Third party purchaser lacks standing to participate in foreclosure proceeding, absent assertion of intention to redeem the property. After the Second District Court of Appeal issued a per curiam affirmance of the entry of final judgment of foreclosure in favor of the bank, Judge Sleet issued a specially concurring opinion in which he concluded that because the appellant was a third party purchaser of the property who was not obligated on the note and mortgage, it was “questionable” whether she had standing to challenge the bank’s foreclosure proceeding in the first place. Pealer v. Wilmington Trust, N.A., as Trustee for the MFRA Trust, 2D15-2822, 2017 WL 104075, at *1 (Fla. 2d DCA March 171, 2017).

In 2011, the appellant (“the Purchaser”) acquired the property at a homeowner’s association foreclosure sale with actual knowledge of the bank’s mortgage on the property, but did not assume the mortgage. Id. In 2013, the bank began its foreclosure proceeding, naming the mortgagors, who did not participate in the foreclosure, and the Purchaser, who participated fully at trial and disputed the admissibility of the bank’s business records and challenged its standing to foreclose. Id. The bank did not object to the Purchaser’s participation at trial, thereby waiving any argument that the Purchaser lacked standing to participate. Id.

However, in his specially concurring opinion, Judge Sleet concluded that, had the bank objected to the Purchaser’s right to participate at trial, that argument would have been meritorious in this case. Id. The concurrence explained that the Purchaser was an indispensable party to the foreclosure proceeding and was properly named as a defendant because she acquired the property before the bank filed a foreclosure complaint or recorded a lis pendens. Id. However, the concurrence explained that the Purchaser’s interest in the foreclosure proceeding was “not a legally cognizable interest” because the Purchaser took title to the property subject to the bank’s superior interest in the property. Id. at *2. Because the Purchaser had only a possessory interest in the property and was never obligated on the note and mortgage, the Purchaser could only participate in the foreclosure proceeding to exercise her statutory right of redemption and prevent the forced sale of the property. Id. In this case, though, the concurrence found that there was no evidence in the record that the Purchaser ever asserted her right to redeem the property, and as a result, the Purchaser’s interest in the foreclosure action was “speculative” and “insufficient to support [her] standing to challenge the bank’s standing or admission of evidence at trial.”

Purchaser pendente lite has no right to participate in foreclosure proceeding. Just a few weeks after the Pealer decision, the Fifth District Court of Appeal issued a per curiam affirmance of the entry of final judgment in favor of the bank, concluding that a third party purchaser who takes title the property after a lis pendens is recorded is not entitled to intervene or otherwise participate in the foreclosure proceeding. Investor Trustee Svcs, LLC v. DLJ Mortg. Capital, Inc., No. 5D15-3082, 2017 WL 1290010, at *1 (Fla. 5th DCA 2017). In its succinct opinion, the Fifth District explained that anyone taking title to property that is the subject of a foreclosure proceeding in which a lis pendens has been filed is a purchaser pendente lite, and a purchaser pendente lite is not entitled to intervene in or otherwise be made a party to the pending foreclosure proceeding. Id.

Both Pealer and Investor Trustee Services illustrate the importance, for both banks and purchasers, of understanding when the purchase of property by a third party takes place and the resulting impact on the purchaser’s right to participate in the foreclosure proceeding. Pealer and Investor Trustee Services are also useful tools for the bank and its counsel to utilize to prevent or limit the participation of third party purchasers in foreclosure proceedings. At the same time, Pealer highlights that third party purchasers may circumvent their limited standing to participate in foreclosure proceedings by asserting their intent to redeem the property.

The full Pealer decision may be found HERE:

The full Investor Trustee Services decision may be found HERE: