The District Court of Appeal of the State of Florida, Fourth District, recently reversed an order imposing sanctions against a foreclosing mortgagee, holding that the trial court erred in granting the motion for sanctions because the plaintiff mortgagee had an objectively reasonable belief that a non-signing spouse was a properly named defendant in the case.

A copy of the opinion is available at:  Link to Opinion.

A mortgagee filed a foreclosure action against husband and wife borrowers. The note and mortgage reflected only the wife as the borrower, but the first page of the mortgage had a box checked that referred to an attached addendum for additional mortgagors. The addendum, however, was missing.

The husband moved for summary judgment, arguing that although he was a co-owner, he did not sign the note or the mortgage. He also moved for sanctions under section 57.105(a), Florida Statutes, arguing that the mortgagee or its attorney “knew or should have known that its claim ‘was not supported by the material facts necessary to establish the claim.’”

The trial court granted the husband’s motion for summary judgment, then held several hearings on the motion for sanctions, eventually granting the motion as against the plaintiff mortgagee, but denying the motion as against its attorney. The mortgagee appealed.

On appeal, the Fourth District, reviewing the sanctions order under an abuse of discretion standard, explained that “[t]o award fees under the statute, ‘the trial court must find that the action was “frivolous or so devoid of merit both on the facts and the law as to be completely untenable.”’ … Moreover, that finding ‘must be based upon substantial competent evidence presented to the court at the hearing on attorney’s fees or otherwise before the court and in the trial court record.’”

The Court reasoned that while the husband was named as a defendant even though the complaint did not allege that he signed the note or mortgage, because the mortgagee showed “there was at least some triable set of facts under which [he] could be liable under the mortgage agreement” given the reference to an additional missing signature page, “its absence does not indicate that a theory based on its existence, with [the husband’s] signature on it, was ‘frivolous or so devoid of merit both on the facts and the law as to be completely untenable.’”

The Fourth District distinguished a 2010 ruling from the Second District Court of Appeal because in that case, “the plaintiff knew that there was no factual support for its claim and admitted as much in response to interrogatories. Here, on the other hand, Appellant had an objectively reasonable belief, based on the checked box on the mortgage instrument, that [the husband] may have been a proper defendant in this case.”

The Court here pointed out that the mortgagee’s “lack of concrete proof of [the fact that the husband signed the mortgage] does not mean its complaint was frivolous. A party does not need to have conclusive evidence to prove its case at the time of filing in order to avoid sanctions. Instead, like here, where the party reasonably believes the factual basis for its claim exists, it is entitled to proceed with its claims and seek to prove those facts. If attempt to prove those facts are fruitless, that is still not cause for sanctions where the party’s initial belief was well-founded. It is only in circumstances  … where the party knew or should have known at the time of filing that the material facts were nonexistent that a claim is truly frivolous and worthy of sanctions.”

Because the Fourth District found that neither the mortgagee nor its attorney knew or should have known that the claim asserted was not supported by the facts or the application of existing law when the complaint was filed, it reversed the trial court’s sanctions order.