The voluntary dismissal of a foreclosure action pursuant to a settlement agreement does not make the borrower the “prevailing party” for purposes of a motion for attorneys’ fees, the Florida Court of Appeals has ruled. The decision should give mortgage lenders and servicers some comfort that they may compromise with borrowers during a pending foreclosure action without fear of potential liability for attorneys’ fees and costs.
In Kelly v. BankUnited, FSB, the Florida appellate court affirmed the denial of the borrower’s request for attorneys’ fees in a foreclosure action that had been voluntarily dismissed by the lender. The court applied an exception to the general rule that the defendant in a case voluntarily dismissed by the plaintiff is the “prevailing party” for purposes of determining an award of attorneys’ fees and costs.
In Kelly, the lender filed a foreclosure complaint against the borrower for defaulting on a mortgage loan. The borrower filed an answer and affirmative defenses, including a request for an award of costs and reasonable attorneys’ fees. The trial court entered summary judgment in favor of the lender and the borrower appealed. With the appeal pending, the lender and the borrower entered into a short sale agreement and the subject property was sold to a third party. Because of the short sale, the lender moved the trial court to cancel the foreclosure sale, vacate the summary judgment, and dismiss the action, which the trial court granted. The borrower’s appeal, however, was not dismissed.
More than a year after the short sale, the appellate court reversed the summary judgment and remanded the case to the trial court for rehearing. On remand, the borrower moved for an award of attorneys’ fees and costs, claiming that he was the prevailing party in light of the lender’s voluntary dismissal. The trial court denied the borrower’s request for fees.
In affirming the trial court, the Florida Court of Appeals applied an exception to the general rule that a plaintiff’s voluntary dismissal makes a defendant the “prevailing party” for purposes of determining an attorney’s fees award. Citing Padow v. Knollwood Club Ass’n, 839 So. 2d 744 (Fla. 4th DCA 2003), the appellate court stated that “courts must look to the substance of litigation outcomes—not just procedural maneuvers—in determining the issue of which party has prevailed in an action.”
Evaluating the circumstances of the case, the appellate court determined that neither the mortgage lender nor the borrower achieved their litigation objectives. The appellate court held that in a situation where both plaintiff and defendant compromised in effectively agreeing to a settlement to end their litigation, it will not hold the plaintiff responsible for payment of the defendant’s attorneys’ fees.
While the Kelly decision provides lenders some comfort to compromise with borrowers during a foreclosure action, the best practice remains to address the issue of attorneys’ fees and costs in the dismissal.
