Consumer Finance Litigation

The brief era of confusion amongst Florida trial judges regarding the standard for judging compliance with conditions precedent in residential mortgage foreclosures is hopefully coming to a close. Despite a rash of written opinions from Florida trial judges adopting a strict compliance standard for contractual conditions precedent, Florida's Fifth District Court of Appeal joined the Second and the Third District Court of Appeal in adopting a substantial compliance standard in Bank of New York Mellon, etc. v. Donna D. Johnson, 5D14-3626 (Fla. 5th DCA Jan. 29, 2016). The opinion in Johnson is also exciting because it is the first opinion to expressly reject the wildly popular "bring a court action." This argument asserts that foreclosure that the language "bring a court action" when used in lieu of a declaration that the borrower can "assert defenses in the foreclosure proceedings" is non-compliant with the terms of paragraph 22 of most residential mortgages. The rationale behind this argument is that such language might lead to borrowers waiving their defenses to foreclosure by not asserting them in the foreclosure proceedings, and instead suggests a separate lawsuit is required. This defect was also asserted, and rejected sub silencio, in the Third DCA case, Bank of N.Y. Mellon v. Nunez, 40 Fla. L. Weekly D2486, 2015 WL 6735856 (Fla. 3d DCA Nov. 4, 2015). The failure of the Nunez opinion to describe the actual defects in the letter that it proclaimed substantially compliant was frustrating. The brief and undetailed opinion ensured that while the substantial standard was clearly adopted in the Third DCA, trial judges might still reach results at odds with the result in Nunez, despite indistinguishable facts, by simply rejecting identical language under the new standard. No guide was set forth to establish how substantial was substantial enough. Only those who pulled the briefs would ever know the "bring a court action" argument was in play in Nunez, and most practitioners did not. Thankfully, the opinion in Johnson removes all doubt, holding that substantial compliance is the standard, and that in the absence of prejudice, foreclosure should not be denied. The opinion spoke specifically to the "bring a court action" argument and rejected it:

"Rather, Appellee argues the default letter in this case would lead to confusion, whereby a borrower 'would not appear in the foreclosure case, thinking instead that he had to file his own lawsuit to assert his defenses.' However, no confusion occurred here; Appellee retained counsel and vigorously defended the foreclosure proceedings, ultimately obtaining an involuntary dismissal. See [Green Tree Servicing LLC v.] Milam, 177 So. 3d [7,]at 19 [(Fla. 2d DCA 2015)] ('[Paragraph 22] is not a technical trap designed to forestall a lender from prosecuting an otherwise proper foreclosure action because a borrower, after the fact, decides that the letter might have been better worded.'). Insofar as the default letter varies from paragraph 22's requirements, any variation caused no actual prejudice to Appellee. Therefore, we find that the default letter substantially complies with paragraph 22."

Thus, taking the detailed opinions in Milam and Johnson together with the less detailed opinion in Nunez, the great weight of authority in Florida's appellate courts now stands for the proposition that substantial compliance is the standard for evaluating compliance with paragraph 22, one must show prejudice to state a defense to foreclosure. In the absence a showing of prejudice, no defense to foreclosure exists and the Court should affirm the final judgment. It should be noted that where a letter omits an entire prong of the five part paragraph 22 disclosure, prejudice may be presumed. However, minor differences in the language used in the disclosure and the exact language of paragraph 22 will require a prejudice test under the rationale set forth in Johnson and its predecessor Gorel v. Bank of N.Y. Mellon, 165 So. 3d 44, 47 (Fla. 5th DCA 2015). A copy of the slip opinion in Johnson can be found here.