Consumer Finance Litigation

Following the Florida Supreme Court's recent decision in Bartram v. U.S. Bank, N.A., 41 Fla. L. Weekly S493, 2016 WL 6538647 (Fla. Nov. 3, 2016), courts were left to interpret how Bartram would affect lenders' reliance on breach letters issued more than five years prior to a foreclosure proceeding initiated after the dismissal of a prior action. Florida's Second District Court of Appeal answered this very question in its opinion in Desylvester v. Bank of New York Mellon, et al., which indicates that lenders need not send a new breach letter in subsequent foreclosure actions filed after the dismissal of a prior foreclosure if the borrower has failed to cure the initial default.

In Desylvester, the Second District Court of Appeal affirmed the entry of final judgment of foreclosure in favor where the bank initiated a successive mortgage foreclosure action premised on the same date of default alleged in a prior foreclosure action, including "all subsequent payments due thereafter." Consistent with the Bartram decision, the Court's opinion confirms that, following the dismissal of a prior foreclosure action, a mortgagee is not barred from filing a subsequent action premised on a "separate and distinct" date of default--including a borrower's continuing state of default--under the same note and mortgage.

In November 2012, Bank of New York Mellon ("BONY") filed a mortgage foreclosure action against John Desylvester and his wife to foreclose on a promissory note and mortgage executed in 2005. In its complaint, BONY alleged that the borrowers defaulted on their monthly payments due on October 1, 2008 and "all subsequent payments" and accelerated the note by declaring the full amount due and owing. This first action was dismissed and, although the record on appeal was silent as to whether the dismissal was with or without prejudice, the Court did not consider the nature of the dismissal in rendering its opinion. Thereafter, in December 2014, BONY filed another foreclosure action under the same mortgage obligation. As in the first action, BONY alleged that the borrowers defaulted on their monthly payments due on October 1, 2008 and "all subsequent payments due thereafter." The borrowers asserted in their answer and affirmative defenses that any lawsuit premised on the October 1, 2008 default date would be barred under the five-year statute of limitations for mortgage foreclosure actions under Florida Statutes § 95.11(2)(c). At the bench trial, the witness for BONY's mortgage servicer, Select Portfolio Servicing, Inc., testified that the payment history entered into evidence demonstrated that the borrowers' last payment was applied to the payment due on September 1, 2008 and, accordingly, the loan has since been in a state of default and the default had not been cured. The trial court ultimately entered final judgment of foreclosure in favor of BONY.

In affirming the trial court's ruling, the Second District Court of Appeal acknowledged that the Bartram decision addresses this issue of whether the statute of limitations bars successive foreclosure actions from enforcing a mortgage lien based on a continuing state of default. The Court applied the rationale of Bartram to hold that "the dismissal of the Bank's earlier foreclosure action did not trigger the statute of limitations to bar the Bank's subsequent foreclosure action based on separate defaults." The Court's language here characterizes the borrowers' continuing state of default as separate defaults under which BONY may foreclose within the requisite five-year time period.

The Court further distinguished the instant case from Florida's Third District Court of Appeal decision in Collazo v. HSBC Bank USA, N.A., 41 Fla. L. Weekly D2315, 2016 WL 6246446 (Fla. 3d DCA Oct. 13, 2016), in pointing out that the plaintiff in Collazo pursued a foreclosure action premised on a singular default date outside the statute of limitations threshold. Although the Court acknowledged in the instant case that the October 1, 2008 initial default date does exceed the prescribed five-year time limitation, the borrowers' continuing state of default was sufficient to support BONY's foreclosure action.

The Court's decision here is significant because it logically applies the holding of Bartram to find that a date of default within the five-year limitations period need not be specifically plead in a foreclosure complaint if the plaintiff: (1) alleges the borrower's failure to pay on a specific date "and all subsequent payments due thereafter"; and (2) can establish at trial through fact witness testimony that the loan is in a continuing state of default. As such, the inclusion of the language "and all subsequent payments due thereafter" in a plaintiff's pleading affirmatively alleges that the borrowers have failed to cure an ongoing default. Indeed, this decision should alleviate the concern of mortgage servicers relying on older breach letters for loans that remain in default since the issuance of the original letter. It is also worth noting that the Desylvester opinion is silent as to whether the final judgment of foreclosure at issue included the full amount of the unpaid principal and interest or was limited the amount due and owing within five years of the second foreclosure action. A review of the publicly available final judgment appears to calculate the final judgment amount to include interest dating back to the original date of the breach rather than the five-year period prior to the re-filed foreclosure action. A further review of the briefs filed by both parties also indicates that the amount of the judgment was not primarily at issue. Indeed, the only discussion thereof from either party is limited to a brief mention of the Collazo court's deference to the trial court to recalculate the amount of principal and interest due by excluding payments due more than five years before the commencement of the second foreclosure suit. Accordingly, it would appear that the Second District Court of Appeal would uphold judgments for the full amount of the unpaid debt for foreclosures premised on continuing defaults.

Moreover, this opinion extends the holding the Court's decision in Bollettieri Resort Villas Condominium Ass'n v. Bank of New York Mellon, 198 So.3d 1140 (Fla. 2d DCA 2016), which similarly held that borrowers in a continuing state of default at the time of the filing of a foreclosure complaint was sufficient to satisfy the five-year statute of limitations, regardless of whether the initial breach date would be barred thereunder. The Bollettieri decision is currently under review in case No. SC16-1980 (Fla. Nov. 2, 2016).

A copy of the full opinion can be found here.