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State Statutes of Limitation: A Close Look at Florida

Posted By USFN, Friday, January 29, 2016
Updated: Friday, February 19, 2016

January 29, 2016

 

by Adam M. Silver
McCalla Raymer, LLC
USFN Member (Georgia)
Vice Chair, USFN Legal Issues Committee

On November 4, 2015 the Florida Supreme Court heard oral arguments in Bartram v. U.S. Bank, N.A. — an important case addressing that state’s statute of limitations for mortgage foreclosure. At issue is whether acceleration of payments due under a note and mortgage in a foreclosure action that was dismissed triggers application of the statute of limitations (SOL). A determination that the SOL irrevocably accrues upon the initial acceleration could prevent a subsequent foreclosure action by the mortgagee.

The impact of the pending decision could affect “an untold number of contractual agreements between borrowers and lenders.” [Amicus Brief of MBA, 1-2 (Feb. 2, 2015)]. Although it may sound unusual that there would even be an issue with loans in default for more than five years, in Florida today this is not an uncommon situation. Delays have plagued Florida’s foreclosures for several years, starting in 2007 as the economic recession led to more loans going into default and foreclosure. The state’s court system was ill-equipped to handle the increased volume of foreclosures and cases that lingered for years. Additionally, unscrupulous “foreclosure defense” firms filed bogus pleadings and used other tactics to delay foreclosures.

On the lender side, various loss mitigation initiatives extended cases or caused them to be dismissed. Further, lenders relied on existing case law to determine mortgage servicing and default strategies. At times, this involved dismissing foreclosure cases (or allowing them to be dismissed) for loss mitigation or other compelling reasons with the knowledge that a separate foreclosure action could be filed if needed in the future, based on a subsequent default.

The Florida Supreme Court could also create precedent affecting interpretation of the uniform mortgage agreement language with its decision in Bartram. Both sides to the lawsuit contend that the relatively modern (to Florida case law) language of the now almost universally-used uniform mortgage agreement is of critical importance to their positions. More specifically, each side relies on paragraph nineteen, providing the mortgagor a right to reinstate the loan at any time prior to judgment.

Factual Background
In 2005, Lewis Bartram (Bartram) borrowed $650,000 from U.S. Bank’s predecessor, secured by a mortgage on his property located in The Plantation at Ponte Vedra. Bartram and his wife Patricia subsequently divorced. The divorce order resulted in Bartram executing a note and second mortgage on the same property to his wife. The Bank initiated a judicial foreclosure action against Bartram in May 2006 for failing to make payments to the Bank as of January 2006. With the Bank’s foreclosure action pending, in April 2011, Patricia filed a separate suit to foreclose her mortgage, naming the Bank as a defendant. In May 2011, the trial court dismissed the Bank’s 2006 foreclosure action for failure to appear at a case management conference.

One year after Patricia filed her foreclosure action, Bartram filed a crossclaim against the Bank seeking declaratory judgment, asserting: (1) the five-year mortgage foreclosure SOL had run based on the Bank’s dismissed foreclosure case and, therefore, the Bank could no longer enforce its obligations under the note and mortgage; and (2) that as a result, Bartram should have title quieted in his favor. Bartram filed a motion for summary judgment on his crossclaim, which the Bank contested. The trial court ruled in favor of Bartram on both counts and entered summary final judgment against the Bank. The Bank filed a motion for rehearing, which was denied, and the Bank appealed to the Fifth District Court of Appeals for the State of Florida (5th DCA).

The 5th DCA determined that the seminal decision of Singleton v. Greymar Associates, 882 So. 2d 1004 (Fla. 2004), applied to this case. Under similar facts, in Singleton, the Florida Supreme Court determined whether the initial attempted acceleration and foreclosure action that was dismissed barred relief in a second foreclosure suit based on res judicata. The Singleton court held that the dismissal of the first suit served as a denial of the acceleration and foreclosure relief sought, effectively placing “[the parties] back in the same contractual relationship with the same continuing obligations.” Id. at 1007. Accordingly, “each 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.” Id. at 1008. The court concluded that to hold otherwise would be to unjustly enrich the mortgagor. Id. at 1007.

Accordingly, the 5th DCA in Bartram reasoned that if the Singleton analysis of acceleration and continuing obligations applies in the res judicata context, it applies equally so in the statute of limitations context. See generally U.S. Bank, N.A. v. Bartram, 140 So. 3d 1007 (Fla. 5th DCA 2014). In ruling that a subsequent foreclosure was not barred based on a prior attempted acceleration and foreclosure action that was dismissed, the 5th DCA reversed and remanded the trial court’s ruling, and certified the following question to the Florida Supreme Court as a matter of great public importance:

Does acceleration of payments due under a note and mortgage in a foreclosure action that was dismissed pursuant to Rule 1.420(b), Florida Rules of Civil Procedure, trigger application of the statute of limitations to prevent a subsequent foreclosure action by the mortgagee based on all payment defaults occurring subsequent to dismissal of the first foreclosure suit?

Does Singleton apply?

At oral arguments, the Florida Supreme Court demonstrated a thorough understanding of the issues and asked thoughtful and penetrating questions. The Court’s questions ensured that both sides addressed the most important legal issues.

Bartram asserted that Singleton should not apply because it merely “deals with a bundle of judicial rules that you [the Court] administer” [referring to res judicata, while] “statutes of limitations are legislative processes.”

U.S. Bank rejected the notion that Singleton is a res judicata case, contending that “Singleton is better considered to be an acceleration case. When was there an acceleration? What was the effect? That’s why Singleton is so important here.”

The Court pressed U.S. Bank on this point. U.S. Bank said that the Singleton court did not “expressly” state that it was ruling on acceleration, yet “that’s what it was doing … [t]hat is what it had to do.” As U.S. Bank further explains, “[i]n the course of reaching its conclusion in Singleton, the Court set forth … holdings that control the outcome of this case.” [Respondent’s Answer Brief, 8 (Jan. 22, 2015)].

When is Florida’s SOL for mortgage foreclosure triggered?

The relevant statutes are: Fla. Stat. § 95.11(2)(b), which states that an action to foreclose a mortgage shall be commenced within five years; and Fla. Stat. § 95.031(1), which states that a cause of action accrues when the last element constituting the cause of action occurs.

Bartram raised the common precept that the SOL starts to run upon acceleration. Further, “acceleration is effective when notice is given to the borrower.” Upon U.S. Bank’s notice to Bartram in the first action, all payments were immediately due and payable. The loan remained in that accelerated state for five years, Bartram claimed, at which time the SOL forever barred the Bank’s right to foreclose the mortgage.

U.S. Bank offered a compelling argument on this important issue. Essentially, the express language of paragraph nineteen of the mortgage proves that there was no effective acceleration because there was no final judgment in this case. The mortgage provided Bartram a right to reinstate the loan at any time up until final judgment. Thus, without a final judgment, acceleration could not be completed because the entire indebtedness never became due.

Was the loan ever reinstated?

Bartram maintained that his contractual right to reinstate was never exercised, so the existence of that right is irrelevant. Further, because only the entire “accelerated” loan balance remained due even after the case was dismissed, Bartram could never have subsequently defaulted on a non-existent periodic payment.

Once a loan is accelerated, Bartram contended that the language of the uniform mortgage agreement does not allow a mortgagee to unilaterally reinstate the loan. Paragraph nineteen of the mortgage provides the borrower a right to reinstate yet is silent regarding the lender’s right to reinstate the terms of the loan. Without that language, the lender cannot unilaterally reinstate. [Petitioner’s Initial Brief, 35 (Nov. 7, 2014)]. Further, even if U.S. Bank could reinstate, said Bartram, it must have taken an affirmative action to do so.

Must a mortgagee take affirmative action to reinstate a loan?

At this point, Bartram asserted his main argument, that “the vast majority of states” require that the mortgagee take some affirmative action communicated to the borrower in order to reinstate the loan. The affirmative action requirement ensures that the lender communicates the reinstatement to the mortgagor. Otherwise, the mortgagor would not know that the accelerated amount is no longer due. Therefore, Bartram argued, the Florida Supreme Court should apply the same rule as the courts in other states.

U.S. Bank’s response is that “[o]ne need not ‘decelerate’ that which has not been accelerated.” [Respondent’s Answer Brief, 22]. Without a final judgment, the acceleration was not effective. Affirmative action is not needed to inform the borrower that the loan is reinstated because the dismissal of the case serves that purpose. U.S. Bank adds that the mortgage provides the lender with the unilateral right to accelerate the debt. Inherent in that right is the right to unilaterally cease such acceleration. Id. at 23.

Regarding other state decisions cited by Bartram as requiring affirmative action to reinstate, U.S. Bank confirmed to the Court that those decisions are “only persuasive if you look at those opinions and decide that there’s something persuasive about them.” U.S. Bank notes that many of the decisions cited come from nonjudicial trustee foreclosure states, whose legal framework for foreclosing is entirely different than that of Florida.

The Court acknowledged that Florida would be in the minority of jurisdictions in ruling that a mortgagee is not required to take affirmative action to reinstate the mortgage. The Court further explained that on this issue, the “appellate courts have taken signal from Singleton.” Indeed, U.S. Bank points out that Singleton has been followed in the SOL context by at least sixteen other Florida decisions from April 2014 through December 2014. [Respondent’s Answer Brief, 11-12].

What is the effect of dismissal with prejudice vs. dismissal without prejudice in this case?

The effect of dismissal with prejudice versus without prejudice may be significant to the Court for two reasons. First, the parties disagree as to how the Bartram trial court actually dismissed the case. While Bartram claimed that the trial court dismissed the case without prejudice, U.S. Bank pointed to evidence to the contrary.

Secondly, in Deutsche Bank Trust Co. Americas v. Beauvais, 2014 WL 7156961 (Fla. 3d DCA 2014), under similar facts to Bartram and Singleton, that appellate court ruled (based entirely on the trial court’s dismissal being without prejudice) that the SOL barred the subsequent foreclosure action. However, despite several subsequent decisions on point, no federal or state court has followed Beauvais.

For these reasons, the Court asked U.S. Bank what the effect of a dismissal without prejudice would be. The Court then posited, would the lender have “effectively given the borrower another lease on life by letting them continue to pay on the mortgage?” U.S. Bank concurred.

During the oral arguments, U.S. Bank repeatedly stated that the type of dismissal is immaterial. U.S. Bank elaborated, “there is no difference because if there was a dismissal, there was no effective acceleration and therefore the obligation to make installment payments continued.”

The Decision is Pending
It remains to be seen whether the Florida Supreme Court’s holding in Bartram will determine the outcomes of the other two appellate cases waiting in the wings, Beauvais and Evergrene Partners, Inc. v. Citibank, N.A., 143 So. 3d 954 (Fla. 4th DCA 2014). If the Court determines that the type of dismissal should not affect the outcome of the case, then any significant factual and procedural differences among the three cases are removed, such that the Bartram holding would likely apply to the other cases — thus restoring certainty to lenders and mortgagors alike regarding the effect of Florida’s statute of limitations on a lender’s right to foreclose.

Editor’s Note: On February 12, 2015 USFN filed an amicus brief with the Florida Supreme Court in the Bartram case that is discussed in the article presented here; that brief was prepared by the author’s firm.

Copyright © 2016 USFN. All rights reserved.
Winter 2016 USFN Report

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