Court: District Court of Appeal of Florida; May 17, 2006; Florida; State Appellate Court
JP Morgan contests the trial court's distribution of surplus proceeds from a foreclosure, arguing the court should have vacated its order due to an unsatisfied second mortgage held by Aames Funding Corporation, which had not consented to the disbursement, adversely affecting its rights. The court's ruling lacked evidentiary support. Following the foreclosure of a first mortgage, the property was sold and excess funds were placed in the court registry. Home Equity Loss Prevention Corp. (HELP), a non-party, sought disbursement of these funds, claiming ownership of the equity of redemption. An agreed order was issued for disbursement, directing payment to the condo for fees and splitting the remaining funds between Persad and HELP, without acknowledging Aames’ second mortgage. JP Morgan, as Aames' assignee, later filed motions to vacate the order and determine lien priority, presenting proof of the unsatisfied second mortgage. Despite acknowledging uncertainty in the law regarding notice to defaulting parties, the trial court denied JP Morgan’s motions, reasoning that Aames had been properly notified and that JP Morgan had not timely recorded its assignment or appeared in the proceedings. The court improperly prioritized based on notice to Aames rather than on lien time or satisfaction. The unsatisfied second mortgage should have preserved its claim to the surplus funds, which should have remained in the registry until the second mortgagee asserted its rights or satisfactory claims were presented. The foreclosure of the first mortgage did not extinguish the second; rather, the lien transferred to the surplus proceeds.
Surplus funds from the sale of foreclosed land are treated as standing in place of the land concerning liens and vested rights, as established in Waybright v. Turner and Meyer v. Bricklayers, Masons, Plasterers Union. This principle overrides the doctrine of laches. In United States of America v. Sneed, the court ruled against disbursing surplus funds to a property owner in favor of a lienholder, despite a prolonged court registry period, emphasizing that inferior lienholders cannot claim surplus without a priority determination. Schroth v. Cape Coral Bank reinforced that trial courts must hold evidentiary hearings to ascertain interests in foreclosure suits, regardless of responsive pleadings. Surplus funds are payable to junior lienholders based on priority, with disbursement to property owners occurring only after satisfying senior liens. Citibank, FSB v. PNC Mortgage Corporation reiterated that surplus cannot be disbursed to inferior interests prior to determining priority and amounts owed to superior junior lienholders. The obligation to assess competing claims by priority lies with the trial court. Golindano v. Wells Fargo Bank highlighted that lienholders retain rights to surplus despite defaults, and evidentiary hearings are necessary to determine priorities. The court clarified that while junior lienholders should ideally file cross-claims, the determination of property rights remains paramount, permitting funds to stay in court until junior lienholder claims are resolved. The order was reversed, and the case was remanded for further proceedings, with the condo's claim noted as undisputed and not part of the appeal.
