fla. 2d DCA 2011); Konsulian, 61 So. 3d at 1284 (repeatedly characterizing the paragraph 22 notice as a “condition precedent to foreclosure”); Frost v. Regions Bank, 15 So. 3d 905 (Fla. 4th DCA 2009). In fact, in recent months, the Fourth District has twice held that paragraph 22 is a condition precedent which the lender must prove at trial, failing which dismissal of the lawsuit is required. Blum v. Deutsche Bank Nat’l Trust Co., ___ So. 3d ___ (Fla. 4th DCA 2015); Holt v. Calchas, LLC, 155 So. 3d 499 (Fla. 4th DCA 2015).3
2 This concept is consistent with David v. Sun Federal, where the Florida Supreme Court set forth certain circumstances which justify relief from foreclosure, including “where the mortgagee failed to perform some duty upon which the exercise of his right to accelerate was conditioned.” 461 So. 2d 93, 96 (Fla. 1984). 3 The Fourth District’s initial opinion in Holt did not require dismissal upon failure to comply with this condition precedent. After that decision came out, the undersigned moved for rehearing as an amicus, citing the DCA decisions set forth herein and hundreds of decisions from dozens of circuit court judges throughout Florida construing paragraph 22 as a condition precedent to acceleration and foreclosure. Based thereon (as well as the appellant’s joinder in that motion), the Fourth District withdrew that decision and issued the revised opinion which now exists, then followed that existing decision in Blum. Suffice it to say dismissal for paragraph 22 non-compliance is plainly the law in this context, and no contrary authority exists.
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Paragraph 22 of the standard, Fannie Mae mortgage provides “[l]ender shall give notice to the borrower prior to acceleration.” Konsulian, 61 So. 3d at 1284. Paragraph 20, which the Holt court quoted in support of its ruling that compliance with paragraph 22 was a condition precedent, provides:
Neither Borrower nor Lender may commence ... any judicial action pursuant to this Security Instrument or that alleges that the other party has breached any provision of, or any duty owed by reason of, this Security Instrument, until such Borrower or Lender has notified the other party ... of such alleged breach and afforded the other party hereto a reasonable period after the giving of such notice to take corrective action. .... The notice of acceleration and opportunity to cure given to Borrower pursuant to [paragraph] 22 ... shall be deemed to satisfy the notice and opportunity to take corrective action provisions of this [paragraph] 20.
155 So. 3d at 507, n.4.
The Corrigans quote this language from paragraphs 20 and 22 of the standard, Fannie Mae mortgage because it quite similar to the language in paragraph 6 of the Note and paragraph 9 of FHA Mortgage in this case. Compare Konsulian, 61 So. 3d at 1284 and Holt, 155 So. 3d at 507, n.4, with R.100, ¶ 6 (“Lender may, except as limited by regulations of the Secretary in case of payment defaults, require immediate payment in full of the principal balance remaining due and all accrued interest. … ”) and R.107, ¶ 9 (“Lender many, except as limited by Regulations of the Secretary in case of payment defaults, require immediate payment in full of all amounts secured by this Security Instrument if … This Security Instrument does not authorize acceleration or foreclosure if not permitted by regulations of the
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Secretary.”). The obligation the lender must perform is different, of course (in the Fannie Mae mortgage, the obligation is to send a default notice; in the FHA mortgage, it is to comply with HUD Regulations), yet in both mortgages, the rights of the lender to accelerate and foreclose are made expressly contingent upon it performing said tasks.
In light hereof, this Court should construe the pre-foreclosure counseling requirement in 24 C.F.R. § 203.604 in an FHA mortgage the same way all Florida courts have done vis a vis paragraph 22 in a Fannie Mae Mortgage – as a mandatory condition precedent. There is simply no basis to treat the paragraph 22 notice as a condition precedent while treating the counseling required by paragraph 6 of the Note and paragraph 9 of an FHA mortgage as an affirmative defense – particularly where the language in both is so similar. The former is a condition precedent, and so, too, is the latter.4
Florida courts’ treatment of the language in paragraph 22 as a condition precedent is hardly an anomaly. As the Third District has explained, a contract imposes a condition precedent any time it:
calls for the performance of some act, or the happening of some event after [the] contract is entered into, upon the performance or happening of which its obligation to perform is made to depend.
4 At least one court has reached this same conclusion using this exact same analysis. See Detweiler, 946 N.E. 2d at 784.
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Cohen v. Rothman, 127 So. 2d 143, 147 (Fla. 3d DCA 1961). That is precisely the situation here. Under the terms of its own contract, BANA could not accelerate and foreclose unless it complied with HUD Regulations. As a result, compliance with HUD Regulations is not something the Corrigans needed to prove to avoid liability, but something BANA needed to prove to accelerate and foreclose. See id.
In Hamilton v. Title Ins. Agency of Tampa, Inc., a contract which specified that two earnest money deposits be returned “in the event building permits were not secured” made “the contract’s entire performance … dependent and conditioned upon the plaintiff’s procurement of these permits.” 338 So. 2d 569, 571 (Fla. 2d DCA 1976). Here, similarly, BANA’s ability to foreclose was contingent upon it complying with HUD Regulations, including 24 C.F.R. § 203.604. R.5-7, ¶ 6; 8-16, ¶ 9. This makes face-to-face counseling a condition precedent, not an affirmative defense.
Similar case precedent exists when adjudicating the existence of statutory conditions precedent. For example, in Hallstrom v. Tillamook County, the United States Supreme Court construed the statutory obligation to give 60 days’ notice prior to filing suit in 42 U.S.C. § 6972(b) as a “mandatory, not optional, condition precedent to suit.” 492 U.S. 20, 25 (1990). Though the words “condition precedent” did not appear in the statute, the Supreme Court could not interpret a statute requiring notice 60 days before filing suit any other way than that the notice was a condition
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precedent to suit. Id.; see also Neate v. Cypress Club Condo., 718 So. 2d 390 (Fla. 4th DCA 1998) (en banc) (treating Fla. Stat. 718.1255(4)(a) as a condition precedent even where the term “condition precedent” was not contained in the statute); Freni v. Collier County, 588 So. 2d 291 (Fla. 2d DCA 1991) (regarding Fla. Stat. 125.01014(4)(a)). Here, likewise, paragraph 6 of the Note and paragraph 9 of the Mortgage plainly require compliance with HUD Regulations before BANA can accelerate or foreclose, making it a mandatory condition precedent. See Hallstrom, 492 U.S. at 25.
In the face of all of these authorities and arguments, all BANA does is string-cite a handful of cases on page 7 of its brief with an assertion that compliance with HUD Regulations is an affirmative defense. See A.B., p. 7. The cases cited do not support BANA’s position.
As explained at n.1, supra, Knight and Laws were summary judgment cases, so those courts never decided whether HUD Regulations are an affirmative defense or condition precedent at trial. 149 So. 3d at 122; ___ So. 3d at ___. Cross v. Federal Nat’l Mortg. Ass’n, 359 So. 2d 464 (Fla. 4th DCA 1978), does not help BANA’s position, either, as that case was decided before Congress codified the HUD Regulations into law. See I.B., pp. 22-23.
BANA cites Lacy-McKinney v. Taylor, Bean & Whitaker Mortg. Corp., but that case actually supports the Corrigans’ position that HUD Regulations serve as
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conditions precedent, not an affirmative defense. 937 N.E. 2d 853, 859 (Ind. 2010) (“the HUD regulations are binding conditions precedent that must be complied with before a mortgagee has the right to foreclose on a HUD property”). And while BANA cites one intermediate appellate court decision from Ohio, that judge did not adjudicate who bears the burden of proof at trial because that was a summary judgment case. Wells Fargo Bank, N.A. v. Goebel, 6 N.E. 3d 1220, 1227 (Ohio 2014). Moreover, several other Ohio cases have disagreed with Goebel, deeming the face-to-face counseling requirement in 24 C.F.R. § 203.604 a condition precedent, not an affirmative defense. See Garland, Detweiler, and Kinney, supra. In light hereof, a lender’s compliance with 24 C.F.R. § 203.604 is not an affirmative defense for which the borrower bears the burden of proof at trial, but a condition precedent, i.e. a part of the lender’s prima facie case, failing which dismissal is required. The lower court erred in ruling otherwise, and this Court should reverse.
CONCLUSION
For all of these reasons, this Court should reverse the Final Judgment of Foreclosure at bar and remand with instructions to dismiss this case without prejudice to BANA filing a new lawsuit.
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished via electronic mail to Adam Topel, Esq., [email protected], on this 25th day of April, 2015.
Mark P. Stopa, Esquire FBN: 550507
STOPA LAW FIRM
2202 N. Westshore Blvd. Suite 200 Tampa, FL 33607
Telephone: (727) 851-9551
[email protected] ATTORNEY FOR APPELLANTS
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Mark P. Stopa, Esquire FBN: 550507
