FL Property Essay Rules Flashcards
Defendants in foreclosure action:
A mortgage is a security interest in land used to secure a
promise to repay a loan. In a foreclosure action, necessary and proper parties include everyone who
has an interest in the property but whose interest is inferior to the mortgage. These include the titleholder, lien holders whose lien was recorded after the mortgage, parties in possession under a lease or as receivers, and holders of easements and licenses. When a mortgage is foreclosed, the buyer at the sale
will take title as it existed when the mortgage was placed on the property. Thus, foreclosure will terminate interests junior to the mortgage being foreclosed but will not affect senior interests. Those with
interests subordinate to those of the foreclosing party are necessary parties to the foreclosure action. The
priority of a mortgage or lien is determined by the time it was placed on the property.
If the mortgagor is different from the titleholder, they may be necessary parties if not released from
liability. When, as here, a mortgagor sells the property and conveys a deed, the grantee takes subject to the mortgage, which remains on the land. If neither the mortgagor nor the grantee makes payments on
the mortgage, the mortgage may be foreclosed, wiping out the grantee’s investment in the land. When Harry and Wilma received the quitclaim deed to the condominium from Sam, they took subject to the existing mortgage. Even though Sam told Harry and Wilma to continue making payments, they did not sign an assumption agreement and are not personally liable on the note. Instead, the original mortgagor, Sam, remains primarily and personally liable and should be a named defendant in the foreclosure action.
The bank’s recourse is against the property and against Sam personally for any deficiency
Homestead exemption:
The Florida Constitution terms certain property as “homestead,”
including realty used as the owner’s residence, thereby protecting it from levy by creditors of the owner.
However, homestead property is subject to forced sale to satisfy (i) taxes and assessments against the
property; or (ii) obligations contracted for the purchase, improvement, or repair of the property (e.g.,
a mortgage). In this case, Harry and Wilma have been living in the condominium as their primary
residence since the closing on the purchase from Sam. Thus, the house would qualify for a homestead
exemption. However, because Harry and Wilma have stopped paying the mortgage on the property for
six months, the property would be subject to a forced sale by FirstBank or NewBank to satisfy obligations that were contracted for the purchase of the property.
Nature of each party’s encumbrances
As stated above, if the mortgagor sells the property and conveys a deed, the grantee takes
subject to the mortgage, which remains on the land. Often the grantee will sign an assumption agreement, promising to pay the mortgage loan, in which case the grantee will become primarily liable to
the lender, with the original mortgagor secondarily liable as a surety. In this case, Sam is the original
mortgagor having given a mortgage on the property to FirstBank, the mortgagee, which was recorded
in Broward County. Because Sam conveyed the property to Harry and Wilma without satisfying the
mortgage, Harry and Wilma take subject to the mortgage. It seems Harry and Wilma also agreed to be
responsible for the mortgage payments. If this agreement took the form of a signed assumption agreement, Sam would no longer be primarily liable for the loan but would be secondarily liable as a surety.
However, there is no evidence of a signed writing in the facts, merely an oral statement by Sam telling
Harry and Wilma to continue making payments to FirstBank. Thus, Sam remains primarily liable on
the mortgage loan.
Nature of each party’s encumbrances
A tenancy by the entirety is a marital estate akin to a joint tenancy between
spouses. In Florida, a conveyance to spouses presumptively creates a tenancy by the entirety. An
individual spouse may not convey or encumber tenancy by the entirety property. A deed or mortgage
executed by only one spouse on tenancy in the entirety property is ineffective. Moreover, the Florida
Constitution likewise requires that the owner’s spouse join in the sale or mortgage of the property
regardless of whether it is held by the entirety. Liens are treated much the same way; the creditors
of one spouse may not attach a lien to tenancy by the entirety property. Here, Sam conveyed to both
Harry and Wilma, creating a tenancy by the entirety. Thus, the promissory note and mortgage Harry
gave to MegaBank on the condominium is ineffective because the condominium is tenancy by the
entirety property (as well as homestead realty) and Harry’s wife, Wilma, did not authorize or join in
the execution of the mortgage to MegaBank. Thus, MegaBank may not attach a lien to the property.
Nature of each party’s encumbrances
When FirstBank transferred the note and mortgage to NewBank, it transferred all of
its rights with respect to foreclosure and enforcement of the note through the courts. Thus, FirstBank has no interest in the foreclosure proceeding and need not be joined.
Nature of each party’s encumbrances
NewBank: A note, which is any written and signed promise by one party to pay money to
another, is covered by Article 3 of the UCC. To be “negotiable” under Article 3, the note must be a
written and signed (i) unconditional, (ii) promise or order to pay, (iii) a fixed amount of money. The
note also must be payable to order or to bearer and payable on demand or at a definite time, and it must
not state any unauthorized undertaking or instruction. Promissory notes are generally transferable, and we have no facts here to suggest otherwise. In transferring an instrument, the transferee acquires
whatever rights the transferor had in the instrument. Thus, when FirstBank assigned the promissory
note to NewBank, NewBank took FirstBank’s rights in enforcing the note. Consequently, NewBank
could enforce payment of the promissory note by suing Sam for payment.
NewBank was also assigned FirstBank’s mortgage and is entitled to enforce it through foreclosure. As was the case with FirstBank, the homestead exemption would not prevent NewBank from
foreclosing on the property
Nature of each party’s encumbrances
MegaBank was given a promissory note and a mortgage on the condominium from
Harry. As stated above, the promissory note and mortgage Harry gave to MegaBank is ineffective
because it related to tenancy by the entirety property (as well as homestead property) and Wilma did
not authorize or join in the execution of the mortgage to MegaBank. Thus, MegaBank may not attach a
lien to the property. Note that had this mortgage been enforceable, MegaBank would have to be named
in the foreclosure action because their interest would be terminated by the foreclosure. Foreclosure
destroys all interests junior to the mortgage being foreclosed. If a lien senior to that of the mortgagee is
in default, the junior mortgagee has the right to pay it off (i.e., redeem it) in order to avoid being wiped
out by its foreclosure. Thus, those with interests subordinate to those of the foreclosing party are necessary parties to the foreclosure action.
Nature of each party’s encumbrances
: Although Harry and Wilma’s condominium is homestead property,
as mentioned, homestead property is subject to forced sale to satisfy taxes and assessment against
the property. The condominium association has filed a lien against the condominium due to Harry
and Wilma’s failure to pay association dues (which could be considered an “assessment” against the
property). Thus, any forced sale by the condominium association to collect the dues should not fall
within the homestead exemption. As a result, the lien appears to be effective. As noted above, foreclosure destroys all interests, including liens, junior to the mortgage being foreclosed. Thus, the condominium association is a necessary party to the foreclosure action.
Nature of each party’s encumbrances
Larry and Mike: Because neither Larry’s nor Mike’s loans were secured by a mortgage on the
condo, neither has a mortgage that would require that they be joined in a foreclosure action. Since
Larry’s claim for payment had been reduced to a judgment and recorded, under the general rule, he
would be a necessary party to the foreclosure because his lien would have attached to the property.
However, because the condominium is homestead property, a judgment creditor, like Larry, cannot
levy on the property. Thus, Larry has no interest in the condo and is not a necessary party to the
foreclosure action. Mike’s interest has not been reduced to a judgment and recorded, so he would not
have any possible claims in the foreclosure action even without the protective effect of the homestead
exemption. Of course, both Mike and Larry can still pursue Harry personally for the amount owed.
Missing note and mortgage:
If a negotiable instrument is lost, stolen, or destroyed, a person
will be entitled to enforce the instrument if they can prove (i) that they were entitled to enforce the
instrument when loss of possession occurred (or that they acquired ownership from a person who was
entitled to enforce it when loss of possession occurred); (ii) the terms of the instrument; and (iii) the
facts that prevent their production of it. In Florida, a plaintiff seeking to enforce a lost or missing note
in a foreclosure action must file an affidavit with their complaint setting forth the facts entitling them to
enforce the instrument.
In this case, NewBank misplaced the original promissory note and believes the document was
discarded by mistake. Before NewBank can sue on the promissory note, it would need to establish
FirstBank’s assignment of the note (thus giving NewBank the right to enforce it) and that it cannot
produce the instrument because it is lost. NewBank can retrieve the copy of the mortgage that was
recorded in the public records of Broward County, and use this copy to show the existence of the
mortgage and the amount of the debt that is owed on the note. NewBank should set forth these details
in an affidavit filed with its complaint in its foreclosure action.
It should also be noted that if NewBank is entitled to enforce the instrument, the best evidence
rule (which applies to legally operative instruments such as promissory notes) would not prohibit
introduction of secondary evidence of the note at trial. In proving the terms of a writing where the
terms are material, the original writing must be produced; however, secondary evidence of the writing
is permitted where the original is unavailable for some reason other than the serious misconduct of the
proponent. A showing that the original has been lost and cannot be found despite a diligent search is a
proper foundation for the admissibility of secondary evidence. Because NewBank discarded the note
by mistake, secondary evidence of the note’s terms (the copy of the mortgage) may be admitted
Conclusion
Conclusion: In this case, NewBank (having been assigned FirstBank’s interest) has the most
senior interest in the condominium because its mortgage was placed on the property and recorded
first. The condominium association has a junior interest, so it must be joined in NewBank’s foreclosure
action as its interest will be wiped out by the foreclosure. As stated above, MegaBank, Larry, and Mike
have no interest in the property, and FirstBank no longer has an interest because it assigned its interest
to NewBank. Thus, NewBank has senior priority and the proceeds of the sale of the property (after
expenses) will be used to pay the unpaid amounts remaining on NewBank’s loan, and any amounts
remaining would then be used to pay off the condominium association’s lien. If the sale proceeds are
insufficient to pay NewBank, they may seek a deficiency judgment against Sam.
Re-establishing the promissory note:
Sal may sue Bill for failing to pay amounts due pursuant
to the promissory note. Actions to re-establish instruments allow courts to recreate lost instruments.
There are two forms of actions to re-establish instruments: actions to re-establish non-negotiable
instruments and actions to re-establish negotiable instruments. A mortgage secures a promise to repay
a loan, which is represented by a promissory note. Promissory notes are “negotiable instruments”under
Article 3 of the UCC. A note is a negotiable instrument and the rules for re-establishing a negotiable
instrument must be followed. A person not in possession of a negotiable instrument is entitled to
enforce it if they can prove: (i) they were entitled to enforce the instrument when loss of possession
occurred (or that they acquired ownership from a person who was entitled to enforce it when loss of
possession occurred); (ii) the terms of the instrument; and (iii) the facts that prevent their production of it. A re-established instrument has the same effect as producing the original. In Florida, a plaintiff
seeking to enforce a lost note in a foreclosure action must set forth the facts entitling them to enforce
the instrument in an affidavit filed with the complaint in their action.
Here, Bill and Sal validly executed a promissory note and a mortgage securing that note. When Bill
signed the promissory note, he made a promise to pay the mortgage at the time it was due. Sal wants to
enforce the note and mortgage but cannot locate the originals. Sal’s inability to locate the original note
does not preclude him from maintaining an action on the instrument. He must prove that at the time
the note was lost, he was entitled to enforce it, which he was. He must also show that he cannot locate
the note despite a reasonable search. He then must prove the terms of the note, which he can establish
through the copies he has. Bill breached this promise when he missed two payments. Thus, Bill is liable
to Sal for those payments missed and any interest that may have accrued. In addition, Sal could potentially use the due-on-sale clause to force Bill to pay the full amount of the debt immediately because
Bill transferred the home to Alice without Sal’s (the lender’s) consent. Sal can file an affidavit setting
forth the facts necessary to establish the note at the same time he seeks to enforce the note against Bill,
either in a suit for the full amount or in the action seeking any deficiency after foreclosure. Sal would
likely win a litigation for damages against Bill because Bill breached his promise to pay the note for the
property.
Bill’s continued liability
Bill’s transfer of the property to Alice does not release Bill from his
promise to pay the note. If the mortgagor sells the property and conveys a deed, the grantee takes
subject to the mortgage, which remains on the land. If a grantee signs an assumption agreement, she
becomes primarily liable to the lender, while the original mortgagor becomes secondarily liable as a
surety. A grantee who does not sign an assumption agreement does not become personally liable on the
loan. Instead, the original mortgagor remains primarily and personally liable.
Here, Alice did not sign an assumption agreement, so Bill remains primarily liable on the promissory note, and Sal may sue him for the full amount due or for any deficiency if Sal decides to foreclose
the mortgage and sell the property. Note that even had Alice assumed the mortgage, Sal could still sue
Bill on the note. Even though Bill would have been secondarily liable, the mortgagee may still opt to sue
either the grantee or the original mortgagor.
Due-on-sale clause:
Despite the name referencing a sale, due-on-sale clauses allow a lender to
demand full payment of the loan if the mortgagor makes any transfer of any interest in the property
without the lender’s consent. Due-on-sale clauses are fully enforceable in Florida. Because Bill transferred his interest in the property to Alice without Sal’s consent, the entire amount of the note is now due, and Sal can seek that entire amount from Bill or foreclose the mortgage and seek any deficiency
from Bill.
Re-establishing the mortgage:
Since Sal will be able to re-establish the promissory note secured by the mortgage, he will be entitled to foreclose on the property.
