FLORIDA APPELLATE COURT AGREES LENDER WAS COLLATERALLY ESTOPPED FROM SEEKING EQUITABLE RELIEF

Last month Florida’s Fourth DCA affirmed the lower court’s dismissal of an equitable action filed by lender, CSAB, against mortgagors Richard Clarke and Paula Prinsen (collectively, “the borrowers”). CSAB Mortg.-Backed Pass-Through Certificates, Series 2007-1 v. Clarke, No. 4D2023-2047, 2024 WL 4829805, at *1 (Fla. 4th DCA Nov. 20, 2024). The equitable action was the second of two actions filed against the borrowers.

In the first action, filed in 2008, CSAB sued the borrowers seeking to foreclose and reform the borrower’s mortgage.[i] Although the trial court granted foreclosure, it refused to reform the mortgage because at trial CSAB failed to offer any evidence to support reformation of the legal description of the mortgage. Due to the court’s refusal to reform the mortgage, the erroneous legal description “precluded” the lender from selling the property at a foreclosure sale.

CSAB filed the second action against the borrowers in 2020 seeking an equitable lien and to foreclose that lien. CSAB reasoned it was entitled to equitable relief since it could not sell the property due to the error in the legal description. The trial court disagreed with CSAB finding “the correctness of the legal description was ‘fully litigated’ in the 2008 foreclosure” and the borrowers prevailed on that issue.

The trial court concluded, based on collateral estoppel, that CSAB was precluded from relitigating the issue with the legal description and dismissed the suit. CSAB appealed the order of dismissal to the Fourth DCA which affirmed. The DCA agreed with the trial court that the issue had been fully litigated, and that the lender had “adequate remedies at law to collect on the prior judgment” so equitable relief was not appropriate.

This holding demonstrates the importance of understanding the issues raised by the pleadings and the burden of proof on those issues. Establishing the basis for reformation of a mortgage is not a difficult burden to satisfy; however, due to the redundant nature of foreclosure claims nuances like these are sometimes overlooked resulting in costly and unnecessary litigation.

[i] Clarke, at *1. All references to this case are to this citation.