Florida’s Third District Court of Appeal recently reversed a trial court’s mortgage foreclosure judgment against non-signatory co-owners, holding that ratification did not apply where the non-signatory owners received no benefit from the loan proceeds and did not authorize an attorney-in-fact to sign the mortgage on their behalf. In so ruling, the Appellate Court rejected the mortgagee’s efforts to impose an equitable lien on the collateral property.
A copy of the opinion in Wells Fargo Bank, N.A. v. Clavero, et al. is available at: Link to Opinion.
In October 2005, a mother and father, who had purchased their home more than 30 years ago, signed and recorded a quitclaim deed conveying title to themselves, their son and his wife as joint tenants.
Several months after the quitclaim deed was executed, the son’s wife took out a $201,500 mortgage loan. The other three owners did not sign the note or mortgage. In addition, the parents did not receive any of the loan proceeds and never made a payment on the loan.
The borrower defaulted in February 2009 and the holder of the mortgage sued to foreclose. In 2010, the son and daughter-in-law divorced, re-conveying their interests in the collateral to the parents.
At trial, the former daughter-in-law testified that the purpose of the loan was to “collateralize a loan for another property that was to be used for a daycare business.” The parents testified that they added their son and then daughter-in-law to the title for estate planning purposes.
The trial court entered final judgment of foreclosure based on an equitable lien and the doctrine of ratification, but stayed enforcement until the parents no longer resided in the property. The court also ordered the parents to pay the property taxes advanced by the lender and taxes going forward if they had the ability to do so.
The plaintiff mortgagee moved for rehearing and the court amended the final judgment to require the parents to report to the court every six months whether the property remained their principal residence. The plaintiff mortgagee appealed and the defendants cross-appealed.
The Third District Court of Appeal began its analysis by reasoning that because the parents never signed the mortgage, the plaintiff mortgagee’s ability to foreclose “turns on the applicability of the principle of ratification. 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.”
Citing its own precedent, the Court defined ratification as “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.” It then found that the parents “neither received loan proceeds, nor otherwise benefitted from the application of those proceeds, nor made any monthly payment, nor acquired full knowledge of the material details of the mortgage loan.”
Turning to the second type of case in which ratification of a mortgage by a non-signatory property owner has been upheld, the Third District Court of Appeal reasoned that the lender could have, but did not, protect itself by insisting on the execution of a power of attorney pursuant to section 695.01(1), Florida Statutes, which “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 purchaser for a valuable consideration and without notice.’ ”
The Court also rejected the argument that the other owners ratified the loan after it closed because “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,” and there was no evidence that the former daughter-in-law or anyone else informed the parents or her former husband of the material facts of the loan and mortgage.
The Third District Court of Appeal affirmed the trial court’s judgment to the extent that it found that (a) the former daughter-in-law signed the note, received the loan proceeds and is liable under the note; (b) the mortgage was not a lien on the parents’ homestead property; and (c) the plaintiff mortgagee only had a lien for any property taxes paid while the case was pending, enforceable when the parents no longer resided on the property.
The final judgment was reversed as to the imposition of an equitable lien for the loan’s principal and interest, with instructions that on remand, the trial court should clarify that the parents and their adult son are not personally liable on the note.