[Author: Suzanne Thompson]

On November 21, 2022, the U.S. Bankruptcy Court for the Southern District of Florida sustained the debtors’ objection to mortgage lender Benworth Capital Partners, LLC’s proof of claim and held that the state’s statutory judgment rate applies if a note and the related foreclosure judgment fail to specify a post-judgment interest rate. A state court issued two foreclosure judgments on the debtors’ mortgage debt. The debtors filed for bankruptcy prior to completion of the foreclosure sales, and the mortgage servicer filed proofs of claim regarding the foreclosure judgments. While the original mortgage notes clearly stated the default interest rate would be “the highest rate allowable by law” (25% in Florida), the notes were silent about what rate would apply post-judgment. Similarly, the foreclosure judgments were silent about the applicable interest rate, stating that “the highest legal rate of interest” would apply. The debtors argued that Florida’s 4.25% statutory foreclosure judgment rate was “the highest rate of legal interest”; the mortgage servicer argued that its contractual default rate of 25% applied. The bankruptcy court agreed with the debtors.

Because Florida case law instructs that “a judgment is an obligation separate from the underlying contractual debt,” the court reasoned that parties must separately contract for post-default and post-judgment interest rates. Although the mortgage servicer argued that its post-default interest rate should apply because the debtors were in default when the foreclosure judgments were issued, the court held that the foreclosure judgment represented an event new and separate from the contractual event of default. Because neither the mortgage servicer’s notes nor the foreclosure judgments included a specific post-judgment interest rate, the court imposed the 4.25% statutory foreclosure rate. Thus, the court reduced the amount the mortgage servicer could credit bid in the auction sale for one of the foreclosed upon properties.

The case is In re 6200 NE 2nd Avenue, LLC, No. 22-10385-RAM (Bankr. S.D. Fla. Nov. 21, 2022). The debtors are represented by Aaronson Schantz Beiley P.A. Benworth is represented by Ryan Law Firm, P.A. The opinion is available here.