Bona Fide Mortgagee Protection
As its name suggests, the bona fide mortgagee is akin to the bona fide purchaser. The Bona Fide Mortgagee Doctrine recognizes the need to protect lenders without notice from the effects of an adverse claim. In some states, like Ohio, the doctrine is firmly established.
In Wayne Building & Loan Co. of Wooster, the Ohio Supreme Court found that “a mortgagee is entitled to the protection of a bona fide purchaser, if he gives value without notice of prior equities.”Wayne Bldg. & Loan Co. of Wooster v. Yarborough, 11 Ohio St. 2d 195, 200 (1967). However, the protection is not without limitation. In Chase Home Finance, L.L.C., the court held that no protection can be afforded to a mortgagee that issued a mortgage to a mortgagor who held no actual interest in the property. Chase Home Fin., L.L.C. v. Banker, 182 Ohio App. 3d 546, 552–53 (Ohio 7th DCA 2009). The court was unconvinced by the mortgagee’s assertion that its justifiable reliance upon the mortgagor’s recorded fee simple interest in the property warranted protection under the bona fide mortgagee doctrine. Instead, the court held that the mortgagee’s mortgage was void because the mortgagor did not have valid title to the property when the mortgage was issued. Id. at 552. The court reasoned that ‘[t]he thing itself is an impossibility. It may, at once, therefore, be admitted, whenever a party undertakes, by deed or mortgage, to grant property, real or personal, in presenti, which does not belong to him or has no existence, the deed or mortgage, as the case may be, is inoperative and void, and this either in a court of law or equity.’ Id. quoting Pennock v. Coe, 64 U.S. 117, 127 (1859).
Here in Florida, the bona fide purchaser protection can be found in Section 695.01 of the Florida Statutes. The statute states, in pertinent part, that “[n]o conveyance, transfer, or mortgage of real property, or of any interest therein, nor any lease for a term of 1 year or longer, shall be good and effectual in law or equity against creditors or subsequent purchasers for a valuable consideration and without notice, unless the same be recorded according to law.” § 695.01(1), Fla. Stat. (2016). The statute is used to afford protection to mortgagees that acquire a mortgage interest without notice of adverse claims. See White v. Greymar Assocs., LLC, 208 So. 3d 220, 221 (Fla. 3d DCA 2016), reh’g denied (Dec. 9, 2016). The Final Judgment of Foreclosure recorded in Official Records Book 29952, Page 538 and filed under 20160073928 of the Public Records of Miami-Dade County details the findings of the trial court. The trial court found that the mortgagee had no actual or constructive notice of the ownership issue. The appellate court upheld the finding. See id.
As with all actions in equity, issues that arise during litigation should be resolved in a manner which creates a fair and just outcome. A bona fide mortgagee should be aptly protected when it issues a mortgage without notice of prior adverse claims just as a bona fide purchaser enjoys protection when a property is purchased for adequate consideration without notice of prior adverse claims.