FLORIDA’S APPELLATE COURT DISTINGUISHES REVERSE MORTGAGES & AFFIRMS DISMISSAL OF FORECLOSURE BASED ON RES JUDICATA

Earlier this month, Florida’s Fifth DCA rendered a surprising opinion wherein it affirmed dismissal of a second attempt to foreclose a reverse mortgage finding res judicata barred the subsequent foreclosure action against the Association. Mortg. Assets Mgmt. Series I Tr. v. Harvey, No. 5D2023-2017, 2024 WL 4094183 (Fla. 5th DCA Sept. 6, 2024). In Harvey, an elderly borrower executed a reverse mortgage in 2007 and died the next year.[i]

The note holder, OneWest Bank, FSB (“OneWest”), initiated foreclosure proceedings in 2013 and named the condominium association, Hidden Ridge (“Association”), as one of several defendants. Although OneWest successfully obtained a judgment of foreclosure, the Fifth DCA reversed the judgment on appeal due to the lack of competent evidence on the issue of superiority between OneWest’s mortgage interest and the Association’s lien interest.

On remand, the court tried the matter and agreed with the Association that OneWest failed to prove the superiority of its mortgage. The court dismissed OneWest’s foreclosure and entered judgment in favor of the Association. Bank of New York Mellon Trust Company, N.A. (“BONYM”) obtained an interest in the reverse mortgage and initiated foreclosure proceedings a year later again naming the Association as an inferior lien holder.[ii]

The Association asserted res judicata as an affirmative defense and the matter proceed to trial. After considering the Association’s defense, the court concluded that res judicata applied and entered judgment in favor of the Association. OneWest appealed that decision arguing that the unique nature of mortgages, including reverse mortgages, precluded application of the res judicata doctrine. The Fifth DCA disagreed.

Although listing the five elements[iii] of res judicata (“the doctrine”), the Court did not delve into the doctrine, but focused its analysis on the distinctions between a reverse mortgage and a traditional mortgage in the context of res judicata. The Court acknowledged the Florida Supreme Court’s holding in Singleton v. Greymar Associates[iv], one of the earlier cases to discuss the “unique nature of the mortgage obligation” in that the parties to a mortgage have “continuing obligations” with which they must comply. The Fifth DCA noted that “Singleton’s holding [that the doctrine of res judicata did not apply to traditional mortgages] was very much tethered to the notion that it is the subsequent defaults that create the subsequent causes of action.”[v]

The Court elaborated that even in the context of a traditional mortgage, res judicata would prevent a subsequent action based on “the same default previously sued upon” so it is “the subsequent default which makes res judicata inapplicable” to traditional mortgages. Notably, in reverse mortgages the acceleration “event” is death, which obviously can’t be repeated, so the death of a mortgagor of a reverse mortgage cannot serve as the basis for a subsequent foreclosure, as BONYM attempted to do in its action against the Association.[vi]

Interestingly, in a footnote the Court remarked that the “[Harvey] note contained several other terms which would permit the lender to seek payment in full.”[vii] Although the Court refused to consider any of those “other terms” since BONYM failed to plead them in the subsequent foreclosure; there appears to be some hope for mortgagees of reverse mortgages depending on the specific note provisions which will need to be considered on a case-by-case basis.[viii]

[i] Harvey, at *1. All future references, citations and/or quotations are to this citation until indicated otherwise.

[ii] Harvey, at *2. All future references, citations and/or quotations are to this citation until indicated otherwise.

[iii] The five elements of res judicata are: (1) “a judgment on the merits”; (2) “identity in the thing sued for; (3) identity of the cause of action; (4) identity of the person and parties to the actions; and (5) identity of the quality or capacity of the person for or against whom the claim is made.” Harvey, at *2 (internal citations and quotation marks omitted).

[iv] Harvey, at *2-3 (citing and quoting Singleton v. Greymar Associates, 882 So. 2d 1004, 1007–08 (Fla. 2004)).

[v] Harvey, at *3. All future references, citations and/or quotations are to this citation until indicated otherwise.

[vi] Harvey, at *4.

[vii] Harvey, at *4 n2.

[viii] Harvey, at *4 n2.