Consumer Finance Litigation

The Florida Supreme Court today affirmed Bartram v. U.S. Bank National Association in a virtually unanimous decision. The decision resolves a long standing controversy regarding the effect (if any) of a prior unsuccessful foreclosure action with regards to Florida's statute of limitations for mortgage foreclosure. The Court's opinion in case number SC14-1265, which was joined by all the justices with the exception of Justice Lewis (who concurred in result only and authored a short opinion of his own) and contains several important holdings. The vast majority of the opinion is favorable to lenders and it ensures that borrowers in continuous default cannot avoid their mortgage obligation simply by virtue of a lender's prior unsuccessful attempt to foreclose.

The facts of the Bartram case are not dissimilar from those of numerous other cases in Florida. In 2006, Bartram's lender sought to foreclose a mortgage against Bartram and purported to accelerate the loan. Five years later, in 2011, the foreclosure action was dismissed when the lender's counsel failed to appear at a case management conference. One year later, Bartram sought a declaratory judgment to cancel the mortgage and quite title to the property in her favor, alleging the statute of limitations to foreclose her mortgage had irrevocably expired since more than five years had passed since her loan was allegedly accelerated by the 2006 foreclosure filing. The lower Court granted summary judgment in favor of Bartam and quieted title in her favor. Florida's Fifth District Court of Appeal would go on to reverse the lower court, relying on the Florida Supreme Court's decision in Singleton v. Greymar Associates, 882 So. 2d 1004 (Fla. 2004), which held that the acceleration of a debt in a mortgage foreclosure action did not place future installments at issue for purposes of res judicata. Extending the logic of Singleton to the statute of limitations context, the Fifth District Court of Appeal held that since future installments were not placed at issue in the prior dismissed foreclosure, the potential existed for future defaults and therefore for future non-time-barred foreclosure actions and thus title should not have been quieted of the mortgage lien.

In Bartram, the Florida Supreme Court was asked the following certified question:

DOES ACCELERATION OF PAYMENTS DUE UNDER A RESIDENTIAL NOTE AND MORTGAGE WITH A REINSTATEMENT PROVISION 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 PAYMENT DEFAULTS OCCURRING SUBSEQUENT TO DISMISSAL OF THE FIRST FORECLOSURE SUIT?

The Florida Supreme Court answered the certified question in the negative. In doing so, the Florida Supreme Court held that:

"When a mortgage foreclosure action is involuntarily dismissed pursuant to Rule 1.420(b), either with or without prejudice, the effect of the involuntary dismissal is revocation of the acceleration, which then reinstates the mortgagor's right to continue to make payments on the note and the right of the mortgagee, to seek acceleration and foreclosure based on the mortgagor's subsequent defaults. Accordingly, the statute of limitations does not continue to run on the amount due under the note and mortgage."

In a paragraph full of nuance, the Court expounded on its holdings stating that:

"The Fifth District determined that the involuntary dismissal was with prejudice but concluded that 'the distinction is not material for purposes' of the statute of limitations analysis. See Bartram, 140 So. 3d at 1013 n.1. We agree. While a dismissal without prejudice would allow a mortgagee to bring another foreclosure action premised on the same default as long as the action was brought within five years of the default per section 95.11(2)(c), critical to our analysis is whether the foreclosure action was premised on a default occurring subsequent to the dismissal of the first foreclosure action. As the federal district court in Dorta reasoned, 'if the mortgagee's foreclosure action is unsuccessful for whatever reason, the mortgagee still has the right to file subsequent foreclosure actions-and to seek acceleration of the entire debt-so long as they are based on separate defaults.'" (Florida Supreme Court's emphasis) (citations omitted).

There are a number of take-aways from this portion of the opinion. First, the Court has made it abundantly clear that, for purposes of the statute of limitations, whether the prior action was dismissed with or without prejudice has no bearing on whether a suit on a subsequent default is time barred. Previously, Florida's Third District Court of Appeal held that the distinction between dismissal with and without prejudice was a crucial distinction for purposes of a statute of limitations analysis, though the Third District Court of Appeal later retreated from this position on en banc rehearing. See Deutsche Bank Trust Co. Americas v. Beauvais, 188 So. 3d 938, 947 (Fla. 3d DCA 2016). Second, the Florida Supreme Court has made clear that only where the default is within five years and the prior dismissal was without prejudice, may suit be brought again on the same act of default. Third, where there is a new default post-dismissal, the lender may file a second subsequent foreclosure action and again elect to accelerate the entire debt so long as it does so within five years of the new default. Finally, the Court held there is no need for the lender to send a "de-acceleration" notice, and instead the mere dismissal of the action returned the parties to their pre-complaint, pre-acceleration status quo. This eliminates the majority of the controversy surrounding Florida's statute of limitations for mortgage foreclosure.

Another area of contention between borrowers and lenders has been whether or not the lender may seek to recover the full unpaid balance in a re-filed action or is limited to only amounts which became due within the last five years. Since the issues in this case related solely to a declaratory judgment and quiet title, there is only dicta on this issue and perhaps not a definitive holding- but the dicta is promising for lenders. The opinion is replete with language that suggests that so long as the lender has a non-time barred cause of action (i.e. a default subsequent to the dismissal of the prior foreclosure which is within five years of the new filing) the lender may accelerate the "entire amount due under the note and mortgage" in a re-filed action. For example, the Court stated that, "with each subsequent default, the statute of limitations runs from the date of each new default providing the mortgagee the right, but not the obligation, to accelerate all sums then due under the note and mortgage." This suggests that in a re-filed action based on a new default within the last five years, the lender may file a foreclosure in which it accelerates the whole debt due under the note- even those sums which became due over five years ago and were made the subject of a prior foreclosure action. However, the Florida Supreme Court did state that "[w]hether the dismissal of the initial foreclosure action by the court was with or without prejudice may be relevant to the mortgagee's ability to collect on past defaults." This suggests that those defaults encompassed by a prior foreclosure action that was dismissed with prejudice may not be recoverable in a subsequent foreclosure action by virtue of res judicata, even if defaults which occurred after the dismissal with prejudice can be recovered and used as the basis for a new non-time barred foreclosure.

The Court went on to analyze what impact the dismissal of a prior foreclosure action would have on the right to reinstate. The Court relied on paragraph 19 of the mortgage at issue, which is language found in many if not most industry standard uniform mortgage instruments, which provides that: "the right to have enforcement of this Security Instrument discontinued at any time prior to the earliest of . . . (c) entry of a judgment enforcing this Security Instrument," as long as Bartram "(a) pa[id] the Lender all sums which then would be due under this Security Instrument and Note as if no acceleration had occurred." (emphasis supplied) Relying upon this language, the Court held that until the entry of a final judgment, the borrower was not obligated to pay the accelerated amount - rejecting the borrower's argument that a prior election to accelerate placed all payments at issue. However, in an interesting extension of this logic, the Court held that, "[b]y the express terms of the reinstatement provision, if, in the month after the dismissal of the foreclosure action, Bartram began to make monthly payments on the note, the Bank could not have subsequently accelerated the entire note until there were future defaults."

Despite the specter of immediate post-dismissal reinstatement under paragraph 19 preventing re-filing (a rare event indeed), the Florida Supreme Court's long awaited Bartram opinion is a relief to the mortgage banking industry in Florida. It opens the door to re-file a large number of foreclosure actions against Florida's most troublesome borrowers - such as those who have been in perpetual state of default for over five years. While there had been some hope amongst borrower's counsel that these habitual non-payers could secure free homes through a tortured reading of Florida's statute of limitations, the Florida Supreme Court recognized that neither Florida law nor the interests of justice will permit such an absurd result.

A copy of the opinion can be found here.