Update: Supreme Court quashes denial of prevailing party foreclosure fees, but leaves uncertainty
By Robert Hauser, esq.
Many of you may have read my April 12, 2017 blog about Nationstar Mortgage LLC v. Glass, 219 So. 3d 896 (Fla. 4th DCA 2017) and my Linkedin.com update post in 2018. At the time of those posts, the Fourth District had held that a prevailing homeowner was not entitled to prevailing party attorneys’ fees in a foreclosure case brought by a purported mortgage lender. The Fourth District held that the homeowners’ successful assertion of a “standing” defense at trial meant that she could not recover attorneys’ fees on appeal. By implication, the Glass opinion meant that the homeowner should also not recover fees at the trial level. Glass would have wide-ranging negative implications for homeowners and foreclosure defense attorneys.
Glass successfully petitioned for further review in the Supreme Court of Florida. In a 4-3 decision issued January 4, 2019, the Supreme Court quashed the decision and held that fees were due to Glass. The majority decision, however, still leaves some big risks for homeowners and foreclosure defense attorneys.
The Supreme Court explained the full procedural history of the Glass case. In the trial court, Nationstar filed a complaint against Glass seeking to foreclose a recorded “reverse” mortgage. Nationstar alleged that the loan was in default as a result of non-payment of taxes and/or insurance on the property. Nationstar sought the full balance of the loan plus interest, costs, and attorneys’ fees.
After one amendment, Glass moved to dismiss on various grounds, including the observation that the exhibits to the amended complaint named a different entity–Countrywide Bank–as the lender and failed to allege or demonstrate that Nationstar was the proper holder of the note. Glass also pointed out that Nationstar failed to allege a breach of contract; that Nationstar never had the HUD Secretary’s approval to accelerate the loan, as required by its terms; and finally, that the exhibits to the complaint contravened the allegations that the borrower’s non-payment of taxes constituted a default. Nationstar responded, but the motion to dismiss was granted without prejudice. Nationstar filed another amended complaint which Glass contended did not address the defects. The trial court dismissed the foreclosure suit with prejudice.
Nationstar then appealed to the Fourth District, contesting the dismissal. After briefing, Nationstar filed a notice of voluntary dismissal of the appeal. The Fourth district issued an opinion denying Glass’ motion for appellate attorneys’ fees, reasoning that Glass had prevailed on her standing argument in the trial court, which necessarily meant that Glass was not a party to a fee-shifting contract with Nationstar. The Fourth District granted rehearing but reaffirmed its decision to deny appellate attorneys’ fees.
The Supreme Court restated the issue narrowly as “a homeowner’s entitlement to appellate attorney’s fees pursuant to section 57.105(7), Florida Statutes, after a bank filed a notice of voluntary dismissal in the district court of appeal.” The Supreme Court started with the proposition that when a plaintiff voluntarily dismisses an action, the defendant is the prevailing party. Likewise, when an appellant dismisses, prevailing party appellate attorneys’ fees were taxable against that appellant, assuming that a fee-shifting agreement exists.
The Supreme Court explained that Glass was not necessarily “successful only for demonstrating that Glass lacked standing.” In reality, the trial court had not given any explanation for its decision. Accordingly, lack of standing was only one of many possible bases for the dismissal.
Likewise, the Fourth District had described Glass’ position on appeal incorrectly in its opinion. In her answer brief, Glass asserted that the trial court properly dismissed the foreclosure lawsuit for (1) failure to allege standing; (2) seeking an inappropriate remedy; and (3) Nationstar’s failure to allege HUD Secretary approval of its acceleration.
In a prior foreclosure case, the Third District had held in Bank of New York Mellon Trust Co. v. Fitzgerald, 215 So. 3d 116 (Fla. 3d DCA 2017) that no contract existed between the foreclosing bank and the homeowner. As a result of this express holding, the third district did not award fees under the reciprocity provisions of section 57.105(7). In Fitzgerald, however, it was clear that the homeowner had entered into a mortgage with JPMorgan Chase. Fitzgerald successfully proved at trial that the foreclosing plaintiff “failed to establish” assignment of the mortgage from JPMorgan. In fact, the Fitzgerald trial court affirmatively ruled that the note was negotiated in favor of the plaintiff bank and that the bank never became the holder of the note in order to enforce it. On appeal, then-Judge Lagoa held that the fee-shifting provisions of section 57.105(7) could not create a right to attorneys’ fees in favor of the homeowner.
In contrast, in the instant case, Ms. Glass merely asserted in a motion to dismiss that Nationstar failed to demonstrate a step in the transfer or assignment of the mortgage. In other words, the lack of standing alleged here did not mean that Nationstar did not hold the note, but only that its complaint was legally insufficient for failing to properly demonstrate the chain of title, as was its burden.
Finally, the Supreme Court explained the difference between cases in which no contract ever existed (in which case no fees are to be shifted under a contract-based fee clause) versus cases in which a contract is held to be unenforceable (in which case fees are to be shifted under the terms of the contract). In Glass’ case, a reverse mortgage agreement clearly existed between Glass and Countrywide Mortgage, which was then assigned from its successor in interest, Bank of America, to Nationstar. As a result, the contract was merely “unenforceable” due to Nationstar’s failure to demonstrate that it was the rightful successor in interest. Fees were therefore taxable at both the trial and appellate levels.
Justice Polston dissented, joined by Justices Canady and Lawson. Justice Polston first argued that the Court did not have jurisdiction to hear the case. In Justice Polston’s view, there was no conflict between the Fourth District’s Glass opinion and Williams.
Unfortunately, Glass leaves behind considerable risk and uncertainty for homeowners who prevail in a mortgage foreclosure case. Justice Lagoa, the author of the Fitzgeraldopinion, now sits on the Supreme Court of Florida and could easily form a four-Justice majority with the dissenters in Glass. Moreover, the opinion denying fees in Fitzgerald was not disapproved and remains good law. Accordingly, for litigants who go to trial and actually prove that they have no existing mortgage agreement with the plaintiff, there will be still be no contract-based fee recovery under the reciprocity provisions of section 57.105(7). Moreover, the Supreme Court’s attempt to distinguish Fitzgerald is unsatisfying. In any mortgage foreclosure, it is always and entirely the foreclosure plaintiff’s burden to establish that it owned and held the note in question at the time suit was filed. Any such failure of proof should result in a defense judgment, regardless of whether the bank acquired the note or became able to establish standing as of some later date.
There is a big difference between a plaintiff’s failure to meet its affirmative burden to prove a fact, such as standing, versus a defendant’s affirmative demonstration that it is not actually in privity of contract with a foreclosing plaintiff. There is an even greater difference between a plaintiff’s failure to prove standing at the time suit was filed and a defendants’ technical argument that the plaintiff did not sufficiently prove such standing. This is an important distinction which appears to have been overlooked by the Fourth District in Glass. Future litigants seeking to recover fees now need to carefully distinguish Fitzgerald and argue that Glass applies to their facts.