Creditor not barred from proceeding with foreclosure

United States Court of Appeals allows creditor to proceed with foreclosure

FAIRBANK'S CAPITAL CORP. v. MARK L. MILLIGAN; BANCO POPULAR DE PUERTO RICO; INTERNAL REVENUE SERVICE; DR. STEVEN E. LERNER & ASSOCIATES; GOVERNMENT OF THE VIRGIN ISLANDS, Virgin Islands Bureau of Internal Revenue Mark L. Milligan, Appellant
No. 06-3986

Case Law
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
234 Fed. Appx. 21; 2007 U.S. App. LEXIS 11146

May 7, 2007, Submitted Under Third Circuit LAR 34.1(a)
May 10, 2007, Filed

Facts: The debtor assumed the debt on a note executed by the original mortgagors. The mortgagee's assignee filed a foreclosure action after the debtor defaulted on the note. That suit was settled, and the foreclosure suit was dismissed with prejudice. The creditor, who subsequently acquired the right to collect on the note, filed its foreclosure action after the debtor defaulted again. The debtor did not claim that he was not in default, but he filed a Fed. R. Civ. P. 12(b)(6) dismissal motion, arguing that the doctrines of res judicata and collateral estoppel applied to the prior foreclosure suit and barred the creditor from prosecuting its foreclosure action.

Issue: Was there preclusion of claim?

Ruling: None. Neither issue nor claim preclusion applied because although the assignee and the creditor were in privity with each other, their claims were different. The dismissal, with prejudice, of the assignee's prior foreclosure suit did not act as a bar to the creditor's mortgage foreclosure action, arising from the debtors' subsequent default, which occurred after the assignee's foreclosure suit was dismissed.

Lesson Learned: The doctrine of res judicata does not necessarily bar successive foreclosure suits, regardless of whether or not the mortgagee sought to accelerate payments on the note in the first suit. A subsequent and separate alleged default creates a new and independent right in the mortgagee to accelerate payment on the note in a subsequent foreclosure action.

Written by Kevin Levonas and Jerry L.