The Florida Supreme Court has decided a question of critical importance to the mortgage servicing industry: Whether, following involuntary dismissal of a foreclosure action, the mortgagee must commence a subsequent foreclosure action within five years of the initial acceleration of the debt or be barred by the statute of limitations.
The Court held in Bartram v. U.S. Bank National Association, as Trustee that the statute of limitations does not bar a subsequent foreclosure, provided that the foreclosure is based upon a default that occurred not more than five years prior to the subsequent foreclosure, without regard for when the loan originally was accelerated.
This issue engendered significant controversy, leading to a pitched battle between mortgagors and mortgagees that played out dramatically in the Third District Court of Appeal while Bartram was sub judice. In Deutsche Bank Trust Co. Americas v. Beauvais, the Third District Court of Appeal initially held that a second foreclosure not commenced within five years of initial acceleration was barred by the statute of limitations. The Third District Court of Appeal thereafter granted rehearing en banc, and then reversed itself, bringing unanimity to the District Courts of Appeal to have considered the issue.
In Bartram, the borrower defaulted on January 1, 2006, and the Trustee filed foreclosure on May 16, 2006. That foreclosure was dismissed by the trial court nearly five years later, on May 5, 2011, when the Trustee’s counsel failed to appear at a case management conference. Approximately one year later, the borrower sued the Trustee to quiet title asserting that the passage of more than five years since the acceleration of the first foreclosure meant that the Trustee’s right to foreclose was barred by the five-year statute of limitations. The trial court agreed, holding that the Trustee was time barred from foreclosing. The Fifth District Court of Appeal thereafter reversed.
On appeal, the Florida Supreme Court held that the statute of limitations did not bar the Trustee from pursuing a second foreclosure:
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.
The Court based its decision upon two factors. The first was the Court’s prior decision in Singleton v. Greymar. There, the Court had concluded, in the context of res judicata analysis, that each payment default under a note and mortgage gives rise to a separate right of action upon which the mortgagee may sue. The Bartram Court concluded that this was equally true in the statute of limitations context: “[W]ith each subsequent default, the statute of limitations runs from each new default, providing the mortgagee the right, but not the obligation, to accelerate all sums then due under the note and mortgage.”
The second factor was that the standard residential form mortgage provided that the borrower had the right to reinstate the loan following acceleration (by paying amounts past due and curing defaults) as well as to assert defenses to acceleration. Upon reinstatement, the loan obligations would be fully effective as if no default had occurred. Thus, “[i]n the absence of a final judgment in favor of the mortgagee, the mortgagor still had the right to . . . to cure the default and continue making monthly installment payments.”
The issuance of the Bartram decision removes the specter of foreclosure claims being time barred based upon nothing more than a prior involuntary dismissal. No matter when that initial acceleration occurred, the mortgagee’s right to foreclose remains alive with respect to payments that fell due no more than five years prior to the filing of the subsequent foreclosure.
As a footnote, the opinion states, “critical to our analysis is whether the foreclosure action was premised on a default occurring subsequent to the dismissal of the first foreclosure action.” Why this would matter outside the res judicata context is unclear. This issue may be the next battleground because a later default date could impact adversely the amount that a mortgagee may recover in foreclosure.
