Consumer Finance Litigation

Florida's Third District Court of Appeal issued an opinion[1] today that provides further guidance in determining the date of accrual of a cause of action in a subsequent mortgage foreclosure action and addresses the nature of contractual conditions precedent to acceleration of debt. In the case of Richard Hubert Snow, et al. vs. Wells Fargo Bank, N.A., as trustee, 3D14-1547, the court affirmed the final judgment of foreclosure and rejected appellants' argument that the action was barred by the statute of limitations. Burr & Forman LLP was appellate counsel for the appellee, Wells Fargo Bank, N.A., as trustee. In Snow, the borrowers executed a mortgage containing an optional acceleration clause. The mortgage also included a provision requiring Wells Fargo to provide written notice to the borrowers of any default, the amount of the default, and the right to cure such default, as a condition precedent to acceleration (paragraph 22 of the mortgage). On December 6, 2007, Wells Fargo sent the Snows a notice of default that contained language required by paragraph 22 of the mortgage as a condition precedent to acceleration. The notice of default specifically stated that the Snows had thirty-five days from the date of the letter (until January 10, 2008) to cure the default, otherwise "we shall accelerate the entire sum of both principal and interest due and payable." Wells Fargo then filed an action to foreclose the mortgage on March 12, 2008. That action was voluntarily dismissed, without prejudice, on June 28, 2011. Thereafter, on March 5, 2013, Wells Fargo filed a second foreclosure action against the Snows. The Snows argued at trial, and on appeal, that the second foreclosure action was barred by the five-year statute of limitations period because that period began to run on January 10, 2008, when the thirty-five day period to cure the default expired. In short, the Snows argued that the notice of default was effectively a self-executing acceleration letter that acted to automatically accelerate the debt when the Snows did not cure the default by the stated deadline. The Snow opinion emphasizes several important points. First, the court held that where an acceleration clause is optional, "it is not self-executing, but requires the lender to exercise the option and to give notice to the borrower that it has done so." Id. at 6. The court further explained that the notice of acceleration should "appraise the maker of the fact that the option to accelerate has been exercised" and "express in clear and unequivocal language that it [i]s exercising its option." Id. at 7 and 9. Specifically, the court ruled that the notice of default letter here did not constitute an acceleration of the debt. "Rather, the December 7^th letter served as a notice of default, notice of the Snows' right to cure, and notice that Wells Fargo intended, at some unspecified future date, to accelerate the debt if the Snows failed to cure the default as set forth in the letter." Id. Second, the court points out that the notice of default is itself a contractual condition precedent to acceleration. Indeed, "under the terms of the mortgage, a tender by the Snows of the default amount would cure the default and prevent Wells Fargo from accelerating the debt." Id. at 8. And third, the court rejected the Snows' contention that the phrase "we shall accelerate" converted the optional acceleration provision into a self-executing acceleration remedy triggered by the Snows' failure to cure the default by January 10, 2008. The December 7^th letter was nothing more than a statement that Wells Fargo "intended" to exercise its option to accelerate at some unspecified date in the future, should the Snows fail to cure the default. Id. at 9. The Third District Court of Appeal ruled that the five-year statute of limitations period did not begin to run until the first lawsuit was filed, on March 12, 2008, which was the first expression in "clear and unequivocal language that [Wells Fargo] was exercising its option and accelerating the debt." Id. Consequently, the five-year period would have expired on March 12, 2013 had Wells Fargo not filed the second action seven days earlier. Implicit in this opinion are two other noteworthy points. First, the court expressed no concern with the fact that the second foreclosure action relied, as a condition precedent to acceleration, on the original notice of default sent more than five years earlier. The court seemed to acknowledge that, under the terms of the mortgage, once the condition precedent is satisfied, acceleration could occur at some unspecified date in the future, without limitation other than the maturity date. And second, the court reaffirmed its position in Deutsche Bank Trust Co. Americas v. Beauvais, in which the court rejected the idea that a voluntary dismissal, without prejudice, could act to render an earlier acceleration ineffectual. [1] The opinion filed on January 14, 2015 is not final until disposition of a timely filed motion for rehearing. To read the Snow opinion, click here. For additional information, click to read "Statute of Limitations Shake Up: Florida's Third District Court of Appeal Certifies Inter-District Conflict."