We received great calls and emails from fantastic lawyers in Florida regarding Andrew Bernhard‘s article in the Florida Bar Journal, “Deceleration: Restarting the Expired Statute of Limitations in Mortgage Foreclosures.” See the article here:
The debate continues. If you wish to discuss, please contact Andrew J. Bernhard, Esq., at Bernhard Law Firm, email@example.com, 786-871-3349.
The Borrower Is Entitled to a Fact-Finding on Acceleration in State Court
For the borrowers, one lawyer submitted Spencer v. EMC Mortgage Corp., 97 So. 3d 257, 260 (Fla. 3d DCA 2012), a Florida state court appellate decision reversing a trial court’s order granting foreclosure in favor of the lender despite the borrower’s defense that the statute of limitations barred the action. The Spencer court’s discussion provides new ammunition for borrowers seeking to prohibit enforcement of mortgages, holding: “[Borrower] is also correct that enforcement of the note and mortgage was likely barred by the five-year statute of limitations.” By way of background, in Spencer, the lender had commenced a first foreclosure proceeding against Spencer in early 1998 on a note with a September 2008 maturity date, but the the trial court dismissed (involuntary) the foreclosure in November 2002 for want of prosecution (“FWOP”). Later in November 2002, the lender re-filed, alleging in its complaint that the full unpaid principal amount was due by virtue of a default in July 1997 and that the holder then accelerated payment of the entire amount due and owing on the Note and Mortgage, and the borrower raised the statute of limitations as an affirmative defense in her answer. The foreclosure action languished until May 2009, when the lender filed a motion for summary judgment, which the trial court granted in August 2010. The Spencer court found that it appeared on the face of the existing record that acceleration likely occurred over five years before the lender filed its second lawsuit in November 2002 (i.e. acceleration occurred before November 1997). In discussion, the Spencer court stated that the borrower would be entitled to a fact-finding regarding the date of acceleration, adding that it would be extremely difficult for the foreclosing lender, who was merely the successor of the loan originator and initial accelerator, to introduce any evidence that acceleration somehow occurred within the statute of limitations.
Thus, in state court, particularly in Miami (the Third District), a borrower defending a pending foreclosure action should at least be entitled to a fact-finding on acceleration (and deceleration), and enforcement of the statute of limitations if acceleration occurred more than five years before a lender filed the pending foreclosure action.
Dismissal Somehow Decelerates Accelerated Mortgages in Federal Court
For the lenders, one lawyer submitted Torres v. Countrywide Home Loans, Inc., 14-CV-20759 (S.D. Fla. July 28, 2014), a Florida federal trial court decision dismissing a borrower’s quiet title class action requesting that the trial court extinguish his mortgage declare it unenforceable under the statute of limitations. The Torres court’s discussion provides more ammunition for lenders seeking to revive stale mortgage foreclosures, holding: “[the statute of limitations] does not apply when the note is secured by a mortgage on the subject property and the party exercising the right to accelerate brings a cause of action to enforce the note or foreclose on the mortgage which is dismissed for any reason.” By way of background, in Torres, the lender had commenced a first foreclosure proceeding against Torres in March 2009 on a note with a June 2034 maturity date, but the the trial court dismissed (involuntary) the foreclosure in May 2012 (the Torres court did not address the cause of the dismissal). The Torres court found that Torres had defaulted in July 2008, and the lender had accelerated the note on July 1, 2008. Later, in January 2014 (over 5 years after acceleration), the borrower filed the action to quiet title and declare the note and mortgage as unenforceable under the 5-year statute of limitations, arguing that the limitations period began to run when the lender accelerated in July 2008 and expired in July 2013. In an unprecedented expansion of Florida law, the Torres court held that the statute of limitations does not apply where a lender accelerates, sues for foreclosure, and has the foreclosure dismissed for any reason. As legal support for this expansion of law, the Torres court cites its own 2014 decisions as precedent, along with a 2000 Fourth District decision that never addresses the statute of limitations. The Torres court stated that the statute of limitations does not apply after acceleration and dismissal because “the mortgage is still enforceable upon subsequent instances of default. . . To find otherwise would disincentivize the [borrower] from making future timely payments on the note.” These federal decisions illustrate a misunderstanding of the concept of contractual acceleration on the whole, namely, that there can be no further defaults after acceleration, unless the lender and borrower reinstate the original installment contract terms or modify to create a new installment contract. After acceleration, there are no further opportunities for a borrower to pay other than by payment of the entire accelerated lump-sum balance. Thus, there are no future timely payments for the court to disincentivize by enforcement of the statute of limitations.
Nevertheless, while these federal decisions continue to compile, a lender in the Southern District (Miami) can eternally enforce accelerated mortgages so long as it has filed a suit and been dismissed for any reason. Rather than incentivizing borrowers to pay accelerated and time-barred mortgages, this rule incentivizes every time-barred lender to simply file a foreclosure action and immediately dismiss to restart the statute of limitations, as the statute of limitations “does not apply when . . . the party exercising the right to accelerate brings a cause of action to enforce the note or foreclose on the mortgage which is dismissed for any reason.” Expect a line at the courthouse steps.
Broader Questions in the Confusion
As seen above, the courts are splitting on application of the statute of limitations for mortgage foreclosure. The result is not surprising, though it compounds the growing misconceptions of the function of and law on installment contracts, with effects outside of the mortgage realm. How do merchants feel about the application of these decisions to installment contracts for goods coming into the Port of Miami and Port Everglades? Curious if a seller can eternally escape the statute of limitations after acceleration by filing a lawsuit and dismissing.
The above decisions also raise basic procedural and end-goal questions. Why would a lender not simply send a notice of deceleration? Why would a lender not simply file the lawsuit and carry it through to its expected conclusion (a judgment of breach)? What other contractual terms can be affected by lawsuit filings and dismissals?
Maybe we’re not worried in the Southern District because South American dollars are floating the South Florida economy, but elsewhere in Florida?
Mortgage Foreclosure Used to Be Simple
Broad-brush interpretations of Singleton v. Greymar and progeny pervert what should be a very basic system. Rather than incentivizing borrowers to start paying after their lenders have accelerated the note, sued them, and never offered a true reinstatement (a pipe dream), the federal courts are incentivizing eternal litigation and lackadaisical lender behavior while rendering these properties eternally unmarketable and these property owners eternally wary consumers. Not a great result. Although lenders may enjoy their ability to endlessly sue on these mortgages, these court decisions will inevitably affect new lending business and general post-recession economic recovery.
Rules of Contract vs. Rules of Civil Procedure
The Torres court has opted to not separate the rules of contract from the rules of civil procedure. In Torres, the lender contractually accelerated independent of any foreclosure action (rather than a mere notice of intent). That acceleration prohibited any further defaults (no more installments to default upon) unless the lender expressly agreed to reinstate the installment contract or modify and instate new installment terms. In these circumstances, nothing short of a court order specifically mandating that the parties decelerate and reinstate the installment contract terms, or the parties stipulation/agreement to that effect, should have been able to undo the contractual act of acceleration. Perhaps this is no longer the rule of contract.
Under the rule of contract, the act of filing one or a hundred lawsuits should have no effect on the contractual acceleration, or anything else done under the contract, unless the contract expressly stated as much. The courts should not allow their confusions about civil procedure and limitations periods to corrupt lenders’ and Floridians’ independent contractual agreements, and rights and obligations thereunder. The courts should be protecting the lenders’ and Floridians’ right to contract and to have their contractual terms upheld, which applies far beyond the residential mortgage lending market. Perhaps the borrowers’ (or merchants’ or investors’) next line of attack should be a constitutional one.
The Questions We Should Be Asking in these Lawsuits
What is surprising is that the conversation has not centered on these questions:
(1) if a lender only notices its intent to accelerate, only confirms its acceleration through allegations in a foreclosure complaint, and later voluntarily dismisses, is the voluntary dismissal alone sufficient to undue the contractual acceleration triggered by the statement in the complaint and all of its evidentiary value? (and if the statement in the complaint has evidentiary value, it that value of sufficient weight to surpass the preponderance standard?)
(2) if a lender only notices its intent to accelerate, only confirms its acceleration through allegations in a foreclosure complaint, and later the Court involuntarily dismisses on grounds other than an adjudication on the merits (i.e. FWOP or failure to appear at case management), is the involuntary dismissal an adjudication that the acceleration alleged did not occur? Does that adjudication return the contract parties back to status quo ante, reinstating the installment contract?
(3) If these dismissals do reinstate the installment contract terms, do lenders have to begin sending out monthly statements to avoid their own breach, and new acceleration notices to perform conditions precedent?
(4) If these dismissals do reinstate the installment contract terms, what are those terms? Is the maturity date simply moved up the number of months between acceleration and dismissal? What is the new principal balance? Are the monthly payments the same? How are balloon notes affected? Given that this won’t be written down anywhere, how will the lenders and consumers know these terms? If they don’t know these terms, how will they know when a breach has actually occurred?
(5) Should quiet title actions be granted on these cases, not because the statute of limitations has run (assuming it has), but because the statute of repose has not run? Is the function of the statute of repose to provide a secondary protection to lien holders in these very circumstances (i.e. limitations period has run on enforcement of the lien in court, but the debtor must pay the lien up to the 20-year repose period if he/she wishes to obtain marketable title and actually sell the property free of encumbrance, assuming no buyers for the encumbered property)?
The answers to these pertinent questions remain to be seen.