Court clears way for renewed foreclosure efforts
Lenders who have had a foreclosure suit dismissed can bring new action if the borrower continues to default after the dismissal and the case is brought within five years of a nonpayment, according to the Florida Supreme Court.
At issue in the court’s November 3 ruling was the statute of limitations provision in Florida law that stipulates mortgage foreclosure must be bought within five years of a payment default.
Lawyers handling foreclosure cases agreed the ruling may lead to a rise in foreclosure cases, following several years of declining filings.
“The Florida Supreme Court’s decision finally brings some clarity to the issue and will allow judges who have been reluctant to rule on foreclosure cases to move forward with ones that have been pending for years,” said Michele Stocker of Greenberg Traurig’s Miami office. “Now everyone knows what is and what isn’t permissible.”
However, Margery Golant, a Boca Raton attorney who defends homeowners in foreclosures, said the ruling will add confusion to foreclosure cases and could reward bad behavior by some lenders.
“Plaintiff attorneys think they can file any case they want to file, it creates a very unsettled state of the law,” she said. “If you ask five lawyers in this state what it means, they’re all going to give you different answers. What I expect to see is a whole lot of new cases filed, cases whether or not the five years [statute of limitations] have passed.”
The case involved a couple who bought a home and later divorced. According to the terms of a prenuptial agreement, the husband bought out the wife’s interest in the home, taking out a $650,000 mortgage and giving the wife a second mortgage for an additional amount
The husband never paid the second mortgage and stopped making payments on the first mortgage after a few months as well as homeowner association assessments. The bank lender filed foreclosure and sought to accelerate payments. Five years later, the case was dismissed with prejudice under Civ. Proc. Rule 1.420(b) after the bank failed to attend a case management conference. The bank did not appeal the dismissal.
In subsequent litigation over the second mortgage between the husband, wife, homeowners association, and the bank, the husband filed a crossclaim against the bank seeking a declaratory judgment to cancel the first mortgage and quiet title to the property. The husband moved for summary judgment and the trial court granted his motion.
The bank filed for a rehearing and after that was denied, appealed to the Fifth District Court of Appeal. The Fifth DCA, citing the Florida Supreme Court’s ruling in Singleton v. Greymar Associates, 882 So. 2d 1004 (Fla. 2004), overturned the trial court and ruled the bank could bring another foreclosure action based on defaults subsequent to the dismissal of the first suit.
Res Judicata Issues
Singleton also dealt with a renewed foreclosure case but addressed res judicata issues. The Fifth DCA argued, and the Supreme Court agreed, that just as res judicata does not prevent a new foreclosure action for defaults that occurred after an earlier foreclosure was dismissed, so the statutory statute of limitation would not prevent a new filing on later defaults.
The homeowner argued that when the bank exercised and never revoked its option to accelerate payment in the original foreclosure case, that triggered the statute of limitations, including on future defaults.
Writing for the court, Justice Barbara Pariente noted that several DCA decisions, as well as federal district court opinions, have applied Singleton to statute of limitation cases.
“We 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. As the Fifth District concluded, ‘[i]f a “new and independent right to accelerate” exists in a res judicata analysis, there is no reason it would not also exist vis-à-vis a statute of limitations issue,’” Pariente wrote. “This conclusion follows from our 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.’ Singleton, 882 So. 2d at 1008. Therefore, 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.. . .
“[A]fter 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.”
Because the dismissal restored the mortgage to its original terms, the bank retained the right to seek foreclosure if the homeowner defaulted on any future payments, Pariente concluded, and the statute of limitations did not apply to the unsuccessful attempt to accelerate payments.
Chief Justice Jorge Labarga and Justices Peggy Quincy, Charles Canady, and James E.C. Perry concurred in the opinion. Justice Ricky Polston concurred in the result. Justice Fred Lewis concurred in the result, but wrote a separate opinion.
Lewis said while he agreed with the result, he was uneasy about applying a decision on res judicata to a case involving a statute of limitations provision in Florida laws, which are enacted by the Legislature.
Singleton, he wrote, held that a second foreclosure was “not necessarily” barred by res judicata.
“Given the procedural posture of this matter and the relatively sparse record before this Court, the decision today fails to address evidentiary concerns regarding how to determine the manner in which a mortgage may be reinstated following the dismissal of a foreclosure action, as well as whether a valid ‘subsequent and separate’ default occurred to give rise to a new cause of action,” Lewis wrote. “Instead of addressing these concerns, the Court flatly holds that the dismissal itself — for any reason — ‘decelerates’ the mortgage and restores the parties to their positions prior to the acceleration without authority for support.”
He also questioned extending a res judicata to a statutory matter.
“As long recognized in this State, res judicata is a doctrine of equity not to ‘be invoked where it would defeat the ends of justice,’” Lewis wrote. “However, ‘equity follows the law’; therefore, equitable principles are subordinate to statutes enacted by the Legislature, including the statute of limitations.. . . This untenable extension of an equitable, judicial doctrine into an area of law expressly governed by legislative action veers perilously close to violating the separation of powers.”
Golant said she agrees with Lewis’ opinion and is concerned the court majority overreached. She also predicted that foreclosure filings will dramatically rise, increasing the burden on the courts.
“What I expect to see is a whole lot of new cases filed, cases whether or not the five years have passed,” she said. “Plaintiff attorneys think they can file any case they want to file, it creates a very unsettled state of the law.. . . It’s already a scramble, the plaintiff counsels for the most part are saying, ‘Oh no, we have an open shot, now we can redemand any case and start over as long as we use a new default date.’”
The ruling doesn’t account for the practical realities of foreclosures and housing finance, Golant said. In many cases, the banks that made the original loans have sold off the mortgages, frequently at steep discounts, to hedge funds and other private investors and many times neither the bank nor the subsequent mortgage holders followed required rules, she said.
“Say, for example, I was a defendant and foreclosure was filed against me on January 1, 2010, and the case was dismissed on January 1, 2014. If I started sending my monthly payments after that, they would reject them or they would suspend them and not apply them to the loan,” Golant said. “Their position is you cannot make payments once the loan has been accelerated. If I were a borrower trying to pay now, they wouldn’t let me. Many judges don’t realize that’s the case.
“The truth is in many cases they [homeowners] have tried [to pay], there’s no uniformity here, but in many cases they’ve tried and their payments were rejected because that is the normal servicing protocol.”
The Consumer Financial Protection Bureau, created by the federal Dodd-Frank banking legislation, required the mortgage servicing industry to apply post-foreclosure payments to the mortgage debt as long as the remittance equals one full contractual payment. But Golant said many mortgage holders have failed to follow that regulation.
All of those factors are likely to create confusion in foreclosure cases, she said.
But Greenberg Traurig’s Stocker, co-chair of the firm’s national consumer financial services litigation practice and who represents banks in foreclosure matters, said the ruling brings clarity to foreclosure and will help courts work through existing backlogs by defining which loans are eligible for foreclosure actions.
“This case resolves an important issue for Florida, one of the states hardest hit by the foreclosure crisis,’’ she said. “The decision effectively removes the unfair notion that people can live in a home for free after an extended period of time. It could help clear out the backlog of cases that have been sitting around for a while.
“This ruling comes as no surprise, given the recent direction of other courts. Any other ruling would have created such havoc in Florida as it pertains to foreclosures and properties. I don’t think the Florida Supreme Court would have wanted to dip its toe into that.”
She said the decision may cause some spike in foreclosure filings “that had been the subject of prior foreclosures.. . . However, I do not think the increase will be that significant since the banks will continue to offer loss mitigation options to their customers. The banks’ efforts, coupled with the improving economy, will continue to limit the number of new filings.”
Former Supreme Court Justice Ken Bell, who prepared an amicus brief (cited favorably by Pariente in a footnote) on a similar Third DCA case for the Real Property, Probate, and Trust Law Section, said the key issue was the acceleration of the mortgage when the initial foreclosure was filed. Mortgage documents typically required the loan be accelerated and the total unpaid amount become due when the foreclosure is filed.
“Once I notify you of default and accelerate the note, then the normal statute of limitations starts to run,” said Bell, who handled foreclosures both in private practice and as a circuit judge. “There’s often the cases where mortgage foreclosures are dismissed for a variety of reasons. The only reason the lender accelerated was to be able to do the foreclosure on the entire mortgage.
“The complicated part in these cases is that acceleration and can you basically undo the acceleration. The argument for the other side is once you’ve accelerated. . . you can’t undo that. The argument for the mortgage company is ‘In order to foreclose I have to accelerate.’”
Bell said the decision is part of the effort by the courts to deal with the deluge of foreclosures resulting from the Great Recession.
“The courts were inundated with foreclosures and had to develop a whole new body of law,” he said.
Foreclosures spiked during the recent recession when the housing bubble deflated. Courts initially were overwhelmed by the cases. But then problems surfaced both by shortcuts that banks and mortgage companies took in processing and reselling the original loans and law firms’ struggles to keep up with skyrocketing caseloads, resulting in shoddy paperwork.
Many filed mortgages wound up in limbo with questionable paperwork, and because law firms hired to prosecute the foreclosure folded. Cases moldered in court files and many were dismissed for lack of action.
In 2013, the Legislature passed a foreclosure reform bill. It gave lenders a speedier path to foreclose a property, as long as homeowners didn’t object within a certain period, but also set higher paperwork standards for foreclosure cases. When it went into effect, the number of foreclosure filings dropped dramatically in the state.
For the several months before the law went into effect, foreclosures ranged from 14,000 to more than 18,000 a month. Since then, they’ve been less than half that. For last August, foreclosure filings were less than 5,400.
The Supreme Court’s opinion came in three consolidated cases resulting from the foreclosures, with the lead case being Bartram v. U.S. Bank National Association, etc. et al., case no. SC14-1265.