Loan Servicers in the Post-Foreclosure World Are They Entitled to Safe Harbor Protection?

When purchasing your home, you likely shopped for the lender that would provide you with the most favorable terms for your mortgage loan. While you may have found the perfect lender, it is quite typical for your mortgage loan to be bought and sold on the secondary market. As a result, you receive a letter informing you of the transaction along with new instructions detailing where your monthly payments should be sent. But, the fun does not stop there. Your loan could then be bundled with thousands of others to be serviced by another loan servicing company. If so, you will receive yet another letter with new instructions.

In fact, it is not uncommon for a homeowner with a mortgage loan to not even know what company actually owns their mortgage due to confusion with their loan servicer, which is the company that manages the day-to-day operations of the mortgage loan on behalf of the mortgage loan owner. Although the loan servicer may be perceived as your lender, the loan servicing company is not the owner of your mortgage loan.

Given the number of companies which may have their hands on your mortgage loan, who is considered the first mortgagee under Florida’s statutory safe harbor laws? According to a recent decision of Florida’s Second District Court of Appeal, it could be all of them!

In the very recent Second District Court of Appeals case of Brittany’s Place Condominium Association, Inc. v. U.S. Bank, issued October 5, 2016, U.S. Bank filed a foreclosure action against a homeowner who was delinquent in payment of his mortgage loan. The condominium association was named as a defendant in the foreclosure action, and the foreclosure action was ultimately decided in U.S. Bank’s favor. As a result, U.S. Bank obtained title to the unit at the foreclosure sale and sought limitation of its liability for past due association assessments.

However, U.S. Bank was not the owner of the foreclosed mortgage loan. Rather, U.S. Bank alleged that it was the “holder of the note and mortgage and the servicer for the owner of the note and mortgage, acting on behalf of and with the authority of the owner.” The association and U.S. Bank disagreed as to the amount owed for past due assessments, and the association sued to foreclose its assessment lien on the unit.

In defending against the association’s foreclosure action, U.S. Bank won its motion for summary judgment where it argued that it was entitled to the statutory safe harbor. Simply stated, the statutory safe harbor limits the past due assessment liability of a first mortgagee, or its successor and assignee, to the lesser of twelve months’ unpaid past due assessments or one percent of the original mortgage debt. Noticeably absent from the safe harbor legislation is a provision extending its application beyond the first mortgagee, its successors and assigns to that of the loan servicer. Nevertheless, on appeal, the association argued that the statutory safe harbor did not apply because U.S. Bank was not the owner of the foreclosed mortgage loan.

During the appeal, the Court analyzed the language of the statutory safe harbor provisions, which do not provide a definition for “first mortgagee.” Looking to other Florida Statutes and other Florida cases for guidance, the Court determined that “a first mortgagee is the holder of the mortgage lien with priority over all other mortgages.” Additionally, applying the clarification from the statutory provisions, the “successor or assignee” is “only a subsequent holder of the first mortgage.” Then, the Court looked to a dictionary definition for the term “holder,” which is otherwise defined as a person who “holds” as an owner or “a person in possession of and legally entitled to receive payment of a bill.”

Based upon its analysis of the term “first mortgagee,” the Court concluded that actual “ownership” is not essential to a first mortgagee’s successor or assignee’s entitlement to limited liability under the statutory safe harbor, and its conclusion “is bolstered by the fact that the legislature did not use the word “owner” to restrict limited liability to only owners of the first mortgage (or note).” Therefore, the safe harbor protections were extended to the benefit of the loan servicing company, too.

The Court’s decision provides additional clarity as to who may be considered a first mortgagee, or its successor or assignee, under the statutory safe harbor provisions. Certainly this decision heightens the necessity for community associations to carefully analyze the application of the statutory safe harbor provisions.

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