Florida Appeals Court Slams Brakes On Sloppy Foreclosing Lender's Attempt To Enforce Mortgage Where Only One Of Four Co-Owners Signed The Paperwork; Rejects Assertion That Non-Signatory Owners Ratified Mortgage Through Their Conduct

In a recent ruling by Florida's Third District Court of Appeal, the court denied a lender's attempt to foreclose a residential mortgage that was signed by only one of the four owners of the home when the loan was closed.

In bringing the foreclosure action, the lender attempted to circumvent this problem (obviously caused by sloppy loan origination, closing and title underwriting procedures, and occurring at a time in recent real estate history - late 2005 to early 2006 - that the trial court observed was one where "everybody was hoodwinking everybody") by asking the court to establish the existence of an equitable lien against property interest of all four owners by asserting the legal doctrine of ratification, and then foreclose against them on the basis of that lien.

Quoting from Citron v. Wachovia Mortgage Corp., 922 F.Supp. 2d 1309 (M.D. Fla. 2013), the court described ratification as follows:

• "Ratification is conduct that indicates an intention, with full knowledge of the facts, to affirm a contract which the person did not enter into or which is otherwise void or voidable."

The court described the application of this legal doctrine in the context of a mortgage in this excerpt:

• Ratification of a mortgage by a non-signatory property owner has been upheld in Florida in two distinct types of cases: (a) when the nonsignatory owner has received the benefit of the mortgage loan proceeds; or (b) when the non-signatory owner has authorized an attorney-in-fact to execute the mortgage on behalf of the owner.

For the reasons set forth in its ruling,(1) the appeals court rejected the application of the doctrine ratification under the facts and circumstances of this case, and declared that the property interest of the non-signing owners of the property was free of any lien.

For the ruling, see Wells Fargo Bank, N.A. v. Clavero, Case No. 3D14-520 (Fla. 3d DCA September 2, 2015).

For earlier posts on the legal doctrine of ratification, see:

• NJ Appeals Court OKs Forged Deed Used By Hubby To Swipe Estranged Wife's Interest In Marital Home Where Her Subsequent Conduct (Coupled With Title Transfer To Bona Fide Purchaser) Was Deemed To Constitute Ratification Of The 'Dirty Deed',
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• Voidable Or Void Ab Initio (Or "Void Unless & Until Later Ratified")?.
  .
• Sneaky Lender Uses Loan Modification 'Pre-Negotiation' Agreement To Dupe Borrower Into Inadvertently Ratifying Void Mortgage, Waiving All Rights.

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(1) From the court's ruling:

• A. Receipt of Benefit
  
  The non-signatory's receipt of mortgage loan proceeds, or receipt of a benefit from the application of those funds, may cure the failure to sign the mortgage as a matter of equitable subrogation, see Palm Beach Sav. & Loan Ass'n v. Fishbein, 619 So. 2d 267 (Fla. 1993), or ratification, see Fleet Fin. & Mortg., Inc., 707 So. 2d 949 (Fla. 4th DCA 1998).
  
  In the present case, however, neither the Parents nor the 3789 Property received a financial benefit from the loan proceeds. It is undisputed that all of the loan proceeds were utilized by the sole signatory to start the day care business. The Parents were not owners or employees of that business.
  
  We find no Florida case extending the principle of ratification to a parent's expression of a general intention to help a family member secure a loan for purposes of benefiting the family member. At oral argument, this type of indirect benefit was advanced by Wells Fargo as a worthy rationale for binding the Parents to the mortgage loan procured by Maria. We see no legal basis for extending the legal principle of ratification in such an instance, and on this record. The Washington Mutual loan circumvented the institutional lending process whereby the property owners/mortgagors sign documents informing them of the terms of the transaction, including the amount of the loan procured, federal Truth-in-Lending rights, interest rates, monthly payment amounts, and subjection of the homestead to the mortgage loan—all in a transaction in which the non-signatory owners themselves and the mortgaged property have received no benefit.
  
  Wells Fargo's reliance on the case of Citron v. Wachovia Mortgage Corp., 922 F.Supp. 2d 1309 (M.D. Fla. 2013), is unwarranted. In that case, Mr. Citron was a Florida-licensed mortgage broker. Mrs. Citron worked with him in a mortgage company, and the two had brokered some 47 mortgage loans for the lender that originally loaned money to the Citrons, World Savings. Wachovia Mortgage was the successor by merger to World Savings. The Citrons obtained hundreds of thousands of dollars of loan proceeds and invested those funds in a home later conveyed to their family trust.
  
  The Citrons sued Wachovia Mortgage in an attempt to rescind the loan for Truth-in-Lending violations and other alleged defects in the loan documents. The trial court denied any such relief because (among a number of facts in the record) the Citrons had received and had not promptly disgorged all of the direct benefits of the loan. Additionally, the Citrons had made monthly payments on the loan for over a year after learning of the alleged defects in the loan documents. "Ratification is conduct that indicates an intention, with full knowledge of the facts, to affirm a contract which the person did not enter into or which is otherwise void or voidable." 922 F.Supp. 2d at 1321 (quoting Still v. Polecat Indus., Inc., 683 So. 2d 634 (Fla. 3d DCA 1996)).
  
  In the present case, the Parents neither received loan proceeds, nor otherwise benefited from the application of those proceeds, nor made any monthly payments, nor acquired full knowledge of the material details of the mortgage loan.
  
  B. Attorney-in-Fact
  
  Section 695.01(1), Florida Statutes (2005), provides protection to creditors and purchasers who accept a conveyance or lien signed by an attorney-in-fact on behalf of a property owner (and then recorded), so long as the power of attorney itself is also recorded before the accrual of rights by "creditors or subsequent purchasers for a valuable consideration and without notice." Washington Mutual Bank could have required, but did not, such a power of attorney as a condition to the loan. And such a power of attorney is only effectual to the extent of the specific powers granted. Him v. Firstbank Fla., 89 So. 3d 1126 (Fla. 5th DCA 2012).
  
  Execution of the mortgage by an agent "previously unauthorized" may also be subject to ratification in certain instances. Branford State Bank v. Howell Co., 102 So. 649 (Fla. 1924). In that case, however, the Supreme Court of Florida held: "No rule of law is better settled than this: That the ratification of the act of an agent previously unauthorized must, in order to bind the principal, be with full knowledge of all the material facts." Id. at 650. In the present case, there was no evidence that Maria (or anyone else) informed the Parents or Hubert of all of the material facts relating to the Washington Mutual Bank loan and mortgage.
  
  Proceedings on Remand
  
  We affirm the trial court's findings that (a) Maria Castellon signed the promissory note, obtained the loan proceeds, and remains liable under the terms of the promissory note, (b) the defective Washington Mutual Bank promissory note and mortgage did not subject the Parents' homestead property to the lien of the mortgage and to sale, and (c) Wells Fargo does have an equitable lien to the extent of disbursements for property taxes and reasonable costs of insurance paid by Wells Fargo during the pendency of the foreclosure action, recoverable when the 3789 Property is no longer the Parents' homestead.
  
  We reverse that portion of the final judgment imposing and foreclosing an equitable lien for the principal or interest on the loan made by Washington Mutual Bank, with respect to the ownership interest of the Parents in the 3789 Property. On remand, the trial court should clarify that the Parents and Hubert are not personally liable for unpaid principal and interest due under the promissory note signed only by Maria.
  
  Affirmed in part, reversed in part, and remanded for further proceedings in accordance with this opinion.