Sunday, November 30, 2014

Florida Law Governing Landlord-Tenant Evictions, Ejectments Not Applicable Where Title Is An Issue In Connection With Sale Leaseback Foreclosure Rescues, Similar Scams; Evidentiary Hearing To Determine True Owner Required Before Compelling Payment Of Past Due Rent Into Court Registry & Awarding Possession; Foreclosure Proceeding Required To Oust Occupant

(This post has been adapted from earlier posts published in April, 2007.)

A Florida appellate court ruled that a Miami-area foreclosure rescue operator cannot evict a homeowner who signed away title to her home in a "sale-leaseback-buyback option" arrangement until a determination is made as to who the true owner of the property is and effectively ruling that the Florida Residential Landlord Tenant Act is not applicable to such a transaction unless and until such a determination favorable to the operator is made.

The case involved a situation where, at some point after a financially strapped homeowner signed away the title to her home to a foreclosure rescue operator, the operator attempted to evict her. The homeowner asserted the defense that she was the true owner. The lower court ruled that, pursuant to the applicable provisions of the Florida Residential Landlord Tenant Act, she had to pay into the court registry the rent that was called for in the leaseback of her home while the court proceedings were pending.(1)

According to the appellate court's opinion:

  • "[The homeowner] alleges she was tricked into conveying her home to Equinamics in a transaction which is impressed with characteristics of a sale, but in reality is a disguised loan secured by her home. If this is accurate, then Equinamics is not an owner of [the homeowner's] residence but rather a lender who must proceed to oust [her] via a foreclosure action."
The court then made this observation:
  • "Based upon the facts of this case, it is apparent that the transaction by which Equinamics received title to the Minalla residence was not an ordinary real estate transaction. Likewise, the circumstances under which Minalla continued to remain on the property after she executed the special warranty deed to Equimanics was not possessed of the trappings of a usual landlord tenant relationship."
Ultimately, in reversing the lower court ruling to the contrary, the appellate court stated:
  • While not seriously disputing the proposition that the substance of a transaction controls over form when considering the legal effect of a real estate transaction or any other business transaction, see § 697.01(1), Fla. Stat. (2005)("[a]ll conveyances, obligations, conditioned or defeasible, bills of sale or other instruments of writing conveying or selling property . . . for the purpose or with the intention of securing the payment of money . . . shall be deemed and held mortgages . . ."); Rothschild Reserve Int'l, Inc. v. Silver, 830 So.2d 224, 225 (Fla. 4th DCA 2002)("Section 697.01(1), Florida Statutes (2000) provides that all instruments of writing, conveying property for the purpose of securing the payment of money, are deemed mortgages subject to foreclosure."); Valk v. J.E.M. Distribs. of Tampa Bay, Inc., 700 So.2d 416, 419 (Fla. 2d DCA 1997)("whether a conveyance should be declared a mortgage under the statute depends on the particular facts, and, as the statute provides, is a question of the parties' intent"), Equinamics nevertheless insists that as holder of record title to the property, it is entitled to require Minalla to pay rent into the court registry so long as she continues to live on the property. Like the trial court, Equinamics says this is necessary to "maintain the status quo," until the issue of title finally is resolved. In this argument, Equinamics is in error.

    Although a landlord generally is entitled to require a tenant in possession to deposit rents into the court registry during the course of any landlord tenant dispute where the tenant interposes any defense other than payment, the rule yields where title is in issue.

    This exception is well illustrated by the recent Fourth District Court of Appeal case, Frey v. Livecchi, 852 So.2d 896 (Fla. 4th DCA 2003). In Frey, Pamela Livecchi, the owner of a Broward County home, entered into a one-year residential lease agreement with the Freys. Id. at 897. The Freys alleged that at the end of the lease agreement they had entered into an option to purchase the property. Id. Livecchi, on the other hand, denied the existence of any such option and asserted that at the end of the lease, the Freys became month-to-month tenants. Id. At the end of the period, Livecchi sent the Freys a notice to vacate the premises. Id. The Freys responded with a complaint for specific performance based upon the purported option. Id. Without conducting an evidentiary hearing on this dispute, the trial court ordered the Freys to put the disputed past due "rent" in the registry of the court or face an order of eviction. Id. The court of appeal reversed stating:

    Section 83.60(2), Florida Statutes, requires payment of rent into the registry of the court in residential landlord tenant disputes under Part II of Chapter 83. 83.60, Fla. Stat. (1999). However, section 83.60 does not apply when the occupancy is under a contract for sale of a dwelling unit or the property of which it is a part. 83.42(2), Fla. Stat. (1999). The Freys claim that this provision is inapplicable because they were not tenants under the statute. Rather, their claim is based on their rights under a contract for sale. The resolution of this factual dispute would determine whether section 83.60 is applicable. Because such a determination would be dispositive, we hold that the trial court was required to conduct an evidentiary hearing before determining whether the Freys were required to pay money into the court registry. Because the trial court failed to conduct such a hearing, we find that the trial court erred in imposing such a requirement, erred in entering the default judgment, and reverse the entry of the final default judgment. 

    Id. at 897-98; see also Grimm v. Huckabee, 891 So.2d 608 (Fla. 1st DCA 2005). Cf. Blanco v. Novoa, 854 So.2d 672, 673 (Fla. 3d DCA 2003)(reversing a motion to pay accrued "rent" into the registry of the court where the trial court "construed the agreement between Blanco and Novoa to be a [true] lease" rather than a mortgage); First Hanover v. Vazquez, 848 So.2d 1188 (Fla. 3d DCA 2003)(affirming the grant of a motion for default and non-payment of rent where tenant ratified the conveyance of property by bringing action for damages for fraudulent inducement apparently without placing title in issue).

    As in Frey, there is a factual dispute in this case concerning who is the true owner of the property. Because the trial court's order requiring payments by Minalla of monies into the registry was made without conducting an evidentiary hearing concerning the nature of the transaction and who is the true owner of the residence, the court erred in imposing the payment requirement upon her.
For the court ruling, see Minalla v. Equinamics Corp., 954 So. 2d 645 (Fla. App. 3rd DCA, 2007).


See also:

Blanco v. Novoa, 854 So. 2d 672; (Fla. App. 3rd DCA 2003). This case dealt with an eviction action in a sale-leaseback, foreclosure rescue ripoff. The trial court granted a motion that, in effect, erroneously treated the subject transaction as a standard landlord-tenant relationship. In reversing, the Florida appellate court stated:
  • The substance and not the form is what is critical. Here, the trial court erred by determining that the words "lease" and "rent" controlled when the parties clearly acted not as landlord and tenant, but rather as mortgagor and mortgagee.

    Thus, the remedy available to Novoa in this case is that of a foreclosure proceeding.

By the way, Florida cases like these where a party in possession of property has fought off an eviction/ejectment in situations where it had earlier signed over title to property, asserting it was done so as collateral in a financing transaction have been addressed by the Florida Supreme Court and go as far back as 130+ years. See:

Walls v. Endel, 20 Fla. 86; (Fla. 1883) . This case involved an action for ejectment by a title holder of property. The person in possession alleged that it was the owner of the property who had conveyed absolute title to the current title holder as security for the payment of money and that, therefore, the deed should be treated as a mortgage. The lower court erroneously refused to allow evidence that the arrangement between the parties should be treated as a mortgage. In reversing the lower court, the Florida Supreme Court stated:
  • [T]he result of these facts is that the deed was given to secure the payment of money, and is therefore, by the rules of equity, only a mortgage, and the statute we have cited declares it to be a specific lien, and that the holder cannot have possession without due foreclosure, decree and sale; while the judgment at law would give possession without foreclosure and sale.

    A plainer case for equitable relief can scarcely be imagined. If the plaintiff has only a specific lien on the property, though it is in form a deed in fee, it is not only inequitable but contrary to the plain words of the statute that he should obtain possession otherwise than by due foreclosure of the mortgage interest.

The court also quotes from a Wisconsin Supreme Court case, Kent vs. Agard, 24 Wis. 378 (Wis. 1869), another eviction case, in support of its decision, in which it was said:
  • [T]he plaintiff should have been allowed to show by parol that the absolute deed was intended as a mere security and was consequently only a mortgage. That this may be done in some form of action is not contested. And I see no reason why it may not be done in an action to recover the possession of real estate. When the facts are proved such deed is a mortgage only, both in law and in equity. The rights of the mortgagor and mortgagee are precisely the same as though the defeasance were contained in the deed itself. The only difference is in the manner of proving the defeasance.
It also cites Saunders vs. Stewart, 7 Nev. 200, a Nevada high court case, where, when referring to parol evidence, it was observed:
  • The doctrine is that such evidence is not received to contradict an instrument of writing, but to prove an equity superior thereto.

Folks v. Chesser, 106 Fla. 837; 145 So. 602; (Fla. 1932) The Florida high court made the following observations in connection with an equitable mortgagee's right of possession to be obtained only after a mortgage foreclosure is had:
  • Our statute enacts a recognized rule of equity, that all deeds of conveyance conveying or selling property for the purpose, or with the intention, of securing the payment of money, shall be deemed and held as mortgages, and shall be subject to the same rules of foreclosure and the same regulations and restrictions as are prescribed by law in relation to mortgages. See Sections 5724-5725 C.G.L. 3836-3837 R.G.S.

    Under these statutes, in no case will the right of possession to property by a mortgagee be recognized in a court of justice in this State, until due foreclosure is had according to the forms of the law providing for foreclosure of mortgages.
Hewitt v. State, 101 Fla. 807; 135 So. 130 (Fla. 1931): Another case involving a property owner alleging that he gave a deed to another as security for a loan; after reviewing the statute governing unlawful detention proceedings, the court added this qualification:
  • The above statutory provision as to procedure in cases of landlord and tenant does not preclude the defendant in possession from pleading to the jurisdiction of the court on the ground that he claims title to the real estate, of which subject the county judge has no jurisdiction to try or determine.

    When, in proceedings in the county judge's court to recover possession of land as from a tenant, a pleading is filed which puts in issue the title or boundaries of the land in controversy, it becomes the duty of the county judge to dismiss the cause for want of jurisdiction. Barrs v. State, 91 Fla. 30, 107 So. 249; Welch v. State, 85 Fla. 264, 95 So. 751; State v. Philips, 64 Fla. 105, 59 So. 241; South Florida Amusement & Dev. Co. v. Blanton, 95 Fla. 885, 116 So. 869.

    Prohibition is the defendant's remedy where the county judge does not dismiss an action for unlawful possession of lands when a plea tenders an issue as to the title of the land. State ex rel. v. Hutchins, 135 So. 298, decided at this term.

(1) The court in Minalla v. Equinamics Corp. reveals the following in footnote 2 of its ruling:
  • that the homeowner has brought claims against the foreclosure rescue operator under the Federal Truth in Lending Act giving her a right to rescind under 15 U.S.C. § 1635 and Reg. Z 226.23, and damages under 15 U.S.C. § 1640 (a);
  • that the arrangement is alleged to be a Home Ownership and Equity Protection Act Amendments (HOEPA) loan under 15 U.S.C. § 1602 (aa) and Reg. Z 226.31, giving right to an additional basis to rescind under § 1635 and enhanced actual damages under § 1640 (a)(4);
  • that the arrangement is alleged to violate Florida's usury statute, § 687.02(1), Florida Statutes (2005);
  • that the homeowner has brought a quiet title claim; and
  • that the homeowner seeks declaratory relief on the basis that enforcing the arrangement as a true "sale lease option" would enforce an illegal equity skimming contract in violation of section 697.08, a third degree felony, which it claims allows Minalla civil damages as being "against public policy." abcd

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