The Florida Supreme Court recently resolved a conflict among the state appellate courts.

At issue in the case was whether section 702.06, Florida Statutes (2014) permitted lenders to pursue a deficiency claim as a separate action at law even though the foreclosure court had reserved jurisdiction in its final judgment to adjudicate the deficiency claim.

The First District Court of Appeal had ruled that a lender could not pursue the deficiency as a separate action at law, which was in conflict with decisions from the Second, Third, Fourth and Fifth District Courts of Appeal.

The Florida Supreme Court resolved the conflict and concluded that the lender was permitted to pursue a deficiency claim as a separate action at law.

The Supreme Court concluded that the statute was unambiguous and, even though the foreclosure court could retain jurisdiction to adjudicate a deficiency claim, unless that court actually adjudicated the deficiency claim the lender could pursue it as a separate action at law. Accordingly, the Supreme Court quashed the decision from the First District Court of Appeal.

A copy of the opinion in Dyck-O’Neal, Inc. v. Lanham is available at: Link to Opinion.

The borrower’s residential property was foreclosed by final judgment. The judgment expressly reserved jurisdiction to rule on any future deficiency claim, but no one sought to adjudicate the claim in that forum. Instead, the entity who had been assigned the note and mortgage ( “assignee”) filed a separate action at law seeking a deficiency judgment against the borrower.

The trial court granted summary judgment based on an issue related to the validity of the assignment to the assignee, and the assignee appealed. The First District Court of Appeal quashed the trial court’s ruling, not on the assignment issue, but instead ruled that the trial court lacked subject-matter jurisdiction over the claim under section 702.06. The First District concluded that the foreclosure court had previously reserved jurisdiction to handle the deficiency claim, thus depriving the trial court of jurisdiction.

Because the First District’s ruling conflicted with rulings from all of the other Florida district courts of appeal, the Supreme Court accepted discretionary review.

The Florida Supreme Court identified the issue as whether section 702.06 permitted a separate action at law for a deficiency judgment if the foreclosure court had reserved jurisdiction to decide the deficiency claim but had not actually ruled on the deficiency claim. The Supreme Court declared the issue as one of statutory interpretation.

As you may recall, section 702.06 reads in relevant part:

In all suits for the foreclosure of mortgages heretofore or hereafter executed the entry of a deficiency decree for any portion of a deficiency, should one exist, shall be within the sound discretion of the court . . . . The complainant shall also have the right to sue at common law to recover such deficiency, unless the court in the foreclosure action has granted or denied a claim for a deficiency judgment. Section 702.06, Fla. Stat. (2014).

The Court concluded the statute was unambiguous. “The statute plainly allows the foreclosure court to adjudicate the deficiency claim but also gives the complainant ‘the right to sue at common law to recover such deficiency, unless the court in the foreclosure action has granted or denied a claim for a deficiency judgment.’ A reservation of jurisdiction is not a grant or denial of the claim. The foreclosure court would have only ‘granted or denied’ the deficiency judgment if it had adjudicated the claim. Therefore, this statute plainly precludes the separate action only where the foreclosure court has actually ruled on the claim.”

The Florida Supreme Court observed that the First District’s ruling was flawed because it relied on an earlier First District decision that had interpreted a prior version of section 702.06. The prior version of section 702.06 did not contain the ‘granted or denied’ language. Thus, the newer version eliminated any confusion as to the ability to pursue a separate action for the deficiency claim.

The Court concluded that section 702.06, Florida Statutes (2014) permits an independent action at law for a deficiency judgment when the foreclosure court has expressly reserved jurisdiction to handle a deficiency claim but has not actually decided the merits of the claim.

Accordingly, the Florida Supreme Court quashed the First District’s ruling and overturned the prior decision on which the First District relied, and also approved the decisions from the Second, Third, Fourth and Fifth District Courts of Appeal.