Financial services companies pursuing judicial foreclosures in
Florida already face a host of unique and challenging hurdles. The
varying and often court- or judge-specific procedural, substantive
and evidentiary requirements and expectations can create pitfalls
for lenders seeking to foreclose on a mortgage.
Two recent cases, from separate Florida District Courts of Appeal,
raise the specter of yet another unfortunate outcome for lenders:
dismissal of their entire action on statute of limitations (SOL)
grounds. While the inconsistencies in the opinions may offer the
silver lining of ultimate resolution by the Florida Supreme Court,
lenders should discuss the possible implications of the SOL to
strategic litigation and business decisions with counsel.
The dramatic rise in home loan mortgage default rates from 2007 to
2009 triggered a corresponding increase in foreclosure actions
across the country. In Florida, many of these judicial foreclosure
actions were placed on hold or delayed because of backlogs in the
courts, changes in the legal landscape, or delay tactics employed
by borrowers or their counsel, not to mention the lenders' own
desire to undertake internal evaluations of the strengths,
weaknesses and merits of those cases.
For a time, thousands of foreclosure cases, with complaints filed
four, five or even six years ago, remained pending in the Florida
courts. Often, rather than pursuing these aging cases, servicers
dismiss and restart the foreclosures by filing a new complaint
— a common practice in jurisdictions throughout the United
States. However, depending upon when the initial complaint was
filed, this strategy may now expose servicers pursuing Florida
judicial foreclosures to motions to dismiss.
Beauvais
The uncertainty over the SOL issue in Florida was highlighted by
the recent Third District Court of Appeals opinion in Deutsche Bank v. Beauvais, No. 3D14-575, Case
No. 12-49315 (Fla. 3d DCA Dec. 17, 2014). The critical issue in
Beauvais — and the question underlying the SOL debate in
Florida — is the application of the SOL to successive
foreclosure actions. Specifically: does acceleration of payments
due in a dismissed foreclosure action start the "SOL
clock" and bar subsequent foreclosure actions even when those
actions are based on entirely new payment defaults.
In Beauvais, a mortgage loan servicer filed a 2007 foreclosure
action, based on a September 2006 payment default. In the
foreclosure complaint, the servicer accelerated the entire balance
due and owing under the note and mortgage, demanding repayment of
the full amount remaining on the loan. This foreclosure action was
dismissed, without prejudice, when the servicer failed to appear at
a court-ordered case management conference.
After dismissal of the initial foreclosure action, a condominium
association filed a second foreclosure action based on its lien
against the property for unpaid condominium dues. The association
obtained title to the property in 2011, subject only to the
borrower's mortgage.
In December 2012, Deutsche Bank Trust Co. Americas (Deutsche Bank),
the current owner of the mortgage, filed a second foreclosure
action related to the mortgage and note based on an October 2006
payment default. Similar to the initial action, Deutsche Bank
accelerated all payments and declared the entire outstanding
balance immediately due and owing.
In an attempt to contest the Deutsche Bank foreclosure, the
condominium association moved for summary judgment. The association
argued that acceleration of the payments due in the initial
foreclosure action started the five-year SOL clock for the entire
debt. The association further argued that the dismissal without
prejudice of the initial foreclosure action did not negate or
otherwise invalidate the acceleration of the debt. In other words,
the mere dismissal of the action did not restart the SOL
clock.
The trial court agreed with the association and granted its motion
for summary judgment, holding that the SOL barred Deutsche
Bank's foreclosure action because it was filed more than five
years after the filing of the initial foreclosure complaint. The
trial court further declared the mortgage null and void and quieted
title to the property in favor of the association. It was a victory
for the association. Not surprisingly, Deutsche Bank
appealed.
On review, the Third District Court of Appeals focused on the
nature of the dismissal. Because the original foreclosure had been
dismissed without prejudice, the court reasoned that the original
acceleration of the debt had not been negated or decelerated.
Therefore, the original acceleration event — the filing of
the first foreclosure complaint — started the SOL
clock.
Nothing in the first foreclosure action invalidated the initial
acceleration or reinstated the installment nature of the mortgage
contract and there were therefore no additional payments due after
the acceleration. Without an obligation to make payments, there
could not be any corresponding new payment defaults. This outcome
would likely have been different if the case had been dismissed
with prejudice.
Based upon its reasoning, the court held that the original
acceleration was never invalidated, and the SOL never stopped
running. Accordingly, the SOL barred the second Deutsche Bank
foreclosure action because that action was filed more than five
years after the initial foreclosure complaint. The court did,
however, reverse the trial court's invalidation of the
mortgage, holding that the SOL did not affect the validity of the
mortgage as a lien on the property. Rather, it only affected
Deutsche Bank's ability to institute a foreclosure action to
seek repayment based on the borrower's payment default.
Nevertheless, it was a significant defeat for Deutsche Bank.
Bartram
Prior to Beauvais, on April 25, 2014, the Fifth District Court of
Appeals decided U.S. Bank National Association v. Bartram, No.
5D12-3823, (Fla. 5th DCA Apr. 25, 2014). Unlike Beauvais, Bartram
held that "a default occurring after a failed foreclosure
attempt creates a new cause of action for [SOL] purposes, even
where acceleration had been triggered and the first case was
dismissed on the merits." Id. at *6.
The Bartram court found that if a lender's foreclosure action
is dismissed and the borrower defaults after the original action
commenced, the SOL's application to the original default does
not prevent the lender from bringing a subsequent action based upon
the new default. The Bartram case was the first time that a Florida
appellate court expressly held that each default triggers a new
cause of action for foreclosure for SOL purposes.
In Bartram, U.S. Bank's initial foreclosure action was
involuntarily dismissed. Bartram's ex-wife, who owned a note
and mortgage on the same property pursuant to a divorce action,
brought a separate foreclosure action naming U.S. Bank, Bartram and
the homeowners association as defendants. Bartram filed a
cross-claim against the bank in his ex-wife's action, seeking
declaratory relief and to quiet title to the subject property.
Bartram argued that because more than five years had passed since
U.S. Bank had accelerated the full amount due under the mortgage,
the SOL barred U.S. Bank from now enforcing its rights under the
note and mortgage. Id. at *1. The trial court agreed and entered
judgment in favor of Bartram and against U.S. Bank.
The Fifth District Court of Appeals reversed the trial court,
holding that as long as Bartram defaulted after the commencement of
the first action, U.S. Bank was not barred from enforcing its
rights under the note and mortgage, even though five years had
passed since U.S. Bank's foreclosure action. The court cited
the Florida Supreme Court's previous opinion in Singleton v.
Greymar Associates, 882 So. 2d 1004 (Fla. 2004), that any
"subsequent and separate alleged default 'created a new
and independent right in the mortgagee to accelerate payment on the
note in a subsequent foreclosure action.'" Bartram at *6.
The Bartram court held that any new payment default less than five
years old presented a new cause of action, which was enforceable by
U.S. Bank and not subject to the SOL. Id.
The Future: Florida Supreme Court?
As a result of Beauvais and Bartram, a clear circuit split now
exists in the Florida appellate courts over the application of the
SOL to judicial foreclosure actions previously dismissed without
prejudice. Bartram is currently being briefed to the Florida
Supreme Court, and it is possible that the conflict will be
resolved by the end of 2015.
Until the Supreme Court clarifies this issue, servicers should be
mindful of the potential application of the SOL to foreclosure
actions, particularly in cases where an initial breach and
acceleration occurred more than five years ago. Servicers should
carefully evaluate this issue before voluntarily dismissing and
restarting any such cases. If they do not, they may find that the
proverbial "second bite of the apple" is not as
"sweet" as the first.
Republished with permission. This article first appeared in Law360 on January 9, 2015 .
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