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Fla. Supreme Court Holds Each Default Triggers New SOL, Manner of Dismissal of Prior Foreclosure Not Material to SOL Analysis

State Supreme Court building in Tallahassee, Florida.

The Supreme Court of Florida today issued its long-awaited ruling in Bartram v. U.S. Bank, involving when Florida’s five-year mortgage foreclosure statute of limitations is triggered.

The Court held that:

  1. “[W]ith 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.”
  1. A mortgagee is “not precluded by the statute of limitations from filing a subsequent foreclosure action based on payment defaults occurring subsequent to the dismissal of the first foreclosure action, as long as the alleged subsequent default occurred within five years of the subsequent foreclosure action.”
  1. “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.”

A copy of the opinion is available at:  Link to Opinion.

The borrower’s mortgage loan was evidenced in part by a standard residential form mortgage, which required the mortgagee “to give the borrower notice of any default and an opportunity to cure before the mortgagee could proceed against the secured property in a judicial foreclosure action.”  The standard residential form mortgage “also granted the borrower a right to reinstate the note and Mortgage after acceleration if certain conditions were met, including paying the mortgagee all past defaults and other related expenses that would be due ‘as if no acceleration had occurred.’”

The borrower stopped making payments on his mortgage loan, a mortgage foreclosure action ensued, and the mortgage foreclosure action was subsequently dismissed.  The trial court noted that the involuntary dismissal “was an adjudication on the merits and the case has been closed.” The mortgagee did not appeal the dismissal.

The borrower’s payment defaults occurred both before and after the foreclosure action was brought and subsequently dismissed.

Subsequently, the borrower’s ex-wife filed a separate foreclosure action.  The borrower cross-claimed against the mortgagee, seeking a declaratory judgment that the mortgage was canceled and to quiet title to the property in his favor and against the mortgagee.  The borrower argued that Florida’s five-year statute of limitations barred the mortgagee from bringing another foreclosure action.

The trial court agreed with the borrower.  The trial court held that the mortgagee could not enforce its rights under the note or mortgage that were the subject of the mortgagee’s prior foreclosure action, cancelled the note and mortgage, and released the mortgagee’s lien.

The mortgagee appealed.  The appellate court reversed the trial court’s ruling, remanded the case to the trial court, and certified the question of the application of Florida’s five-year mortgage foreclosure statute of limitations to the Supreme Court of Florida.

The Supreme Court of Florida noted that it previously held in Singleton v. Greymar Associates, 882 So. 2d 1004 (Fla. 2004), that “when a second and separate action for foreclosure is sought for a default that involves a separate period of default from the one alleged in the first action, the case is not necessarily barred by res judicata,” and that an “acceleration and foreclosure predicated upon subsequent and different defaults present a separate and distinct issue than a foreclosure action and acceleration based on the same default at issue in the first foreclosure action.”

Here, after examining a number of the rulings entered in the wake of Singleton, the Court noted that “[w]e agree with the reasoning of both our appellate courts and the federal district courts that our analysis in Singleton equally applies to the statute of limitations context present in this case.”

Therefore, the Supreme Court of Florida held, “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.”

Continuing with its holding, the Court added:

the statute of limitations on the balance under the note and mortgage would not continue to run after an involuntary dismissal, and thus the mortgagee would not be barred by the statute of limitations from filing a successive foreclosure action premised on a “separate and distinct” default. Rather, after the dismissal, the parties are simply placed back in the same contractual relationship as before, where the residential mortgage remained an installment loan, and the acceleration of the residential mortgage declared in the unsuccessful foreclosure action is revoked.

The Supreme Court of Florida explained that “[a]bsent a contrary provision in the residential note and mortgage, dismissal of the foreclosure action against the mortgagor has the effect of returning the parties to their pre-foreclosure complaint status, where the mortgage remains an installment loan and the mortgagor has the right to continue to make installment payments without being obligated to pay the entire amount due under the note and mortgage.”

The Court also examined whether the dismissal of the prior foreclosure action with or without prejudice had any significance.  The Court held that the distinction was not material to the statute of limitations analysis.

The Supreme Court of Florida clarified 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. However, it is entirely consistent with, and follows from, our reasoning in Singleton that each subsequent default accruing after the dismissal of an earlier foreclosure action creates a new cause of action, regardless of whether that dismissal was entered with or without prejudice.”

The Court found significant that the standard mortgage reinstatement provision “granted the mortgagor, even after acceleration, the continuing right to reinstate the Mortgage and note by paying only the amounts past due as if no acceleration had occurred.”  Therefore, the Court held, “[i]n the absence of a final judgment in favor of the mortgagee, the mortgagor still had the right under paragraph 19 of the Mortgage, the reinstatement provision, to cure the default and to continue making monthly installment payments.”

Here, the Supreme Court of Florida explained, “[b]y the express terms of the reinstatement provision, if, in the month after the dismissal of the foreclosure action, [the borrower] began to make monthly payments on the note, the [mortgagee] could not have subsequently accelerated the entire note until there were future defaults. Once there were future defaults, however, the [mortgagee] had the right to file a subsequent foreclosure action — and to seek acceleration of all sums due under the note — so long as the foreclosure action was based on a subsequent default, and the statute of limitations had not run on that particular default.”

Accordingly, the Supreme Court of Florida indicated its approval of the appellate court’s ruling in favor of the mortgagee, and answered the certified question in the negative.

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