8th Circuit Upholds Dismissal of Borrower’s Challenge to Foreclosure on Res Judicata Grounds

The Eighth Circuit recently affirmed a district court’s judgment in favor of a large national bank in a foreclosure matter that marked the third lawsuit arising between the parties, relying largely on res judicata grounds.

The chain of events giving rise to the appeal began in 2011 when the bank initiated a foreclosure that resulted in a sheriff’s sale of the plaintiff’s Minnesota property.  At that time, the plaintiff sued the bank for alleged violations of Minnesota’s foreclosure statutes and sought to set aside the sale. In 2013, a settlement agreement was reached under which the bank agreed to rescind the sale in exchange for the plaintiff’s dismissal of the lawsuit. The parties further agreed to reinstate the previously existing mortgage so that the bank could proceed with foreclosure, and the plaintiff waived the right to challenge any deficiencies in the future foreclosure proceeding.  The bank commenced a second foreclosure in Minnesota state court, which resulted in summary judgment for the bank and a decree of foreclosure.  After an unsuccessful appeal in that case, the plaintiff, acting pro se, commenced a third lawsuit.

In the third action, the plaintiff alleged that the bank violated a different provision of Minnesota law relating to mortgage foreclosures by continuing with foreclosure proceedings after the plaintiff had allegedly submitted an application for a loan modification.  The bank brought a counterclaim alleging breach of the prior settlement agreement.  The bank moved for judgement on the pleadings and the district court ruled that the plaintiff’s claim was barred by res judicata.  The plaintiff subsequently appealed the district court’s opinion.

The Eighth Circuit affirmed the district court ruling and found that res judicata applied because the plaintiff’s claim arose out of the same set of factual circumstances as the earlier 2013 foreclosure action between the same parties, and the plaintiff had the opportunity to litigate the claim fairly during that previous action had he timely raised it.

The court also held that the district court did not err in granting judgment on the pleadings for the bank in its counterclaim, nor did it abuse its discretion by denying the plaintiff leave to amend on futility grounds.

The opinion may be found here.