Quinn Plumbing Co. Inc. v. New Miami Shores Corp.

Strum, J. — A first mortgage upon real property was foreclosed and the property sold. A mortgagee who held á second mortgage on a small part of the encumbered land was not made a party to the foreclosure of the first mortgage. The property was purchased at the foreclosure sale by one not a party to either mortgage. This suit, brought by the purchaser at the foreclosure sale under the first mortgage, is for the purpose of disposing of the rights of the second mortgagee. The first mortgage contained a conventional release clause which provided that the mortgagor could procure the release of parcels of the land upon the payment of specified amounts. This bill of complaint prays that the second mortgagee be required to redeem the lands covered by the second mortgage, by the payments of the amounts specified with reference thereto in the release clause of the first mortgage, in default whereof the second mortgagee’s right to redeem be barred. The Chancellor overruled a demurrer to the bill, from which order this appeal is taken. The right to redeem is an incident to every mortgage and belongs to the mortgagor and those claiming under him. This right cannot be extinguished except by due process of law. After the foreclosure of a mortgage, redemption may be had by any person entitled to it who was not made a party to the suit. Bryan v. Kales, 162 *417 U. S. 411, 40 L. Ed. 1020. The purchaser at such a sale takes the premises subject to the right of a junior mortgagee, who was not made party to the foreclosure of a prior mortgage, to redeem from the senior mortgage. Howard v. Milwaukee, etc., 101 U. S. 837, 25 L. Ed. 1081; Jones v. Williams, 71 S. E. 222, 36 L. R. A. (N. S.) 426; Morse v. Smith, 83 Ill. 396; Hodgden v. Guttey, 58 Ill. 431; Jones on Mortgages, (8th Ed.) Sec. 1342; Wiltsie on Mortgage Foreclosure (4th Ed.) Sec. 1054, 1149; 42 C. J. 357, 372. It is well established in this jurisdiction that the purchaser of mortgaged property at a foreclosure sale, when for any reason the foreclosure proceedings are imperfect or irregular, becomes subrogated to all the rights of the mortgagee in such mortgage and to the indebtedness that it secured. Such purchaser becomes virtually an equitable assignee of the mortgage and of the debt it secured, with all rights of the original mortgagee, and becomes entitled to an action de novo for the foreclosure of such mortgage against all parties holding junior encumbrances who were omitted as parties to the foreclosure, proceedings under which the purchaser bought. Crystal R. Lbr. Co. v. Knight Turp. Co., 69 Fla. 288, 67 So. R. 974, Ann. Cas. 1917D 574; Key West Wharf Co. v. Porter, 63 Fla. 448, 58 So. R. 599, Ann. Cas. 1914A 173; Meyer v. Florida Home Finders, 105 So. R. 267; Jordan v. Sayre, 29 Fla. 100, 10 So. R. 823. See also Dutcher v. Hobby, 12 S. E. R. 356, 10 L. R. A. 472, 22 A. S. R. 444; Johns v. Wilson, 180 U. S. 440, 45 L. Ed. 613; Burns v. Hiatt, 87 Pac. R. 196, 117. A. S. R. 157, 19 R. C. L. 635, 452. As against a senior mortgagee, the only absolute right of a junior mortgagee is the right to redeem from the senior mortgage. Parker v. Child, 25 N. J. Eq. 41; Jones on Mortgages (8th Ed.) Sec. 1781. The right to seek a *418 marshaling of the security in appropriate cases is not absolute, but rests upon equitable principles. When a first mortgage has been foreclosed, and a junior encumbrancer has not been made- a party, the decree is valid as to those who were joined as parties, but of course Is not binding upon, nor does it in anywise affect, the rights of the junior mortgagee who has been omitted. The rights of such omitted person remain precisely as they were before the proceedings were instituted. They aré neither enlarged nor diminished by the defective foreclosure. McGough v. Sweetzer (Ala.), 12 So. R. 162. As.to such omitted junior mortgagee the situation is the same as if no foreclosure had occurred. Key West Wharf Co. v. Porter, supra; Crystal R. Lbr. Co. v. Knight Turp. Co., supra; Wiltsie on Mortgage Foreclosure (4th Ed.) 1055. The purchaser at such a foreclosure sale occupied the same position as the first mortgagee, having become equitably subrogated to his rights, which' may be enforced by such purchaser against the junior mortgagee to the same extent as they could have been enforced in the original foreclosure, had the junior mortgagee been made a party thereto. The junior mortgagee may defend to the samé extent as if the irregular foreclosure had not occured. In the absence of countervailing equities, some of which will be mentioned hereafter, when a first mortgage has been foreclosed in a suit to which a junior mortgagee, through inadvertence, was not made a party, a purchaser in possession under the sale may maintain a suit to compel the junior mortgagee to exercise his right of redemption within a reasonable time, just as he could have been compelled to exercise it in the original foreclosure had he been made a party thereto, in default of-which the right of redemption of the second mortgagee may be foreclosed and barred. Key West Wharf Co. v. Porter, Crystal R. Turp. Co. v. *419 Knight, supra; Parker v. Childs, 25 N. J. Eq. 41; Shaw v. Heisy, 48 Iowa 468; Nelson v. Bank, 202 N. W. 847; Manhattan Bank v. Wamego Bank, 176 Pac. R. 658, 42 C. J. 356; Jones on Mortgages (8th Ed.), Sec. 1781. There are instances, however, in which such a course would be inequitable. Morey v. City of Duluth, 69 Minn. 5. If any fraud or mala fides was practiced in connection with the failure to make the second mortgagee a party, that might constitute a countervailing equity which would place the matter in an entirely different light, especially in this case in view of the extraordinarily large part of the proceeds of the sale which was devoted to ‘ ‘ costs and expenses, ’ ’ which conceivably might have been reduced upon the objection of the junior mortgagee, so as to make the situation of his mortgage more favorable. If it were shown that the second mortgage was deliberately omitted as a party so as to deprive it of the opportunity (not the absolute right) of bidding the property up to an amount sufficient to cover its second mortgage, or to deprive it of the opportunity to contest the amounts devoted to “costs and expenses” in order to conserve proceeds available to pay off the second mortgage, an entirely different question might be presented. But no such contention is as yet advanced. The bill sufficiently alleges, and the demurrer admits, that the omission of the second mortgagee was due solely to inadvertence; that an abstract was procured preliminary to foreclosure, and that the second mortgage did not appear thereon; that the first mortgagee having no actual knowledge of the existence of the second mortgage, therefore, did not make the second mortgagee a party. Thus the omission of the second mortgagee as a party appears from the allegations of the bill to have been an innocent omission, at least one involving no bad faith. *420 Those considerations just mentioned become even less important in the present aspect of this case when the well established rule is considered that the second mortgagee who was not made a party can not, in a suit to require him to redeem or be foreclosed, be compelled to pay the' costs or expenses of the foreclosure of the first mortgage. The amount which must be paid by such junior mortgagee in order to redeem is to be determined from the first mortgage debt, not from the decree of foreclosure to which he was not a'party, and which is therefore not binding upon him. Jones v. Dutch, 92 N. W. R. 735; Wiltsie on Mortgage Foreclosure (4th Ed.), Sec. 1210; Jones on Mortgages, Sec. 1388. Another countervailing equity which might .conceivably be imposed to prevent the operation of the rule above stated would be the equitable right of the junior mortgagee, whose mortgage covers only a part, of the premises covered by the first mortgage, to insist upon a marshaling of the securities. If that right were asserted and maintained (see 38 C. J. 1367, et seq.) complainant might be entitled only to a conventional decree of foreclosure by sale, the lands to be sold in such order as upon the evidence seems just and equitable. See Morey v. City of Duluth, 69 Minn. 5. But the fact that complainant might not be entitled to the exact relief specifically prayed for is not ground for demurrer if upon the facts alleged and under the general prayer, complainant is entitled to any relief consistent therewith. Upon the facts alleged, complainant is certainly entitled to a foreclosure de novo against the omitted junior mortgagee. The question is as to the propriety of the mode of relief selected. The bill of complaint alleges facts sufficient to justify relief by foreclosure and sale of that be hereafter determined to be the equitable course. So the *421 bill is not without equity. The nature of the relief to which the complainant is ultimately entitled depends upon the defense interposed by the junior mortgagee. ■ If no countervailing equities are shown, a decree may be entered requiring the junior mortgagee to redeem or be barred. If the junior mortgagee had been joined in the original foreclosure an appropriate decree against it would have been to either redeem or be barred of its right of redemption. The same decree is sought in this bill. Such a decree would not be a decree of strict foreclosure which is unknown to our practice (Browne v. Browne, 17 Fla. 607, 623) because its effect would be not to divest the mortgagor of a right to redeem the legal title and to vest it indefeasibly in the mortgagee — that title being already in the complainant by reason of its purchase at the foreclosure sale which was valid as against the mortgagor — but its effect would be merely to extinguish a junior lien to which the legal title already in the complainant is subject, Manhattan Bank v. Wamego Bank, 176 Pac. R. 658. Any defense to which the junior mortgagee would have been entitled had it been joined in the original foreclosure, is open to it here. The form of the decree, whether requiring redemption or decreeing a foreclosure and sale, will abide the result of the defense interposed and maintained. Since this complainant, purchaser at the foreclosure sale of the first mortgage, is entitled to maintain a suit de novo against the omitted second mortgagee to foreclose its right of redemption, there remains for consideration the basis of payment by the second mortgagee in order to effect such redemption, in the event that course be properly decreed on final hearing. It is the well established rule, to which there are some exceptions, however, that a junior encumbrancer, or a junior owner of a part only of mortgaged premises, must *422 pay the whole amount of the mortgage debt in order to redeem. He can not compel a redemption pro tanto, for the reason that the first mortgagee has not agreed to separate his debt and security into parts. He is entitled to payment of the whole. The junior encumbrancer redeems from the mortgage, not from the foreclosure sale to which he was not a party. Wiltsie Mortgage Foreclosure (4th Ed.), Secs. 1054, 1071, 1088, 1145, and notes, 1199, 1209; Jones on Mortgages (8th Ed.), Sec. 1372; 42 C. J. 400; Bradley v. Snyder, 14 Ill. 263; 58 Am. Dec. 564; Knowles v. Rablin, 20 Iowa 101; Parker v. Child, 25 N. J. Eq. 41. In a well reasoned case from Wisconsin, Green v. Dixon, 9 Wis. 532, it is held as an exception to the rule just stated, that after foreclosure a junior owner or encumbrancer who was not a party to the foreclosure of the senior mortgage is entitled to redeem from the senior mortgage upon paying such proportion of the mortgage debt as the value of the land covered by the second mortgage, or by the junior owner’s deed, bears to the value of the entire mortgaged premises covered by the first mortgage. The reason • assigned is that the purcaser, by electing to purchase under a defective foreclosure, subject to an outstanding' junior interest of which he has actual or constructive notice, thereby elects, to take an indefeasible estate in a part of the property and a defeasible estate in the' other part covered by the junior mortgage, thus consenting to a separation of the two parts, so as to entitle the junior encumbrancer or owner to redeem his portion of the encumbered premises upon the proportionate basis just stated. Other authorities, however, take the view that the general rule above stated applies to such a situation, so that the junior encumbrancer must pay the entire mortgage debt in order to redeem the premises in which he is interested, but when there are no intervening rights, he *423 thereby becomes equitably subrogated to the original rights of the first mortgagee (42 C. J. 450), even as against the purchaser at the foreclosure sale, for such purchaser has elected to purchase under a defective foreclosure which does not affect the original right of the second mortgagee to redeem from the first mortgage. McGough v. Sweetzer (Ala.), 12 So. R. 162; Martin v. Fridley, 23 Minn. 13. See also Evans v. Kahr, 57 Pac. R. 950, Id. 58 Pac. R. 467. ' The view just stated has been heretofore definitely adopted by this Court. In Key West Wharf Co. v. Porter, supra, a first mortgage had been foreclosed and the property purchased by a third party. Certain persons to whom the mortgagor had conveyed portions of the mortgaged premises were not made parties to the foreclosure. The purchaser subsequently brought suit to foreclose against these junior •owners. The foreclosure of a second mortgage was also sought in the same suit. The defendants answered that they were willing and ready to redeem from the lien of the mortgage so much of the land as was claimed by them proportionate to the value of the whole, and that it was not just or equitable to impose upon them the payment of the entire indebtedness. In disposing of an exception to that portion of their .answer, this Court, speaking through Mr. Justice Taylor, held that there was no merit in the contention that there should be an ascertainment of the proportionate value of the portions of the land owned by the defendants and that they be allowed to redeem from the mortgagee by paying the proportionate value of their respective portions thereof. The Court said: ‘ ‘ These portions of said land, as well as all the residue of said mortgaged tract, is bound for the payment of the whole of both mortgages, and the courts have no power to release any part of the land from the lien of the mortgages by affixing thereto a sum, less than the entire sum of the mortgages, which when paid shall release *424 such part from the lien of the mortgages. To redeem their portion of the land from these two mortgages they (the junior owners of part of the mortgaged land) will be required to pay the whole amount due upon both mortgages. ’ ’ In the respect under consideration, the situation of a junior mortgagee holding a mortgage on part only of the premises embraced in the first mortgage, would be the same as that of a junior owner of part of the mortgaged premises. Manhattan Bank v. Wamego Bank, 176 Pac. R. 658. The rule just stated, however, that the junior mortgagee must pay the entire mortgage debt in order to redeem, is for the benefit of the senior mortgagee, and he or his. purchaser at the foreclosure sale may waive his right to enforce redemption for the whole amount of the mortgage debt, and accept from one entitled to redeem a proportionate part of the debt, discharging the senior lien upon the portion so released. Wiltsie on Mortgage Foreclosure (4th Ed.) 1057, and cases cited; also Secs. 1066, 1071. . oPiasTKe «ompiamani in this cause nas done by offering to permit the junior mortgagee to redeem on the basis of the release clause in the first mortgage, which is permissible. This complainant can not invoke this mode of redemption, however, to the exclusion of other modes to which the junior mortgagee may be' entitled, nor to the exclusion of the potential equity of the junior mortgagee to seek a marshaling of securities. In other words, the complainant can not compel the junior mortgagee to accept the waiver, in the absence of laches or estoppel on the part of the junior mortgagee. The mode of redemption prayed for by the complainant, however, is a permissible one under the facts, alleged in this bill, which the junior mortgagee may accept or not at its election. If the junior mortgagee desires to avail itself of its right to redeem from the first mortgage by payment of the entire mortgage debt, thereby becoming *425 equitably subrogated to all the rights of the first mortgagee, even as against this complainant, it may do so, but its election so to do must be asserted by its answer. Whether the junior mortgagee will insist upon other modes of redemption open to it, is a matter of defense. Likewise, as already stated, any equity in the junior mortgagee for a marshaling of security is matter of defense. It has not escaped notice that the complainant does not specifically offer to convey its title to the defendant upon the redemption by the latter from the first mortgage of the portion of the lands in which it is interested upon the basis prayed for in the bill. Though it would have been well to have made such an offer, it is not indispensable, to the equity of the bill. Such a redemption, after foreclosure and sale, by the junior mortgagee, who is under no legal obligation to redeem, amounts not only to a redemption, but as against the purchaser who is complainant here, amounts to a purchase of the rights acquired by the purchaser at the sale under the senior mortgage. It is unnecessary therefore that complainant offer to convey as such a redemption by the junior mortgagee' would, by operation óf law, invest in him indefeasibly the title of the purchaser at such sale. See McNutt v. Nuevo, 140 Pac. R. 6, Franklin v. Jameson, 109 N. W. R. 56; Briston v. Hershey, 95 Pac. R. 1040; Wemple v. Yosemite, 87 Pac. R. 280; Jones on Mortgages (8th Ed.), Sec. 1347. In order to make the decree fully effective, and in order to clear the title of its present dilemma, it would be proper for the chancellor in his decree to require the complainant to convey to the defendant by special warranty deed upon redemption by the defendant in accordance with the decree, for the reason that the complainant purchased subject to the defendant’s second mortgage, with constructive notice thereof, and subject to'the right of redemption from the *426 first mortgage, which mortgage has how been foreclosed as against the mortgagor, and this complainant has succeeded to the mortgagor’s title rights by virtue of being a purchaser at the foreclosure sale. Therefore, if the defendant redeems as against' this purchaser, he would not only acquire all the purchaser’s rights by operation of law, but it would also be proper to decree a specific conveyance by such purchaser upon a proper redemption by the junior mortgagee. The order overruling the demurrer is affirmed. Whitfield, P. J., and-Buford, J., concur. Terrell, C. J., and Brown, J., concur in the opinion and judgment. Ellis, J., dissents.