Case Where Bank Loses Request for Foreclosure Summary Judgment Because of Standing and Federal Fraud Law
For complete details of this foreclosure case precedent, read: Vidal v. Liquidation Properties, Inc., 104 So. 3d 1274 (Fla. Dist. Ct. App. 2013).
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A few years back, Cesar and Ruth Vidal (“the Vidals”) bought a house after getting loan approval from Option One Mortgage Corporation. The deal closed, and the Vidals moved into their new home. Sadly, the Vidals became one of the many Florida home owners who got behind on their mortgage payments in the 2000’s Florida housing crisis.
In February 2009, Liquidation Properties, Inc. (“Liquidation”) filed a lawsuit seeking to foreclose on the Vidals’ home. After filing the lawsuit, Liquidation then filed a motion for summary judgment asking the trial judge to enter judgment in Liquidation’s favor. The judge did so, despite the many defenses pled and asserted by the Vidals.
So the home owners appealed the summary judgment and won as the appeals court reversed the judgment and remanded the case back for trial.
Among their defenses were allegations that they had been victims of fraud and misrepresentation by the lender which constituted violations under the federal Truth in Lending Act. This is federal law, enacted separately from any Florida statute.
If a bank gets a summary judgment, there is no jury to hear the case and the bank gets ready for a foreclosure sale.
What is the Truth in Lending Act?
In 1968, Congress passed the Truth in Lending Act (TILA) specifically to protect people who did business with lenders (as well as other kinds of creditors). Bank activities are monitored by Federal Reserve Board regulations (specifically, “Regulation Z”) to make sure that financial institutions comply with TILA in their dealings with borrowers.
Key to the TILA is its requirements regarding communications between the bank and the borrower. TILA forces lenders to provide lots of information to the borrower before any loan is finalized. This information includes things like: the annual percentage rate (APR) that will be charged as interest; the term (time period) of the loan; and all the costs that the borrower must pay to the bank as part of getting the loan.
TILA also forbids banks to do specific acts, such as: (1) getting additional payments when certain terms and conditions are included in the loan; (2) pushing loans that are more profitable for the bank, as lenders must provide customers with all the loan options offered by the bank for the type of financing (e.g., residential mortgages) it offers.
TILA also mandates that banks must allow for a three (3) day rescission opportunity to the borrower. Under TILA, the borrower has three days to change their mind after closing on the home loan and the borrower can stop the entire process at any time if they fall victim to bullying or pressure from the bank to close the deal.
In 1994, TILA was amended to include the Home Ownership and Equity Protection Act (HOEPA) to protect borrowers against predatory lending. These are unfair lending practices undertaken by lenders to take advantage of borrowers in order to get the loan. Lying to borrowers, manipulating customers, and otherwise pressuring someone to finalize the mortgage are specifically made illegal.
For more on the Truth in Lending Act, see Truth in Lending Act – Consumer Rights and Protections.
Affirmative Defenses Asserted by the Vidals
The Vidals argued to the appeals court that the trial judge was wrong to enter summary judgment for Liquidation for several reasons (their “affirmative defenses”) including:
(1) Liquidation did not have standing to seek foreclosure of their note and mortgage, so Liquidation had no legal right to file the lawsuit much less obtain a judgment; and
(2) their defenses based upon TILA of being victims of fraud and misrepresentation were legally sufficient and prevented a summary judgment because these were fact issues for a jury to decide.
Standing of Liquidation
There was no argument that Liquidation was not the lender involved in the initial home loan with the Vidals. Liquidation argued that Option One Mortgage had assigned the mortgage and this was the reason that Liquidation was suing to foreclose on the Vidal’s home.
To demonstrate its legal standing to file the suit, Liquidation provided the following: (1) the original note and mortgage; (2) an undated allonge endorsed in blank; and (3) a mortgage assignment executed (signed) on February 6, 2009, but with an earlier effective date of January 15, 2009.
The Vidals argue the trial judge made a mistake in granting judgment to Liquidation because it did not have legal standing as: (1) the original note and mortgage were not produced at least twenty days prior to the summary judgment hearing; and (2) the back-dated assignment could not demonstrate, as a matter of law, that a legal or equitable transfer of the note and mortgage occurred prior to the filing of the complaint against them.
The appeals court ruled that the lender who owns or holds the note is entitled to foreclose on the mortgage. See, e.g., Riggs v. Aurora Loan Servs., LLC, 36 So.3d 932 (Fla. 4th DCA 2010). However, in filing a mortgage foreclosure suit and seeking a summary judgment, Liquidation has to be able to prove it owned or held the note as of the date suit is filed.
As a plaintiff, the lender must have standing to foreclose when the complaint was filed. Liquidation could demonstrate this by an assignment or an equitable transfer of the mortgage prior to the filing of the complaint against the Vidals.
Liquidation did file the original note. However, the allonge to the note was endorsed in blank, and not dated. This means that under the law, Liquidation had not proven standing to file the foreclosure suit.
Liquidation did not file an affidavit demonstrating that the note was transferred prior to the filing of the complaint. The assignment that Liquidation filed shows only the transfer of the mortgage, not the note.
From its language, the appeal court found that one can infer the parties to the transfer (Option One and Liquidation) were attempting to backdate things to their benefit.
Therefore, the trial judge erred in ruling there was no issue of material fact regarding standing, because the case’s record does not reflect as a matter of law that Liquidation had standing on the date the complaint was filed.
TILA Violations: Fraud and Misrepresentation Prohibit Foreclosure Summary Judgment
The Vidals also asserted that they were victims of the bank violating provisions of the federal Truth in Lending Act.
Specifically, the bank had committed fraud and misrepresentation because it not only failed to comply with federal disclosure requirements, but the Vidals were also told the loan terms were fixed (they were not) and the actual payment terms were much different from what they were told when they were in the process of applying for a mortgage.
Statute of Limitations
Liquidation first argued that the Vidals had missed the deadline to assert TILA defenses, but the appeals court ruled this was not so. They were within the three year deadline. 15 U.S.C. § 1635(f) (2006)
As for the Vidals’ arguments about TILA violations, Liquidation filed nothing in its sworn statements to refute their TILA defenses. It filed nothing to challenge their allegations of bad acts by the lender.
This alone was enough to deny them a summary judgment because the failure to rebut a properly raised affirmative defense precluded the entry of summary judgment in favor of Liquidation. Servedio v. U.S. Bank Nat’l Ass’n, 46 So.3d 1105, 1107 (Fla. 4th DCA 2010).
Underlying Fraud Facts
The Vidals raised two “fraud” claims as affirmative defenses, but these were based upon facts that did not support their arguments. In other words, they could assert TILA against the lender legally, but their facts failed to support their claims of TILA violations.
Their first TILA claim was the lender falsely inflated their income in the loan application that they signed to get the loan, and it never tried to verify their income to support the mortgage. However, the appeals court pointed out that the Vidals signed the loan documents which showed the exaggerated income numbers. This blocked their ability to defend based upon TILA fraud grounds.
“The recipient of a fraudulent misrepresentation is not justified in relying upon its truth if he knows that it is false or its falsity is obvious to him.” M/I Schottenstein Homes, Inc. v. Azam, 813 So.2d 91, 93 (Fla.2002) (quoting Besett v. Basnett, 389 So.2d 995, 997 (Fla.1980)(quoting Restatement (Second) of Torts (1977) § 541)).
They also asserted that Option One told them the home loan would be a fixed rate loan and this was not true. While this may have been a misrepresentation made to them by the loan officers, they signed the loan documents where provisions indicated the note was an adjustable rate loan.
“A party cannot recover in fraud for alleged oral misrepresentations that are adequately covered or expressly contradicted in a later written contract.” Hillcrest Pac. Corp. v. Yamamura, 727 So.2d 1053, 1056 (Fla. 4th DCA 1999).
Florida Foreclosure Defense Lawyer Can Help Borrowers Fight the Bank
In Florida, borrowers have a great many defenses available to them to fight against a summary judgment motion filed by the lender in a foreclosure lawsuit.
This case demonstrates how federal law can be used to fight against the state action in a state proceeding.
While the Vidals’ TILA claims could not factually support their case, the ability of other borrowers to assert TILA defenses against a foreclosure summary judgment motion may be successful. It will depend upon the circumstances of their situation.
Another important point here: once again, a Florida foreclosure plaintiff was discovered filing a foreclosure lawsuit without proper documentation to prove up their right to file the case in the first place. Standing is a powerful defense for borrowers in any foreclosure action.
Read: Florida Foreclosure Appeal on The Issue of Standing – Victory Against Bank of America.
Having a lawyer help you when you are facing foreclosure proceedings or a summary judgment threat by a lender can be vital in keeping your home – or in getting free of the home loan. An experienced Florida real estate attorney can be much more economical than you may think. Most Florida real estate lawyers, like Larry Tolchinsky, will offer a free initial consultation to answer your questions.
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