The mortgage industry scored a significant victory last week when the Florida Supreme Court released its decision in Bartram v. U.S. Bank, N.A. broadly approving of the approach taken by the Fifth District Court of Appeal and other courts in addressing the application of the statute of limitations in the context of an action for foreclosure.
The Supreme Court agreed that its reasoning in Singleton v. Greymar Associates, decided on res judicata grounds, extends to the application of the statute of limitations in mortgage foreclosure cases. Specifically, the Supreme Court concluded that the statute of limitations will not prevent a lender’s subsequent foreclosure action on a payment default occurring after the involuntary dismissal of the initial foreclosure action, so long as the subsequent action is filed within five (5) years of the post-dismissal default.
Numerous appellate and federal district courts laid the groundwork for the Supreme Court’s Bartram decision by taking a broad view of Singleton. For instance, in Deutsche Bank Trust Co. Americas v. Beauvais, a borrower challenged, on statute of limitations grounds, a second foreclosure action brought by the lender when the prior foreclosure action had been dismissed without prejudice due to the lender’s non-appearance at a case management conference.
The Third District held that “dismissal of a foreclosure action accelerating payment on one default does not bar a subsequent foreclosure action on a later default if the subsequent default occurred within five years of the subsequent action” because “despite acceleration of the balance due and the filing of an action to foreclose, the installment nature of a loan secured by such a mortgage continue[d] until a final judgment of foreclosure [was] entered and no action [was] necessary to reinstate it via a notice of ‘deceleration’ or otherwise.”
Similarly, the First District Court of Appeal held that an initial foreclosure action that sought acceleration which was dismissed with prejudice did not bar the bank from “instituting a new foreclosure action based on a different act or a new date of default not alleged in the dismissed action.”
In another case, after the bank voluntarily dismissed a prior foreclosure action without prejudice, the borrower sought to quiet title on the grounds that any recovery on the note was barred by the five-year statute of limitations. The borrower contended that the prior dismissal invalidated the note and thus barred any foreclosure suits for defaults on subsequent payments.
The United States District Court for the Southern District of Florida rejected the borrower’s argument, citing Singleton, and found that “[w]hile any claims relating to individual payment defaults that are now more than five years old may be subject to the statute of limitations, each payment default that is less than five years old … created a basis for a subsequent foreclosure and/or acceleration action.” As such, the court determined that the note and mortgage remained a valid and enforceable lien against the borrower’s property and did not, as a matter of law, constitute a cloud on title supporting a quiet title claim.
This analysis was embraced by the Middle District of Florida which agreed with the bank’s argument that there was a subsequent deceleration when the foreclosure action was dismissed for failure to prosecute, like was the case here, and, absent an effective acceleration, the statute of limitations would not expire until five years after the maturity date of the mortgage, when the final payment is due. The court reasoned that the analysis in Singleton regarding the application of the doctrine of res judicata was of “equal effect” to the statute of limitations issue.
Finally, in U.S. Bank National Association v. Bartram, the Fifth District Court of Appeal, relying on Singleton, held that 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, and 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 provided the subsequent foreclosure action on the subsequent defaults is brought within the limitations period.
Agreeing with the reasoning of the appellate courts and the federal district courts, the Florida Supreme Court joined the chorus in Bartram and expressly held that its analysis in Singleton “equally applies to the statute of limitations context.”
The court stated that its ruling stemmed from its prior reasoning that a “subsequent and separate alleged default created a new and independent right in the mortgagee to accelerate payment on the note in a subsequent foreclosure action.” Therefore, the court concluded, “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.”
Further, the court ruled that the statute of limitations would not continue to run after a dismissal, and thus the lender would not be barred by the statute of limitations from filing a successive foreclosure action premised on a “separate and distinct” default. Post-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.
Bartram leaves several significant questions unanswered. Is it possible that there could be a different rule for voluntary dismissals? How does Bartram apply to mortgages with automatic, as opposed to optional, acceleration clauses? How do lenders account for time-barred installment defaults in calculating amounts due and owing?
Putting these questions aside for another day, Bartram is a big win for mortgage lenders which appears to have ended the debate over “free houses” in Florida.
