November 8, 2023

Understanding Liquidated Damages in Foreclosure Judgments: Insights from MacDonnell v. U.S. Bank N.A.

When it comes to mortgage foreclosure proceedings, understanding the concept of liquidated damages can be crucial, as demonstrated by the case of MacDonnell v. U.S. Bank N.A. This case, decided by the Florida Second District Court of Appeal in 2020, sheds light on the circumstances under which attorney’s fees in foreclosure judgments are considered liquidated damages, making them exempt from certain procedural requirements. 

What Are Liquidated Damages? 

Before we delve into the MacDonnell case, it’s essential to comprehend what constitutes liquidated damages in the context of foreclosure judgments. Damages are considered liquidated when the amount to be awarded can be determined with exactness from the cause of action as pleaded. In simpler terms, liquidated damages are those where the parties involved can precisely calculate the amount to be awarded based on the terms of the contract or agreement in question. 

The MacDonnell Case  

In the MacDonnell case, a default foreclosure judgment was entered against the mortgagors, and a foreclosure sale subsequently occurred. The mortgagors raised objections to the sale, but those objections were overruled, and their subsequent appeal was unsuccessful. Faced with these setbacks, the mortgagors sought to set aside the foreclosure judgment, claiming it was void. This action led to an appeal to the Second District Court of Appeal of Florida. 

The crux of the issue in MacDonnell revolved around the nature of the damages sought by the mortgagee in the foreclosure judgment. While the mortgagors conceded that the principal and interest amounts sought were liquidated, they argued that other items, such as taxes, insurance, and attorneys’ fees, were unliquidated. 

Understanding the Exception for Attorney’s Fees  

The Second District Court of Appeal in MacDonnell clarified the status of attorney’s fees in default foreclosure judgments. In general, attorney’s fees are considered liquidated when the proper amount to be awarded can be determined with exactness from the cause of action as pleaded. However, an exception exists in the case of attorney’s fees awarded in default foreclosure judgments under Florida Statute §702.065(2). 

Florida Statute §702.065(2) states that in mortgage foreclosure proceedings, when a default judgment has been entered against the mortgagor, and the note or mortgage provides for reasonable attorney’s fees, it is not necessary for the court to hold a hearing or adjudge the requested attorney’s fees to be reasonable if the fees do not exceed 3 percent of the principal amount owed at the time of filing the complaint. Even if the note or mortgage does not specify the percentage of the original amount that would be paid as liquidated damages, such fees constitute liquidated damages in any proceeding to enforce the note or mortgage. However, it’s important to note that this section does not preclude a challenge to the reasonableness of the attorney’s fees. 

In the MacDonnell case, the attorney’s fees awarded in the foreclosure judgment were below three percent of the principal amount owed at the time of filing the complaint. Therefore, Florida Statute §702.065(2) served to liquidate the damages for attorney’s fees. 

Essential Lessons from MacDonnell 

The MacDonnell case highlights the importance of understanding the concept of liquidated damages in foreclosure judgments, particularly in the context of attorney’s fees. When attorney’s fees fall below three percent of the principal amount owed at the time of filing the complaint, they are considered liquidated damages under Florida law, and certain procedural requirements can be bypassed. 

In situations where attorney’s fees exceed this threshold, it is advisable to have an expert fee affidavit prepared to ensure that all attorney’s fees incurred are recoverable. This can help mortgagees and other parties involved in foreclosure proceedings navigate the legal landscape effectively. 

Understanding the nuances of liquidated damages and the applicable statutes in foreclosure cases is essential for those navigating this complex area of law. The MacDonnell case serves as a valuable precedent and reminder of the importance of complying with statutory requirements when seeking attorney’s fees in foreclosure judgments. 

Expert Guidance at Your Fingertips  

If you’re facing complexities in a foreclosure case or seeking legal guidance on matters related to liquidated damages, don’t hesitate to reach out for expert assistance. I bring extensive experience and in-depth knowledge to this field, and my team is dedicated to helping you navigate the legal intricacies with confidence. Feel free to call my office today for a comprehensive consultation tailored to your specific needs. Let’s work together to ensure your rights are protected and your case is handled with the utmost professionalism and expertise. 

 Marc Marra
Partner, Real Estate
Kelley Kronenberg-Fort Lauderdale, FL
(954) 370-9970