Opinion
No. 1D21-1878
07-20-2022
U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE FOR the C-BASS MORTGAGE LOAN ASSET-BACKED CERTIFICATES, SERIES 2006-CB8, Appellant, v. Iftikhar QADIR, et al., Appellees.
William L. Grimsley of McGlinchey Stafford, Jacksonville, and Ralph W. Confreda of McGlinchey Stafford, Fort Lauderdale, for Appellant. Shiraz A. Hosein of Anchors Smith Grimsley, Fort Walton Beach, for Appellees.
William L. Grimsley of McGlinchey Stafford, Jacksonville, and Ralph W. Confreda of McGlinchey Stafford, Fort Lauderdale, for Appellant.
Shiraz A. Hosein of Anchors Smith Grimsley, Fort Walton Beach, for Appellees.
Nordby, J.
U.S. Bank National Association appeals a final judgment in this mortgage foreclosure case. Following a bench trial, the court found that U.S. Bank acted with unclean hands. As a result, the court froze the amount due on the loan, barred foreclosure, and gave Iftikhar and Humaira Qadir sixty days to pay the balance. The Qadirs never paid. The court then entered a final judgment of foreclosure for the same amount. U.S. Bank now argues, among other things, that the trial court erred by applying the unclean hands doctrine and awarding the amount it did. We agree and reverse.
Judge Charles Dodson presided over the trial and entered the order denying foreclosure.
I
Soon before the housing crash, the Qadirs bought a home with financing from a lender. The Qadirs executed a promissory note secured by a mortgage in favor of the lender for $259,300.00. This note was later endorsed to U.S. Bank. Over the next decade, the Qadirs had trouble making the scheduled mortgage payments.
The Qadirs first fell behind on payments in 2011 and executed a home affordable modification agreement ("Modification 1"). This agreement established a new principal balance of $358,211.31. That amount was split into two piles: a deferred principal balance and an interest-bearing principal balance. The deferred balance amounted to $154,083.87 which was treated as "non-interest bearing principal forbearance." Under the agreement, the Qadirs would not pay interest or make monthly payments on the deferred balance. One hundred percent of the deferred balance was open to forgiveness. The lender would forgive one-third of the deferred balance for each year of on-time payments for three years. $204,127.44 was left over for the interest-bearing balance. The Qadirs’ payment schedule was based on the interest-bearing balance.
Less than a year later, in 2012, the Qadirs fell behind on payments again and executed another modification ("Modification 2"). As with the last one, this new agreement split the total principal balance into deferred and interest-bearing amounts. The total balance increased slightly, to $389,519.44, made up of $239,419.44 deferred and $150,100.00 interest-bearing balances. Again, one hundred percent of the deferred balance was eligible for forgiveness with the same plan as before. The Qadirs took advantage this time, making consistent payments for a year and knocking off one-third of the deferred balance. After the reduction, $159,612.96 was left in the deferred balance. The balance remained at that number, however, because the Qadirs slipped into default again less than a year later.
Mr. Qadir tried to reinstate the loan in late 2015. He tendered $22,610.00 to do so, then made a lump-sum payment of $100,000.00 applied toward the interest-bearing balance. These two payments brought the interest-bearing balance down to $29,237.00. Soon after, the Qadirs defaulted again.
The Qadirs applied for one last modification in September 2018 ("Modification 3"). Once they made three trial payments, they received approval and entered the agreement with assistance of counsel. Under the new agreement, the total unpaid principal balance increased from $185,132.21 to $212,301.98. The modification put aside $14,465.71 as deferred balance, leaving $197,836.27 for the interest-bearing balance. None of the deferred balance was subject to forgiveness this time. Soon after, the Qadirs defaulted once more.
As a result of this latest default, U.S. Bank began foreclosure proceedings. The brief bench trial heard testimony from Mark Feliciano, a corporate representative, and Mr. Qadir.
Mr. Feliciano's testimony walked through the business records and loan documents related to the Qadirs’ mortgage. He breezed through seventeen exhibits, all admitted without objection. Mr. Feliciano broke down the total amount owed as follows: $212,301.98—total unpaid principal balance; $6,648.80—interest; $4,923.11—escrow advances; $239.60—late charges; and $297.00—property inspections. These itemized amounts come out to $224,410.49 in total. On cross-examination, Mr. Feliciano explained that the payment history document "would only show interest-bearing principal. So if you had any deferred principal balances, they would not show here."
Mr. Qadir took the stand next and laid out his side of the story. Sometime in fall 2015, he thought he owed around $130,000. After his one-time payment, he figured the number was then around $30,000. When he requested a payoff, someone told him he owed ten times more. No one gave Mr. Qadir a straight answer why the amount was so much higher. In early 2019, Mr. Qadir was experiencing financial hardship and stopped making payments because he could no longer afford them.
On cross-examination, Mr. Qadir went into more detail about Modification 2. He asked someone what the modification meant and was told, "this does not mean anything. I will only be paying on $150,000-something amount that's the principal balance. My payments will be based on that. Interest will be based on that." From this explanation, Mr. Qadir got the impression that he should not worry about the deferred balance. Mr. Qadir never said whom he spoke to or when he spoke with them.
The trial court soon entered an order with these findings. The Qadirs brought the "principal balance" on the loan down to $29,237.00 after the two lump-sum payments in Fall 2015. As a result, the Qadirs were ready to pay off the rest. Instead, U.S. Bank said the payment was significantly higher. Frustrated by an inadequate explanation, the Qadirs stopped making payments. Despite telling the Qadirs not to worry about the deferred balance in Modification 2, U.S. Bank "changed the amount owed." Thus, U.S. Bank acted with unclean hands.
Based on these findings, the trial court froze the loan at $29,237.00: "the amount due at the time the Qadirs went to pay off the loan in January 2016." The Qadirs had sixty days to pay the remaining balance plus interest or else U.S. Bank would have the right to foreclosure.
U.S. Bank moved for entry of final judgment after the Qadirs failed to pay. The trial court obliged but found the Qadirs owed only $29,237.00 plus interest. This timely appeal followed.
II
We first address whether U.S. Bank acted with unclean hands. This Court reviews factual findings for competent, substantial evidence and the application of law to facts de novo. MTGLQ Inv'rs, L. P. v. Moore , 293 So. 3d 610, 615 (Fla. 1st DCA 2020). U.S. Bank argues that no competent, substantial evidence supports the trial court's decision to apply the doctrine. We agree.
Unclean hands is an equitable defense much like fraud. Id. The defense applies to bar an equitable claim no matter the claim's merits when "the plaintiff has engaged in some manner of unscrupulous conduct, overreaching, or trickery that would be ‘condemned by honest and reasonable men.’ " 21st Mortg. Corp. v. TSE Plantation, LLC , 301 So. 3d 1120, 1122 (Fla. 1st DCA 2020) (quoting Shahar v. Green Tree Servicing, LLC , 125 So. 3d 251, 253 (Fla. 4th DCA 2013) ).
Merely proving condemnable conduct is not enough. A party must also prove three other "elements": (1) reliance on the conduct; (2) relation to the litigation; (3) resulting in an injury. See McIntosh v. Hough , 601 So. 2d 1170, 1172–73 (Fla. 1992) (stating the first element); 21st Mortgage , 301 So. 3d at 1122 (stating the second and third elements). Denying a party relief based on unclean hands is an extreme sanction that should be invoked only in the most compelling cases. Moore , 293 So. 3d at 615.
The evidence failed to establish that U.S. Bank acted with unclean hands. Even taking Mr. Qadir's testimony as true—because we must, see Khan v. Deutschman , 282 So. 3d 965, 966 (Fla. 1st DCA 2019) —the evidence falls short. The trial court's reliance on Mr. Qadir's testimony to find otherwise and apply the doctrine was error.
A. Alleged misconduct
First, U.S. Bank's conduct was not sneaky, unscrupulous, or tricky. In Mr. Qadir's own words, the agent told him that he would make payments only on the $150,000 amount. This amount was the interest-bearing balance, which Mr. Qadir understood, "My payments will be based on that. Interest will be based on that." The agent's statement accurately reflected the modification's terms. From this true statement, Mr. Qadir got the impression that the other amounts were not a big deal and not to worry about it. Missing from the record is any corroborating evidence that shows the agent made these statements with the intent to deceive the Qadirs. There is nothing underhanded or sneaky about the unknown agent's statements because they lined up exactly with what the modification said.
B. Reliance on the conduct
Next, even if U.S. Bank's conduct amounted to chicanery or skullduggery, there is no evidence that the Qadirs relied on that conduct. Mr. Qadir gave no details about whom he spoke with or when he spoke with them. This ambiguity means the trial court had no way to determine that Mr. Qadir relied on the statements to enter Modification 2. The Qadirs argue that the testimony shows reliance because Mr. Qadir was reassured that there was nothing to worry about. Maybe so, but the timeline is still blank. U.S. Bank persuasively points to Modification 1 to call the Qadirs’ reliance into question. Modification 1 had the same interest-bearing and deferred balance setup. Mr. Qadir never mentioned a conversation that took place before Modification 1 and never claimed an issue with understanding its terms. Thus, the record shows that Mr. Qadir willingly entered Modification 1 without a push from any (allegedly misleading) remarks. It follows then that any statements made before entering a second, nearly identical, modification had no impact on the Qadirs’ decision to enter the modification and once again keep the home.
C. Relation to the litigation
U.S. Bank's conduct relates to the litigation. U.S. Bank argues otherwise, claiming that the foreclosure proceeding relates to the default after Modification 3, not Modification 2. If anything, this technicality goes toward causation. We find that the alleged misconduct directly relates to the mortgage and subsequent foreclosure at issue.
D. Resulting in injury
Finally, there is no evidence that U.S. Bank's conduct injured the Qadirs. The modification decreased the Qadirs’ monthly payments rather than increasing them and allowed the Qadirs to retain the property. The Qadirs say that entering Modification 2 "strapped [them] with large amounts of ‘deferred principal balance’ " and thus they could not repay the loan. The Qadirs already entered a deal that strapped them with large amounts of deferred principal balance. Modification 1 was nearly identical in both structure and sums. The deferred balance would become due in some cases but was also open to one hundred percent forgiveness. This two-way split also lowered the interest-bearing balance and lowered the monthly payments.
Simply put, there is no evidence that entering Modification 2 caused the Qadirs to default on their loan. To the contrary, Mr. Qadir testified that he could no longer make payments because he was experiencing financial hardship. The evidence showed that the modification helped them retain their home and lower their monthly payments.
In sum, there is no competent, substantial evidence to support the trial court's decision to apply the unclean hands doctrine. U.S. Bank never engaged in condemnable conduct, and the Qadirs never relied on any purported misconduct to their detriment. The anonymous agent's statements to Mr. Qadir correctly described the new plan. If there were any confusion, the plain terms in the contract could have cleared things up. These innocuous statements do not warrant such an extreme and harsh sanction as to prevent foreclosure entirely. Without the proper supporting evidence, no reasonable person could agree to bar relief for U.S. Bank.
III
We now turn to U.S. Bank's next concern on appeal: the money. This Court reviews whether the trial court's findings on amounts owed are supported by competent, substantial evidence. See Hartz v. Wells Fargo Bank, N.A. , 319 So. 3d 161, 165 (Fla. 1st DCA 2021), reh'g denied (June 10, 2021). The amount the trial court awarded has no such support.
The Qadirs never owed $29,237.00. The trial court reached the number by relying on Mr. Qadir's statements that he believed he owed around that much. To bolster this belief, the court looked to the payment history to find that U.S. Bank too "believed the balance on the loan to be $29,237.00." The trial court mistakenly took this balance as the total unpaid balance when it represented only the interest-bearing balance. Referring to the same evidence, Mr. Feliciano explained that the payment history "would only show interest-bearing principal. So if you had any deferred principal balances, they would not show here." (emphasis added). The Qadirs did have deferred balances. Only one third of the deferred balance from Modification 2 was forgiven, leaving $159,612.96 on top of the $29,237.00 interest-bearing balance. The deferred amount never went away.
Instead, U.S. Bank proved that the Qadirs owed $224,410.49. A foreclosure plaintiff typically proves the amount owed through testimony of a witness who can authenticate the business records and confirm their accuracy. Id. U.S. Bank did exactly that. Mr. Feliciano walked through the business records that showed the Qadirs’ payment history and total amounts owed. Based on this evidence, U.S. Bank proved that it has a right to a judgment for $224,410.49.
IV
In conclusion, the trial court improperly applied the unclean hands doctrine to bar foreclosure. The trial court then compounded the error by entering a final judgment for the wrong amount. We therefore reverse and remand for the trial court to enter a final judgment for U.S. Bank for $224,410.49.
REVERSED and REMANDED with instructions.
Lewis and Kelsey, JJ., concur.