While foreclosures in Florida have decreased, third-party investors are still acquiring properties at foreclosure sales, with the intent to later sell for a profit. Unfortunately, some investors do not perform a title search prior to bidding at the sale or review the foreclosure case that led to the auction. As a result, errors in title or procedural errors made during the foreclosure action are discovered after the investor is already stuck with the property and is handed a large bill to cure outstanding judgment, permits or liens.
The article below, written by Elizabeth S. Ramsay, Underwriting Counsel for The Fund (Attorneys’ Title Fund Services LLC, Florida’s title information provider), addresses the foreclosure process, and common errors that title agents and investors should watch out for.
Notice of Lis Pendens and Complaint
A foreclosure action commences with the filing of a notice of lis pendens (LP) and complaint. The LP must be recorded in the public records to provide constructive notice that an action is pending in connection with the real property. Pursuant to Sec. 48.23, F.S., the LP bars the enforcement of all unrecorded interests in the property, except as to interests of persons in possession or easements in use, unless the holder of such unrecorded interest intervenes in the action within 30 days after the recording of the LP, and only if the action results in a judicial sale. In order for the LP to be effective, it must contain all the items listed in Sec. 48.23(c)(1), F.S., which include the names of the parties, the date of the action, the date of the clerk’s electronic receipt or the case number of the action, the name of the court where the action is pending, the legal description of the property, and the relief sought.
One of the most common problems with the LP is that it fails to include the correct legal description. A defective legal description in the LP means that enforcement of unrecorded interests will not be barred, and a final judgment of foreclosure will have no effect as to any interests recorded after the action is filed. As a result, title commitments will include a requirement for foreclosure or satisfaction of those unrecorded, and any subsequently recorded, interests. In addition, pursuant to Fla.R.Civ.P. 1.420(f), an LP filed in connection with a claim for affirmative relief is automatically dissolved at the same time as such claim for affirmative relief is dismissed. When reviewing foreclosures, if the case has ever been dismissed, a new LP should be filed of record upon a reinstatement of the case; otherwise, a commitment to insure a subsequent sale may include requirements to clear interests recorded after the original LP that were not joined in the foreclosure action.
There could also be instances where the court loses jurisdiction upon dismissal of the case. InDe La Osa v. Wells Fargo Bank, N.A., 41 Fla. L. Weekly D382 (Fla. 3d DCA 2016), the appellate court overturned the trial court’s order vacating an earlier dismissal of the foreclosure pursuant to Fla.R.Civ.P. 1.540(b)(4), because the motion to vacate the order of dismissal was filed more than one year after entry of that order and because that order was not a judgment or decree.
In a complaint, the plaintiff sets out the facts and allegations necessary to support a claim for relief. A foreclosure complaint must assert the names of the defendants to be foreclosed, jurisdiction, venue (which is usually where the property is located), default under the promissory note, acceleration of the loan, compliance with any and all necessary conditions precedent pursuant to the terms of the mortgage, and the legal description of the property. It must allege the authority of the plaintiff to enforce the note, either as the holder or owner of the original note, or by some other factual basis by which the plaintiff is entitled to enforce the note. See Fla.R.Civ.P. 1.115. A copy of the promissory note, mortgage, and any assignments must be attached to the complaint, as well as any other document necessary to support the allegations made in the complaint. See Fla.R.Civ.P. 1.130. The complaint must name all indispensable parties (e.g. the owner of the property) and all junior lien holders and state that their interest is inferior to the mortgage being foreclosed. It is not proper to name superior lien holders in a foreclosure count. See Citimortgage, Inc. v. Henry, 24 So.3d 641 (Fla. 2d DCA 2009).
If, in addition to foreclosure of the mortgage, the plaintiff wishes to seek other relief, it must include a specific count for each type of relief sought in the complaint. For example, if there is a defective legal description in the deed conveying title to the borrower, the plaintiff must include a separate count for reformation of the deed. The grantor under the deed is a necessary party to the reformation action and must be named in the reformation count because the grantor may have retained title to the property by virtue of the defective legal description. If this is not done, and there is no order reforming the deed, a commitment may include a requirement for a re-foreclosure. Where the legal description in the mortgage is defective, a separate count for reformation of the mortgage must be included in the complaint to correct the legal description. If this is not done, and there is no order correcting the legal description in the mortgage, the foreclosure judgment could be void, and a commitment may include a requirement for a re-foreclosure.
Where there are additional counts, documents supporting the allegations in the complaint should also be attached. In Losner v. HSBC Bank USA, N.A., 190 So.3d 160 (Fla. 4th DCA 2016), the appellate court ruled that the trial court erred in reforming the mortgage because HSBC Bank USA, N.A. failed to establish the original intentions of the parties at the time of execution of the mortgage. The appellate court stated that the purpose of a reformation action is “not merely to show that a mistake has been made, but to correct that mistake to reflect the terms actually agreed upon [at the time of execution of the mortgage]….” The failure to show the agreement of the parties at the time of execution resulted in the appellate court reversing and remanding the case for entry of an involuntary dismissal of the reformation count, and for modification of the final judgment to grant only a monetary judgment under the note.
Where the original note is lost by the plaintiff, a count to re-establish the note must be included in the complaint. It is further necessary that each count for relief alleged in the complaint must be pled specifically in the motion for final judgment, and must also be established with specificity in the final order.
Service of Process
Another important aspect of every foreclosure action is service of process. Proper service on the defendants named must be made pursuant to Chs. 48 and 49, F.S., which provide for methods of personal and constructive service as to various types of defendants.
The most common issue that arises in connection with service of process occurs when the borrower dies prior to the entry of a foreclosure judgment. When this occurs, the decedent’s heirs become indispensable parties to the foreclosure action as soon as the borrower dies because title to the real property vests in them immediately at death. A diligent search must be performed to locate the heirs of the decedent, and they must be joined in the suit so that their interests can be properly foreclosed. If a probate proceeding has been filed and the personal representative is not yet discharged, the personal representative should also be joined in the action. See TN 12.07.04. The result of not properly complying with the procedures is that any judgment entered against the decedent alone is abated. If the foreclosure action goes through to judgment, a valid sale is not possible because the action itself was void. See English v. Bankers Trust Co. of California, N.A., 895 So.2d 1120 (Fla. 4th DCA 2005).
Another common issue encountered in foreclosures is where the property is owned by a trustee of a trust. Many times, even with a land trust, the trustee named in the vesting deed may no longer be acting as trustee, or the trust may be passive at the time that the foreclosure is filed.
In these circumstances, the known or unknown acting trustee and known or unknown beneficiaries under the trust should be named in the foreclosure and properly served because there may be nothing of record indicating the current trustee or active or passive nature of the trust. If the known trustee is also a beneficiary of the trust, that person must be named and served individually, and in their capacity as trustee. Once a trustee is served, discovery can be served upon the named trustee to provide the names and addresses of all the beneficiaries to be brought into the action in order to properly eliminate their redemptive rights. If the record owner is the trustee of a land trust, with the statutory powers under Sec. 689.073, F.S., and the trustee named in the deed is joined in the action and properly served, there is no need to join the beneficiaries in the suit. See TN 22.02.16.
Affidavit of Diligent Search and Notice of Action
The plaintiff should perform diligent searches in the county where the property lies, where the decedent died, and where the decedent last lived, for obituaries, probate actions, or any other resources that may provide the identity and location of the decedent’s heirs. Once these searches are performed, the plaintiff must file an affidavit of diligent search pursuant to Ch. 49, F.S., and a notice of action must be published, once each week for four consecutive weeks, in a newspaper in the county where the court is located, which notice must require the parties to file written defenses within 30 days after first publication pursuant to Secs. 49.08, 49.09 and 49.10, F.S.
Appointing Ad Litems
The Florida Legislature recently enacted Sec. 49.31, F.S., which provides for the statutory authority of a court to “…appoint an ad litem for any party, whether known or unknown, upon whom service of process by publication…has been properly made and who has failed to file or serve any paper in the action within the time required by law….” Sec. 49.31(2), F.S., further provides that the court may not appoint an ad litem to represent any interest for which a personal representative, guardian of property, or trustee is serving, and that if an ad litem is appointed and the ad litem discovers that there is a personal representative, guardian of property, or trustee, the ad litem must report that information to the court and immediately file a petition for discharge as to such represented interest.
For title insurance purposes, if a defendant cannot be found, does not have the mental capacity to defend the action, or is in the military, appointment of a guardian, administrator, and attorney ad litem should be made to represent the interest of such persons. Where an ad litem is appointed to represent the interest of a person found to be deceased, the ad litem must attempt to locate all spouses, heirs, devisees, or beneficiaries of the decedent and report to the court their whereabouts. Once found, these parties must be joined in the action in order to properly eliminate their redemptive rights. See TN 12.08.01(C) for instances where the appointment of an ad litem may not be necessary.
Motion for Final Judgment
The motion for final judgment should name the parties to be foreclosed, the property to be foreclosed, each relief sought, and the basis for the claim. It should be accompanied by affidavits supporting the claims and identify such affidavits. The most common issue found in motions for final judgment is that they do not ask for all the relief claimed in the complaint. For example, where the complaint has a count for foreclosure and a count for reformation of the mortgage, the motion for final judgment must ask the court for both foreclosure and reformation of the mortgage. The original note and mortgage should be submitted to the court at, or before, the time of filing the motion for final judgment. See Perry v. Fairbanks Capital Corp., 888 So.2d 725 (Fla. 5th DCA 2004).
For insuring purposes, the final judgment must state the amount that the plaintiff is due, that the lien of the mortgage which is the subject of the foreclosure action is superior to the interests of all defendants named and served in the action, the correct legal description of the property being foreclosed, the information regarding the place, date and time of the sale of the property by the clerk, the time that the redemptive rights of the defendants terminate, and a specific finding and determination as to any other count for relief alleged in the complaint as requested in the motion for final judgment.
The most common issues with final judgments found by Fund Members are that they do not contain the correct legal description, or that they do not contain a determination as to additional relief sought, such as re-establishing the lost note or reforming the mortgage or deed to correct the legal description. Where the judgment does not contain the correct legal description of the property, the notice of sale is published with the incorrect legal description thereby not allowing for a valid sale of the property by the clerk, which may result in a title commitment requiring that the sale, certificate of title, and final judgment all be vacated and a new sale be held. Where the judgment does not include a reformation of a mortgage or deed with a defective legal description, a commitment may require a new foreclosure along with a new sale of the property.
Certificate of Title
The certificate of title vests title to the property in the successful bidder at the foreclosure sale. The most common issue found with certificates of title is that the legal description is incorrect. Depending on where the erroneous legal description first appeared in the process, the commitment may call for corrective measures, such as obtaining a court order to amend the certificate of title; or, to vacate the certificate of title and go back to the beginning of the foreclosure to amend the complaint, obtain a new final judgment, perform a new sale, and issue a new certificate of title. See “Defective Legal Descriptions in Foreclosures,” 23 Fund Concept25 (Mar. 1991) for more information on the effect of an erroneous legal description during the course of a foreclosure action and corrective measures that may be required based on where and when the error occurs.
Another common issue occurs when the certificate of title is issued by the clerk vesting title in one party, then an amended certificate of title is issued vesting title in a different party. Once a certificate of title is issued by the clerk, title to the property vests in the party named therein. An amended certificate of title does not serve to divest the first party. When an amended certificate of title is issued, a commitment may call for a deed from the party named in the original certificate of title, or in the alternative, for an order vacating the original certificate of title.
Before insuring property purchased at a foreclosure sale, or with a foreclosure in the chain of title, The Fund requires a complete review of the foreclosure file and title search and examination. Purchasers should be cautioned to examine and review the foreclosure in advance of purchasing a property in foreclosure or post-foreclosure to make sure that title to the property is insurable and that any defect discovered through examination can be resolved prior to closing.