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Making HUGE PROFITS in Foreclosure Investments- (Hammered By The Appellate Court!)

By January 14, 2016No Comments

Bonafide Properties challenges the trial court’s order denying its Motion to
Join or Substitute as Real Party in Interest in Wells Fargo Bank’s foreclosure action
against Xavier LaTorre and Rebecca J. LaTorre. Bonafide purchased the property at a
homeowners’ association lien sale four years after the inception of Wells Fargo’s
foreclosure action against the LaTorres. Because Wells Fargo’s action was pending
and it had filed its notice of lis pendens before Bonafide purchased an interest in the
property, we affirm.

On March 31, 2006, Mr. LaTorre executed a promissory note in the
amount of $111,920 in favor of Bank of America. On the same day, both Mr. and Mrs.
LaTorre signed a mortgage on the note in favor of Bank of America.1 The LaTorres
defaulted on the debt by failing to make the March 2010 payment and all subsequent
payments. Additionally, they failed to pay their homeowners’ association fees. On
August 3, 2010, after taking possession of the note via special endorsement, Wells
Fargo filed a foreclosure complaint against the LaTorres. The complaint also named
the Carrollwood Village Phase III Homeowners’ Association as a defendant. Wells
Fargo then recorded a notice of lis pendens on August 12, 2010. Both the LaTorres
and the Association filed answers and affirmative defenses.
Subsequently, the Association brought a lien foreclosure action against
the LaTorres that resulted in the property being sold to Bonafide at a lien foreclosure
sale on July 11, 2014. On September 9, 2014, Bonafide filed its Motion to Join or
Substitute as Real Party in Interest in Wells Fargo’s foreclosure action against the
LaTorres. Following a hearing, the trial court denied the motion and barred Bonafide
from filing any pleading, paper, or discovery or from participating in the trial on the
matter. The court did, however, find that Bonafide had a right of redemption which was
to be determined upon the judicial sale of the property. It is this order that Bonafide now
appeals.

“[W]hen property is purchased during a pending foreclosure action in
which a lis pendens has been filed, the purchaser generally is not entitled to intervene in
the pending foreclosure action.” Market Tampa Invs., LLC v. Stobaugh, 177 So. 3d 31,
32 n.1 (Fla. 2d DCA 2015) (alteration in original) (quoting Bymel v. Bank of Am., N.A.,
159 So. 3d 345, 347 (Fla. 3d DCA 2015)); see also Whitburn, LLC, v. Wells Fargo Bank,
N.A., No. 2D14-5563 (Fla. 2d DCA Dec. 18, 2015) (“Because Whitburn purchased the
property in June 2013 after Wells Fargo filed its notice of lis pendens in December
2012, Whitburn took the property subject to the outcome of the litigation in Wells Fargo’s
case, including the foreclosure sale to which Wells Fargo was entitled as a result of the
judgment entered in its favor.”); Timucuan Props. v. Bank of N.Y. Mellon, 135 So. 3d
524, 524 (Fla. 5th DCA 2014) (“This court is committed to the doctrine that a purchaser
pendente lite is not entitled to intervene.” (quoting Intermediary Fin. Corp. v. McKay, 11
So. 531, 531 (Fla. 1927))); SADCO, Inc. v. Countrywide Funding, Inc., 680 So. 2d 1072,
1072 (Fla. 3d DCA 1996) (“[A] purchaser of property that was [the] subject of [a] lis
pendens arising from [a] bank’s pending foreclosure action [is] not entitled to intervene
in that action.”); Andresix Corp. v. Peoples Downtown Nat’l Bank, 419 So. 2d 1107,
1107 (Fla. 3d DCA 1982) (“We affirm the trial court’s order denying the motion to
intervene filed by Andresix Corporation upon a holding that Andresix, as a purchaser of
property which was then the subject of a mortgage foreclosure action and
accompanying lis pendens by Peoples Downtown National Bank, was not entitled to
intervene in such action.”).

Here, it is undisputed that Bonafide acquired its rights to the property four
years after Wells Fargo initiated the foreclosure action and filed its notice of lis pendens.
As such, the trial court did not abuse its discretion in determining that Bonafide is not
entitled to intervene in Wells Fargo’s foreclosure action.

ALTENBERND, Judge, Concurring.
I fully concur in this opinion. I write to more fully explain the innovative
procedure involved in this case. Although the procedure does not justify intervention,
occasionally it may require the trial court to take extra care in determining the amount
required to redeem property in a foreclosure proceeding. I encourage others to study
the innovative procedure exemplified by this case.
I. A BASIC DESCRIPTION OF THE PROCEDURE
In the last few years, the courts have been flooded with foreclosure
proceedings filed by banks or their assignees against homeowners who borrowed
purchase money secured by a first mortgage on the purchased property, often a
homestead. Due to the economic downturn, many of these properties no longer have a
market value in excess of the amount owed on the note and mortgage. For various
reasons, many of these foreclosure proceedings have been pending for years without
reaching the stage of a foreclosure sale.
Many of these properties are in neighborhoods with homeowners’
associations. The owners of these properties tend to stop paying fees to the
homeowners’ association about the same time they stop paying the bank. They often
either abandon the property or fail to maintain it. Homeowners’ associations have been
legitimately concerned that, if a significant number of neighborhood properties go into
foreclosure, the entire neighborhood may spiral into failure. This same scenario occurs
when the homes are condominium units in buildings with condominium associations.
The associations are typically joined as parties in the bank’s foreclosure action, but they
have little or no control over those actions.

Since 1990, county courts have had jurisdiction to “hear all matters in
equity,” and they may handle foreclosure proceedings involving amounts within their
jurisdiction. § 34.01(4), Fla. Stat. (2015); ch. 90-269, § 1, at 1972-73, Laws of Fla.; see
also Alexdex Corp. v. Nachon Enters., 641 So. 2d 858, 862 (Fla. 1994). Because the
amount in controversy in a case involving an association’s lien is almost always within
the county court’s jurisdiction, the association can file a second foreclosure proceeding
in county court. The bank is not a party to the second proceeding. The homeowner
often defaults in this proceeding or the case is quickly set for trial. The homeowners’
association thus obtains a judgment of foreclosure long before the bank’s case is
resolved.

At the foreclosure sale in the county court proceeding, the bidding is
suppressed because the property is being sold subject to the bank’s mortgage. Many of
these properties have little or no market value in excess of the amount owed to the
bank. They are often purchased by limited liability companies that specialize in such
purchases. Our court records never reflect the purchase price at these sales, but basic
economics dictates that the price must be nominal.

Once a limited liability company buys one of these properties at the county
court foreclosure sale, it seems that they pay the homeowners’ association dues, the
property taxes, and the property insurance. They apparently rent the property to a new
tenant. Thus, the homeowners’ association benefits, the tax collector benefits, and the
neighborhood as a whole may be stabilized by this practice. It may be that the bank
benefits as well because the house does not go into disrepair during its foreclosure
proceeding and the bank can afford to delay its foreclosure waiting for the housing
market to rebound.

Unless the house requires extensive repair when purchased, the limited
liability company, it would seem, can make a huge return on its investment by renting
the house at fair market value after purchasing it for a nominal bid. That is capitalism.
There is nothing inherently wrong with large profits in a market economy.
But there are two significant concerns with this innovative procedure.
First, the limited liability company, having an incentive to maximize profits, has a great
interest in delaying the bank’s foreclosure proceeding. Its income depends on owning
the house as long as possible before the bank’s foreclosure sale. When the property
goes to sale on the bank’s judgment, the limited liability company must either pay fair
market value for the property, resulting in its investment returning ordinary profits at
best, or lose the property altogether. Thus, the longer a limited liability company can
engage in delaying tactics in the bank’s foreclosure proceedings, the more money it
typically can make. Unlike the original property owner, the limited liability company is
not in privity with the bank. It will never be liable on the note and mortgage, and it has
little risk of incurring liability for prevailing party attorneys’ fees. This innovative
procedure pressures lawyers to “delay anyone’s cause for lucre or malice.” See In re
Oath of Admission to the Fla. Bar, 73 So. 3d 149, 150 (Fla. 2011).

Second, I assume these homes are often rented to families. If a proper lis
pendens has been filed by the bank, it is possible that such a lease may not be binding
on or have any priority against the rights of the purchaser at the bank’s foreclosure sale.
See, e.g., § 83.561, Fla. Stat. (2015); ch. 2015-96, § 1, at 620-22, Laws of Fla. The
family that has rented the home runs the risk of being out on the street in a very short
amount of time. See id. It is possible that the family can be evicted in the middle of a
school year. Our records in these appeals never tell us the rest of the story.
– 8 –
II. SPECIAL PRECAUTIONS TO PROTECT THE RIGHT OF REDEMPTION
The majority’s opinion omits one fact that is relevant only to this
concurrence. The record in this case reflects that the original owners of the house, who
had been liable on the note and mortgage, obtained a discharge in bankruptcy in July
2013. Thus, the original owners have no interest in assuring that the dollar amounts
contained in the final judgment will be correct when a final hearing is eventually held in
this case. They will have no exposure on a deficiency judgment. It does not appear
likely that any active party has an interest in assuring correct dollar amounts in this
judgment. But it is undisputed that Bonafide has a legal right of redemption. As a
practical matter, as discussed in section I, it seems unlikely that any house involved in
this type of innovative procedure will have a value in excess of the amount stated in the
bank’s judgment of foreclosure. Our record, however, provides no information about
these factors because the final hearing has not yet occurred. Nevertheless, it may be
prudent for the trial court in this case to take special precautions to ensure that the
evidence fully supports the monetary amounts entered in the ultimate judgment of
foreclosure.
III. THE NEED FOR STUDY
This case, and perhaps another sixty appeals that have been filed in this
court, all appear to involve some version of the innovative procedure described in
section I of this concurrence. The records in these appeals are always very limited
because the issue involves the right of intervention. I have been required to place many
qualifiers in the description contained in section I because this court cannot know with
any degree of certainty exactly what is transpiring with these properties. Even
attempting to determine when a potential intervenor like Bonafide should be allowed to
intervene and what limited role it should be permitted to play will be very hard, if not
impossible, for this court to sort out.
It seems likely that there is a measure of good within this innovative
procedure that should be preserved. It also seems likely that there is a measure of bad
that ought to be regulated or prohibited by substantive law or rules of procedure. This
court is not a proper forum to make these determinations or to establish any needed
rule of law. Thus, I encourage The Florida Bar, the Supreme Court of Florida, and the
Florida Legislature to use their respective powers to study this procedure and consider
rules to maximize its benefit.

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