León Cosgrove

Mortgage Industry Awaits Florida Supreme Court Bartram Decision on Foreclosure Statute of Limitations

By: Benjamin Weinberg

Currently pending before the Florida Supreme Court, in U.S. Bank National Association v. Bartram, is a question critical to the residential mortgage industry, certified by Florida’s Fifth District Court of Appeal as a “matter of great public importance.” The certified question is:

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?

In essenHome-for-sale-The-Registry-real-estatece, the Supreme Court is called upon to decide whether an action to foreclose a mortgage containing an optional acceleration clause is barred by Florida’s five-year statute of limitations, when an unsuccessful prior action to accelerate and foreclose the mortgage was filed in excess of five years earlier. The limitations period for an action to foreclose a mortgage begins to run, where the mortgage contains an optional acceleration clause, when the right to accelerate is exercised, typically by a demand in a foreclosure co
mplaint for the entire amount secured by the mortgage.

The Fifth District in Bartram, relying on Florida Supreme Court precedent in Singleton v. Greymar Associates, answered the certified question in the negative. The Fifth District concluded that an action to foreclose a mortgage is not barred by the statute of limitations simply because an unsuccessful action was filed in excess of five years earlier. The Court of Appeal held:

Based on Singleton, a default occurring after a failed foreclosure attempt creates a new cause of action for statute of limitations purposes, even where acceleration had been triggered and the first case was dismissed on its merits. Therefore, we conclude that a foreclosure action for default in payments occurring after the order of dismissal in the first foreclosure action is not barred by the statute of limitations. . . .

In Singleton, the Supreme Court expressly recognized “the unique nature of the mortgage obligation and the continuing obligations of the parties in that relationship.” It held that “successive foreclosure suits” are not barred by the doctrine of res judicata, “regardless of whether or not the mortgagee sought to accelerate payments on the note in the first suit,” because a “subsequent and separate alleged default create[s] a new and independent right of the mortgagee to accelerate payment on the note in a subsequent foreclosure action.” In other words, under Singleton, an action to accelerate and foreclose a mortgage, based on a different act or date of default not alleged in a dismissed prior action, creates a new and independent cause of action. The Fifth District therefore concluded, as to that new and independent cause of action, that a new and independent limitations period applies.

Following the Fifth District’s Opinion in Bartram, the Fourth and First Districts followed suit. Likewise relying on Singleton, the Fourth District, in Evergrene Partners, Inc. v. Citibank, N.A., affirmed a trial court’s dismissal with prejudice of a claim to cancel two mortgages, based on allegations that the statute of limitations applicable to an action to foreclose the mortgages had expired. The Fourth District held:

While a foreclosure action with an acceleration of the debt may bar a subsequent foreclosure action based on the same event of default, it does not bar subsequent actions and acceleration based upon different events of default. . . .Therefore, the statute of limitations has not run on all of the payments due pursuant to the note, and the mortgage is still enforceable based upon subsequent acts of default.

More recently, also relying on Singleton, the First District in Nationstar Mortg., LLC v. Brown reversed a trial court’s decision that an action to accelerate and foreclose a mortgage was barred by the statute of limitations, holding:

We find that appellant’s assertion of the right to accelerate was not irrevocably “exercised” within the meaning of cases defining accrual for foreclosure actions, when the right was merely asserted and then dismissed without prejudice.

 The sole appellate outlier on this issue is Deutsche Bank Trust Co. Americas v. Beauvais, an Opinion from the Third District Court of Appeal. The Third District, in Beauvais, held that the action to accelerate and foreclose at issue in that case was barred by the statute of limitations, because a prioraction was filed more than five years earlier. Cognizant that its Opinion was otherwise irreconcilable with Singleton, the Beauvais court concluded that the critical principle articulated in Singleton—that the mortgage obligations are continuing and a new default, based on a different act or date of default not alleged in a dismissed action, creates a new cause of action—applies only where the prior action was dismissed with prejudice. The Third District explained:

In Singleton, the dismissal with prejudice disposed not only of every issue actually adjudicated, but every justiciable issue as well. . . . This operated as an adjudication on the merits . . . Thus, in Singleton . . . the order of dismissal with prejudice served to adjudicate, in favor of the borrower, the merits of the lender’s claim and the borrower’s defenses, thus determining there was no valid default (and, by extension, no valid or effective acceleration of the debt). It is this merits determination that the Supreme Court addressed in Singleton, and is the issue which renders the Singleton analysis inapplicable to the instant case. . . .

The Third District’s reasoning in this regard is flawed in a number of respects. Most fundamentally, a dismissal with prejudice, such as the dismissal of the first action in Singleton (for failure to attend a case management conference) is not, as a matter of law, a finding of fact, much less a finding of fact (inverting the burden of proof) that all allegations/elements of a claim were disproven, i.e., “determining there was no valid default (and, by extension, no valid or effective acceleration of the debt).” The failure to prove a default (as a result of a dismissal for failure to attend a case management conference, or any other reason) is simply not an implicit counter-factual finding that the borrower made his or her monthly mortgage loan payments, as Beauvais would have it. A dismissal with prejudice is an “adjudication on the merits” solely for purposes of res judicata, its effect being no more than a bar to the same cause of action again. Indeed, the case cited by the Third District in support of its holding that “every justiciable issue” was disposed of, i.e., that there was an “implicit” finding of fact that there was no default and therefore no valid acceleration, makes clear “[t]his pronouncement is considered by us as controlling only when res adjudicata is the proper test.”  Hinchee v. Fisher, 93 So. 2d 351, 353 (Fla. 1957).

A Motion for Rehearing En Banc is pending in Beauvais. Oral arguments were heard on November 12, 2015.

Notably, federal courts across Florida, in considering the issue, have routinely and consistently agreed with the reasoning in Bartram, Evergrene and Nationstar. And in a number of cases, the federal courts have expressly rejected the opinion in Beauvais.

Florida’s Supreme Court heard oral arguments in Bartram on November 4, 2015. Their ruling is expected in April 2016.

The author gratefully acknowledges the contributions to this article of León Cosgrove paralegal Sam Vincent.

 

BenWeinberg_BW_webBenjamin Weinberg is a partner at León Cosgrove LLC who focuses his practice on financial services litigation and government enforcement actions involving a wide array of claims, including consumer protection statutes, deceptive and unfair trade practices, fraud, breach of fiduciary duty and foreclosure class actions. bweinberg@leoncosgrove.com