Does "Surrendering" Your Home in Bankruptcy Mean You Cannot Defend Your Foreclosure

Our Melbourne Foreclosure Attorney has defended thousands of foreclosures and filed hundreds of bankruptcies in Melbourne, FL, Palm Bay, FL and surrounding areas. One of the arguments mortgage lenders make is that where a homeowner files bankruptcy and states that he/she intends to "surrender" the home, the homeowner cannot ever defend against the mortgage lender's attempt to foreclosure on the home, even if the foreclosure is many years after the bankruptcy. Our Foreclosure Attorney has successfully defeated that argument in both foreclosure court and bankrupty court. We recently received a favorable ruling from the foreclosure court denying the mortage company's argument. Below is the memorandum we filed to obtain that favorable opinion. The foreclosure court held that the homeowner was not precluded from defending the foreclosure action and that the foreclosing lender waived its right to assert the bankruptcy surrender where it didn't raise that argument in its initial pleadings in the foreclosure case.

MEMORANDUM IN OPPOSITIONTO MOTION TO INVOKE JUDICIAL ESTOPPEL DUE TO BANKRUPTCY SURRENDER

On May 17, 2017, the Court heard argument on the Plaintiff's motion to invoke judicial estoppel due to the Defendants' alleged "surrender" of the property in a bankruptcy filed almost 8 years ago. The Court took the matter under advisement. Mary Steele submits this memorandum in opposition to the Plaintiff's motion.

BACKGROUND

The plaintiff seeks to enjoin the Defendants from defending this foreclosure action because of an alleged bankruptcy 'surrender" 8 years ago. The Plaintiff never pled judicial estoppel in its complaint or in a reply to the Defendants' answer and affirmative defense. The Defendants also argued that judicial estoppel was inappropriate since the alleged "surrender" occurred 8 years prior, and both parties proceeded over the course of those 8 years as if the Defendants were entitled to defend this and the prior foreclosure. For the reasons stated below, the Court should not enjoin the Defendant from asserting their defenses in this case.

SUMMARY

This Court is in no way compelled to apply judicial estoppel eight years after the alleged "surrender", and the bankruptcy cases cited below confirm that it would be inappropriate for the Court to do so. Whether judicial estoppel bars a homeowner from defending a foreclosure depends upon the circumstances of the case and requires a factual inquiry. In the instant case, the Court would need to determine whether anything transpired between the parties to nullify the Defendants' alleged "surrender" of the property. This would seem especially important where 8 years has passed since the alleged "surrender", and there was an intervening foreclosure action adjudicated in the Defendants' favor.[1] Why did the Plaintiff not raise the issue of judicial estoppel in the 2010 foreclosure action? Did the Plaintiff change its position in any way as a result of the alleged "surrender"? Was the Plaintiff harmed by its change of position? Have the Defendants' financial circumstance changed since the bankruptcy? Are the Defendants now able to afford their mortgage? Have the parties engaged in modification negotiations for this mortgage? It would seem that each of these questions would be relevant to a claim for relief under Florida estoppel law, and the burden would be on the Plaintiff to answer them before obtaining the requested relief. Once this Court recognizes that application of judicial estoppel requires a factual inquiry, it cannot be disputed that the homeowners would have a due process right to a trial on these issues.

In the past, this Court has felt that the ruling in Failla v. Citibank, N.A. (In re: Failla), 838 F.3d 1170 (11th Cir. 2016), compelled this Court to enjoin Defendants from asserting defenses in their foreclosure action, excepting the defense of standing. As shown below, Failla did not require this Court to judicially estop the Defendants from defending this foreclosure. In fact, the bankruptcy court for the Middle District of Florida has held multiple times that the application of judicial estoppel is inappropriate after such an extended lapse in time between the bankruptcy and the foreclosure.

ARGUMENT

A. Bankruptcy courts disfavor application of judicial estoppel where years have passed since thealleged "surrender."

The primary case cited by the Plaintiffs to support their claim for judicial estoppel is Failla v. Citibank, N.A. (In re: Failla), 838 F.3d 1170 (11th Cir. 2016), which affirmed the bankruptcy court order requiring the debtor to cease defending his foreclosure under threat of having his bankruptcy discharge revoked. This decision is less remarkable than plaintiffs' counsel have been arguing to this Court. Even before Failla, there was little doubt that a bankruptcy judge had the authority to revoke a discharge for violation of the bankruptcy code. Id. at 1179 ("[T]here is nothing strange about bankruptcy judges entering orders that command a party to do something in a nonbankruptcy proceeding."). Once it was determined, under the facts of that case, that Failla's foreclosure defense conflicted with his stated intention to surrender the property, the Eleventh Circuit did not compel the bankruptcy court (much less a state court) to impose any particular remedy. Instead, the Eleventh Circuit merely held that the bankruptcy court's order compelling the debtor to cease his foreclosure defense under threat of revoking the debtor's bankruptcy discharge was within the bankruptcy court's authority. Failla did not in anyway require a state court to apply judicial estoppel to preclude the bankruptcy debtor from defending his foreclosure,. Indeed, it expressly declined to do so. Id. ("While a creditor may be able to invoke the doctrine of judicial estoppel in state court to force debtors to keep a promise made in bankruptcy court, its availability does not affect the statutory authority of bankruptcy judges to remedy abuses that occur in their courts.") (italics in original). Failla in no way suggested that a state court must apply judicial estoppel to a bankruptcy "surrender", especially a "surrender" from 8 years earlier. [2]

A recent decision from the Bankruptcy Court from the Middle District of Florida confirms that Failla does not mandate that Defendants be enjoined from defending their foreclosures, especially where there has been a lapse of time between the bankruptcy and the subsequent foreclosure action. In In re: Ayala, 11-bk-15964-RAC (Bankr. M.D. Fla. April 17, 2017), the bankruptcy court stated:

In the end, common sense must dictate Failla's application to the particular facts of different cases. The Eleventh Circuit dealt with the facts presented to it and concluded that the bankruptcy court's order remedying the perceived abuse was authorized under section 105(a). Failla does not state that similar orders (under the discretionary provision of section 105(a)) are now mandatory.And certainly not all foreclosure defenses after the conclusion of a bankruptcy case reflect abuse of bankruptcy process. Failla should not be viewed as carte blanche for post-bankruptcy lender misconduct. Instead, each case must be evaluated on its own facts, and careful consideration should be exercised before issuing any order that impacts pending state court proceedings.

Id. at page 6.

The Ayala Court also felt in would be inequitable to apply Failla to a bankruptcy filed 8 years ago, since the debtor could not have foreseen the later Failla decision. Id. at page 5. ([I]t is also unclear whether the Ayalas appreciated the legal significance of their "surrender" designation. But even if they did, they could hardly have foreseen the Eleventh Circuit's decision in Failla, almost five years after signing their Statement of Intentions."); See also In re Townsend, 2015 WL 5157505, at *2 (Bankr. M.D. Fla. 2015) ("[T]he rationale of Metzler, Plummer, and Failla—with which this Court concurs–should not be applied retroactively to a case filed in 2008.").

In In re Guerra, 544 B.R. 707 (Bankr. M.D. Fla. 2016), another bankruptcy judge held that, given the significant lapse in time between the surrender and the foreclosure, the bankruptcy court could not conclude that the defendant intended to perpetrate a fraud on the courts. Id. As stated in In re Guerra:

If a debtor, who has indicated an intent to surrender real property, opposes a foreclosure while his or her bankruptcy case is still pending or within a relatively short time afterwards, then the bankruptcy court should be the one to address the issue. In that case, it would appear the debtor is perpetrating a fraud on the bankruptcy court or making a mockery of the bankruptcy system. But if years pass between the time a debtor indicates an intent to surrender and the time the debtor opposes a state court foreclosure, then the issue of judicial estoppel should be decided by the state court, which is in the best position to determine whether the debtor is making a mockery of the foreclosure action by taking a position inconsistent with the one she took in the bankruptcy case.

***

Here, years passed between the time the Debtor swore she would surrender her home and the first time she opposed the state court foreclosure action. Given that intervening lapse of time, the Court cannot conclude the Debtor intended to perpetrate a fraud on this Court or make a mockery of the bankruptcy system. Perhaps circumstances have since changed that would allow the Debtor to make the required mortgage payments.

Id. at 711.

This Court is in no way compelled to apply judicial estoppel eight years after the alleged "surrender", and the cases above suggest that it would be inappropriate for the Court to do so. Just as the Court in In re Guerra held that the intervening lapse of time mitigated against any finding that the debtor intended to defraud the bankruptcy court, there is no evidence in this case that the Defendants intended in any way to defraud this Court when the Defendants selected the "surrender" option on their petition 8 years ago. Indeed, the Defendants could not have so intended since this case did not even exist at the time. Most importantly, the Plaintiff provided no evidence of such intent, which would be Plaintiff's burden to prove. Had the Plaintiff felt it was being defrauded over the last 8 years, or that the Defendants were defrauding the state foreclosure courts, surely the Plaintiff had the sophistication and legal resources to make that claim many years ago. They did not.

B. The Fifth District Court of Appeal previously held that where a party seeks to assert judicial estoppel based on a debtor's bankruptcy disclosures, the state court is required to apply Florida's judicial estoppel law, which has different elements than federal law.

In Hadden v. State Farm Fire & Cas. Co., 37 So.3d 918 (Fla. 5th DCA 2010), State Farm sought to judicially estop the insured from pursuing his claim based on alleged contradictory disclosures in the insured's bankruptcy. The Fifth District stated that it expressed no opinion on whether the bankruptcy court would find judicial estoppel, only that the insurance company did not show judicial estoppel under Florida law. Id. at 921 The Court further stated "[w]e note that the elements of judicial estoppel in bankruptcy proceedings under federal law may not be identical to those typically required by state law in Florida." Id. a n.1 (emphasis added). Although Hadden does not involve the surrender issue, it does make it clear that where a party wants to assert judicial estoppel for an opponent's disclosures in bankruptcy, the state court must apply Florida's law for judicial estoppel, not the bankruptcy court's.[3]

Judicial estoppel under Florida law requires:

1. The party against whom estoppel is sought must have asserted a clearly inconsistent or conflicting position in a prior judicial proceeding;

2. The position assumed in the former proceeding must have been successfully maintained;

3. Both proceedings must involve the same parties and same questions;

4. The party claiming estoppel must have relied on or been misled by the former position;

5. The party seeking estoppel must have changed his or her position to his or her detriment based on the representation.

Fintak v. Fintak, 120 So.3d 177, 186-87 (Fla. 2d DCA 2013).

Although several of these elements are lacking in the Plaintiff's request for judicial estoppel, the easiest to dispute are elements 4 and 5. The Plaintiff did nothing in the bankruptcy case to rely on the Defendants' alleged "surrender" of the property. The Plaintiff certainly put on no proof that it relied in any way on the disclosure, which is fatal to the Plaintiff's claim.[4] Pursuant to Haden and Fintak, the Plaintiff's failure to prove the elements for judicial estoppel under Florida law requires that their claim for judicial estoppel be denied.

Even if this Court believed that a surrender from 8 years ago precluded the Defendants from defending this foreclosure, the Court should stay such a holding to allow the Defendants to seek relief from the bankruptcy court to amend its statement of intentions. InIn re Ryan, 560 B.R. 339 (Bankr. D. Hawaii 2016), discussed in Section A (footnote 2) above, the bankruptcy court held that the debtor's stated intention to "surrender" did not impair the debtor's right to defend his foreclosure. The bankruptcy court then stated that, even if "surrender" did preclude the debtor from defending his foreclosure, the debtor was entitled to seek relief from the bankruptcy court to amend his statement of intentions. Id. at 348 ("A debtor may amend a statement of intention "at any time before the expiration of the period provided in § 521(a) of the Code." The court may extend this deadline "on motion made after the expiration of the specified period ... where the failure to act was the result of excusable neglect.").

C. The law is clear that the Plaintiff was required to plead judicial estoppel and, failing to do so, the requested relief was waived.

Numerous courts throughout America, be it federal or state, trial or appellate, have deemed judicial estoppel an affirmative defense which, like other affirmative defenses, is waived if not pled. See Hansen v. Harper Excavating, Inc., 641 F.3d 1216, 1227 (10th Cir. 2011) ("we note, as have other circuits, that judicial estoppel is an affirmative defense") (citing Liberty Mut. Fire Ins. Co. v. Scott, 486 F.3d 1218 (8th Cir. 2007) and Serra Chevrolet, Inc. v. General Motors Corp., 446 F.3d 1137 (11th Cir. 2006)); Altman v Altman, 653 F.2d 755, 758 n.1 (3d Cir. 1981) (judicial estoppel waived where not pled as an affirmative defense); JP Morgan Chase Bank, N.A. v. Winget, 2017 WL 477960 (6th Cir. 2017) (treating judicial estoppel as an affirmative defense); T-WOL Acquisition Co., Inc. v. ECGD South, LLC, 725 S.E. 2d 605, 611 (N.C. 2012) (ruling judicial estoppel was an affirmative defense and was waived because not pled); Fletcher v. Rodriguez, 3 N.Y.S. 3d 901 (N.Y. 2015) (reversing summary judgment based on judicial estoppel because defendant did not plead it as an affirmative defense); Miller v. Conagra, Inc., 991 So. 2d 445, 451 (La. 2008) (treating judicial estoppel as an affirmative defense); Middleton v. Catepillar Indus., Inc., 979 So. 2d 53 (Ala. 2007) ("Judicial estoppel, however, is an affirmative defense…"); Spartan Texas Six Capital Partners, Ltd. v. Perryman, 494 S.W. 3d 735, 747-748 (Tex. 2016) ("[J]udicial estoppel is an affirmative defense on which Appellants, as the party pleading it as a bar to the Perrymans' counterclaim of a royalty interest, bore the burden of proof."); In re. Estate of Araguz, 443 S.W. 3d 233, 249 (Tex. 2014) ("In response to Simona's motion for summary judgment, Nikki argued that Simona had not pled judicial estoppel and therefore could not assert it for the first time in her motion for summary judgment. We agree."); Burket v. Delaware Drilling Corp., 435 S.W. 2d 307 (Tex. 1968) (judicial estoppel "must be specifically pleaded as an affirmative defense"); CVS/Caremark Corp. v. Washington, 121 So. 3d 191 (Ala. 2013) (concluding judicial estoppel was an affirmative defense and was waived because not pled); Cross v. Burhans, 2016 WL 7233833, *2-3 (Mich. 2016) (affirmative defense of judicial estoppel was not waived because it was pled in an amended answer); E.E.O.C. v. CRST Van Expedited, Inc., 614 F.Supp. 2d 968 (Iowa 2009) (treating judicial estoppel as an affirmative defense which must be pled absent prejudice from the failure to plead), reversed on other grounds, 774 F.3d 1169 (8th Cir. 2014); Barley v. Fox Chase Cancer Ctr., 54 F.Supp. 3d 396, 404 (E.D. Pa. 2014) ("Judicial estoppel is properly classified as an affirmative defense, and, like all affirmative defenses, it is the defendant's burden to properly plead and prove."); In re. Jaynes, 377 B.R. 880, 884 (W.D. Wisc. 2007) ("Judicial estoppel is an affirmative defense …"); Banuelos v. Waste Connection, Inc., 2013 WL 5147507, *6 (E.D. Cal. 2013) ("judicial estoppel is properly classified as an affirmative defense"); In re. Hampton, 519 B.R. 483, 490 (La. Bankr. 2014) ("Litigants must urge the defense of judicial estoppel as an affirmative defense"); Kinnee v. Shack, Inc., 2008 WL 4899204, *2 (Ore. 2008) (ruling judicial estoppel is an affirmative defense); Allen v. Senior Home Care, Inc., 2015 WL 1097408, *2 (S.D. Fla. 2015) (denying motion to dismiss based on judicial estoppel without prejudice to defendant pleading it as an affirmative defense);In re. Old Naples Securities, Inc., 2005 WL 419718, *7 (M.D. Fla. 2005) (striking several allegations improperly labeled as affirmative defenses, explaining that only "estoppel, res judicata, and judicial estoppel are affirmative defenses"); Brown v. Yellow Transp., Inc., 2010 WL 152000, *2 (Ill. 2010) (granting leave to amend to plead the affirmative defense of judicial estoppel); Lutnik v. New York City Health and Hospitals Corp., 1991 WL 197634, *1 (S.D. N.Y. 1991) (same); Vaughn v. County of Washtenaw, 2011 WL 2271315 (Mich. 2011) (same); In re. Heidkamp, 326 B.R. 472, 473 (M.D. Fla. 2005).

Based on the overwhelming authority from around the country, there can be no doubt that judicial estoppel must be pled or it is waived. The Plaintiff failed to plead its request for relief based on judicial estoppel and it was therefore waived. This is especially so when request for judicial estoppel is based on events that occurred 8 years ago and both parties proceeded over the following 8 years (through two foreclosures) as if the Defendants were entitled to defend this and the prior foreclosure.

CONCLUSION

For the foregoing reasons, the Defendants request that the Court deny the Plaintiff's motion to invoke judicial estoppel.