Daily Development for Thursday, January 26, 2006
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

MORTGAGES; FORECLOSURE; RES JUDICATA: Where mortgagee brings judicial foreclosure action naming original mortgagor as defendant, but neglecting to name the current owner of the property as well, the foreclosure action is void, and consequently res judicata does not bar mortgagee from bringing a second action naming both original mortgage (for purposes of obtaining a deficiency) and current owner as defendants.

English v. Bankers Trust Co. of California, 895 So. 2d 1120 (Fla. 2005)

Lender was not aware that mortgagor had transferred the property, and carried judicial foreclosure action through to final judgment and setting of a foreclosure sale before it realized that it had not named the current owner of the property as a defendant.

Regrouping, Lender initiated a new foreclosure action, naming both the original mortgagor and the current owner (and a third party - who’s function was never disclosed) as parties defendant. 

The mortgagor protested that although the first action was void, and did not establish a deficiency claim against her, it nevertheless was sufficient to permit her to raise a res judicata claim to bar the second action against her.  Not so, answered the court - void is void.  Since the first action meant nothing, a second action could be brought.  It differentiated a second foreclosure action that might be brought to foreclose away an omitted junior lienholder.  Apparently, in such cases, Florida law has not permitted the naming of another party defendant who had not been named in the first foreclosure of the fee interest. 

The court held, however, that in the finding of any deficiency from the second sale, defendant mortgagor could be found liable for interest accrued on the debt only to the date of the first attempted foreclosure, and neither accrued interest nor prejudgment interest may be claimed after that date. 

Comment: The cases cited by the court in support of its denial of interest appear to depend upon the mortgagee’s having control of the property following the first foreclosure.  Obviously that did not happen here.  Thus, although perhaps the mortgagee deserves to be spanked for its lack of diligence, the editor could not find a clear rationale for the decision on this point. 

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