September 4, 2015

Borrower Almost Gets Out of Her Mortgage Because of a Lender’s Mistake

Imagine that you’re in dire financial trouble, you can’t pay your mortgage, and you’re trying desperately to defend yourself in a foreclosure case.

And then imagine finding out that the bank made a stupid, careless mistake. And because of that mistake, you get to keep your home – with no mortgage.

That’s what almost happened to the property owner in a recent Florida Court of Appeal case.

In Deutsche Bank National Trust Company v. Avila-Gonzalez, the bank filed a foreclosure case in 2009, after the borrower defaulted on her mortgage. The bank didn’t attach the promissory note to the lawsuit, claiming that it was lost. It filed sworn affidavits about the lost note, and in response to discovery requests, it said the note was lost. Because the note was missing, the borrower spent extra time and money trying to get information from the bank about the note.

In December 2011, the bank realized that the note was not lost after all. The bank’s servicing agent had it in its vault the entire time.

The bank did not amend its lawsuit to say that the note had been found, nor did it withdraw its two affidavits about the lost note. Because of this, the trial court issued an order requiring the bank to show cause why the case should not be dismissed for fraud upon the court.

Before the hearing on that issue, the trial date arrived. Both parties mistakenly thought the trial had been continued to a later date, and neither of them showed up. The court dismissed the case without prejudice. That meant that the bank could re-file its foreclosure suit if it wanted to.

The court then held the hearing on the order to show cause. Testimony established that the note was in the servicer’s vault before the foreclosure case was filed. The court set aside its previous dismissal, dismissed the case with prejudice and cancelled the mortgage. When a case is dismissed “with prejudice,” it is permanently dismissed and the lender can’t file a new lawsuit based on the same loan default.

This was a major victory for the property owner, but it was short lived. The court of appeal sympathized with the trial court’s frustration and criticized the bank for wasting the court’s and counsel’s time. But it said that the bank’s negligence didn’t amount to fraud upon the court.

The appeals court said the trial court should not have given the property owner a “lottery like windfall” by cancelling the note and mortgage. The correct remedy was to compensate the property owner for any additional attorneys fees she accumulated because of the lost note issue.

The court also reversed the dismissal with prejudice because the trial court’s order did not contain specific findings about the bank’s lawyer’s misconduct.

The bank’s “astounding negligence” cost it a lot of time and money – and this case shows how a bank’s mistakes can be a big help to the borrower in a foreclosure case.

The Neustein Law Group, PA of Aventura, FL and has convenient offices in downtown Miami, Dadeland, Fort Lauderdale, Boca Raton, West Palm Beach and throughout the state of Florida.