August 16, 2023

The Doctrine of Merger and Post-Judgment Assignments of Instruments

Ferry v. E-Z Cashing, LLC, 2023 WL 2776869, No. 2D22-1201, 48 Fla. L. Weekly D681 (Fla. 2d DCA 2023), reh’g denied (May 23, 2023).

KK takeaway: Under the doctrine of merger, where the promissory note and mortgage have been assigned after the final judgment of mortgage foreclosure, the assignee has no enforceable interest in the note and mortgage because any interest in those instruments had merged into the judgment. Assignment of the foreclosure judgment is an appropriate method to acquire an interest in the instruments. An assignment of leases and rents, however, does not merge into the foreclosure judgment, and assignee may collect the rents from the property until the foreclosure sale.

Background: In 2005, Ferry executed a Note and Mortgage to finance the purchase of a real property for commercial purposes, as well as a separate Assignment of Leases and Rents in favor of the same lender, who subsequently transferred its interest in all these instruments to Bayview Loan Servicing, LLC (“Bayview”). Following Ferry’s default on her payment obligations, Bayview filed a foreclosure action in 2007 and in 2010 obtained a final judgment of foreclosure. The judgment was silent as to assignment of leases and rents. As a result of Ferry’s filing for bankruptcy protection prior to the scheduled foreclosure sale, the case was stayed for nearly a decade.

In late 2019, Bayview assigned the Note, Mortgage and Assignment of Leases and Rents to E-Z Cashing, LLC (“E-Z Cashing”). After the lifting of the bankruptcy stay in 2020, E-Z Cashing filed a motion to substitute itself as the plaintiff in the foreclosure action predicated upon it being “the holder in due course” of the loan documents, and the trial court allowed substitution. Notably, while it would be a more appropriate route, E-Z Cashing did not acquire an interest in the judgment from the prior Plaintiff, Bayview. Despite Ferry’s vehement opposition based on the doctrine of merger, the same court granted E-Z Cashing’s motion to amend final judgment, motion to determine final judgment amount and reschedule foreclosure sale, and a motion for order assigning all leases and rents from the property. The appeal ensued.

Citing to an exhaustive list of Florida decisions for support, the Second District Court of Appeal (“DCA”) found that E-Z Cashing had no enforceable interest in the Note and Mortgage, as any such interest merged into the 2010 foreclosure judgment, lost is identity and independent existence, and was extinguished. The amendment of the foreclosure judgment based on the post-judgment assignment of the note and mortgage was contrary to Florida law. The District Court held that the trial court erred in (1) finding that E-Z Cashing held a first priority mortgage lien against the real property and (2) amending the foreclosure judgment based upon the assignment of the extinguished loan documents.

With respect to E-Z Cashing’s ability to collect the rents from the property, however, the Second DCA held that the cause of action for enforcement of the assignment of leases and rents was not extinguished by the foreclosure judgment. Finding ample support in Florida decisional law, the District Court stated that the foreclosure of the mortgage and foreclosure of the assignment of leases and rents were separate and independent actions, where foreclosure of one neither prevented nor required foreclosure of the other. Consequently, the Assignment of Leases and Rents did not merge into the foreclosure judgment. The Second DCA affirmed the trial court’s order granting E-Z Cashing’s Motion for Assignment of Leases and Rents and held that E-Z Cashing, as Bayview’s assignee, possessed the right to leases and rents from April 2020 until the foreclosure sale and was able to collect the rents up until the foreclosure sale.

Irina Danilyan
Partner, Real Estate
Kelley Kronenberg-Fort Lauderdale, FL.
(954) 370-9970
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