The Second District Court of Appeals (“Second DCA”) recently issued an interesting opinion about the limited rights of a non-borrower in a foreclosure case. The case is Pealer v. Wilminton Trust Nat’l Ass’n,[i].

In Pealer, third-party purchasers, Bonnie and William Pealer (“the Pealers”), acquired title to the subject property at a homeowner’s association (“HOA”) foreclosure sale in July, 2011. The Pealers took title subject to, and with knowledge of, the bank’s recorded mortgage. Shortly after the Pealers took title, the mortgagors defaulted on the terms of the mortgage. The bank initiated foreclosure proceedings and named the Pealers together with the borrowers who signed the note and mortgage, among others, as defendants.

The borrowers did not oppose the foreclosure; however, the Pealers did. At trial, the Pealers raised objections to the bank’s evidence and also suggested the bank “engaged in fraud and forgery in obtaining ownership of the note.” After a non-jury trial, the lower Court entered judgment for the Plaintiff bank and the Pealers appealed. As part of the appeal, the Plaintiff bank argued that the Pealers did not have standing to raise allegations regarding its acquisition of the note and mortgage.

On appeal, the Second DCA, finding the Pealers’ arguments to be without merit, affirmed. Judge Fleet wrote a “specially concurring opinion” to the majority’s affirmance. This type of opinion signifies the author agrees with the end-result or disposition of the case, but does not agree with the majority’s rationale or wishes to elaborate on the opinion. Here, Judge Fleet explained he wanted to address the standing [ii] or lack thereof, of a non-borrower in a foreclosure action rather than the substance of the Pealers’ opposition to the foreclosure.

The Court looked at the legal rights of a “subsequent purchaser” which is a term used to describe a party who takes title to property having notice of a recorded mortgage and/or a recorded lis pendens. In his specially concurring opinion, Judge Fleet cited a plethora of cases which stood for the premise that a “subsequent purchaser,” like the Pealers, could not oppose foreclosure because they did not have a “legally cognizable interest” in the property.

The Pealers did not sign the note or mortgage, nor did they assume the mortgage when they purchased the property at the HOA sale. The Court concluded that only a party to a mortgage can “challenge a violation of mortgage’s terms.” [iii] Judge Fleet elaborated that the bank’s standing to foreclose derived “from its right to enforce the note and mortgage signed by [the mortgagors].”  Since the Pealers never signed the note or mortgage their interest was “limited to their possession of the property.” Judge Fleet concluded “the Pealers may participate in the bank’s foreclosure proceeding only to the extent that they plan to exercise their statutory right of redemption and prevent the forced sale of the property.” Redemption allows the Pealers to satisfy the mortgage with a payoff.

One very telling aspect of the ruling is the Court’s acknowledgment that defendants benefit from delaying foreclosure proceedings to the detriment of the Plaintiff bank. Judge Fleet acknowledged the valid purpose third-party purchasers played in the community by maintaining foreclosed properties they purchased, but noted “[m]ore often than not, the sole purpose of their participation in the bank’s foreclosure is to “unnecessarily protract litigation” so they can continue to collect rent. The Court finally concluded the Pealers’ ability to participate in the subject foreclosure should have been limited to issues affecting their right of redemption.

It is important to note Judge Fleet’s concurring opinion is not precedential. In other words, other courts are not required to follow it. However, the opinion provides a well-reasoned basis for limiting the ability of third-party bidders to engage in protracted litigation at the bank’s expense. It is likely other courts will follow suite in a welcome simplification of the foreclosure process as it relates to the interests of non-borrowers.

[i] Pealer v. Wilminton Trust Nat’l Ass’n, Case No. 2D15-2822 (Fla. 2d DCA March 17, 2017. This decision was rendered final on April 3, 2017

[ii] Judge Fleet explained the bank failed to raise the Pealers’ lack of standing below, so it waived the argument. This may be the reason the majority did not issue a written opinion addressing the issue.

[iii] Citing Clay Cty. Land Trust No. 08-04-25-0078-014-27, Orange Park Trust Servs., v. JPMorgan Chase Bank, 152 So. 3d 83, 84 (Fla. 1st DCA 2014).